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Exhibit 10.13    
  

EXECUTION COPY  

THIRD WAIVER AND AMENDMENT  

        THIS THIRD WAIVER AND AMENDMENT (this "Agreement") dated as of
November 14, 2002 is entered into among GenHoldings I, LLC (the "Borrower"), each of the undersigned Banks and Lender Group Agents (collectively
with each CP Conduit and Related Bank, the "GenHoldings Lenders"), Citibank, N.A. as Security Agent and Societe Generale, as Administrative Agent (the
"Administrative Agent"). 

RECITALS  

        WHEREAS, the Borrower, the GenHoldings Lenders and the Administrative Agent are parties to that certain Amended and Restated Credit Agreement, dated as of
March 15, 2002 (as amended, supplemented or otherwise modified prior to the date hereof, the "Credit Agreement"); 

        WHEREAS,
NEG executed that certain Amended and Restated Guarantee dated as of March 15, 2002; 

        WHEREAS,
in its Form 8-K Current Report dated October 10, 2002, NEG announced its intention not to make any further equity contributions to the Borrower or its
Subsidiaries; 

        WHEREAS,
the Borrower has notified the Administrative Agent that the Existing Defaults (as defined below) have occurred and are continuing; 

        WHEREAS,
the Borrower, the GenHoldings Lenders and the Administrative Agent are parties to that certain Second Waiver and Forbearance Agreement dated as of October 21, 2002 (the
"Second Waiver"), under which the GenHoldings Lenders agreed to a limited waiver and forbearance with respect to those Existing Defaults that were in
existence at the time of the Second Waiver; 

        WHEREAS,
the Second Waiver has expired by its terms and the Borrower cannot currently satisfy the conditions precedent to a Credit Event, including the conditions precedent to
(a) the Borrowing of Construction Loans set forth in Section 3.3 of the Credit Agreement, (b) the Borrowing of Working Capital Loans set forth in Section 3.4 of the Credit
Agreement or (c) the issuance of Project Letters of Credit set forth in Section 3.5 of the Credit Agreement; 

        WHEREAS,
none of the GenHoldings Lenders is currently obligated to effect or permit a Credit Event; 

        WHEREAS,
the Borrower has requested that the GenHoldings Lenders waive until the Waiver Expiration Date (x) the Existing Defaults and (y) the conditions precedent
applicable to the Borrowing of Construction Loans, the Borrowing of Working Capital Loans and the Issuance of Project Letters of Credit, and only the Tranche A Lenders are willing to make new
extensions of credit on the terms and conditions set forth herein; 

        WHEREAS,
the GenHoldings Lenders that are not Tranche A Lenders are not willing to waive conditions precedent applicable to Borrowings and the issuance of Letters of Credit and are not
willing to make additional credit extensions to the Borrower but are willing to consent to additional credit extensions by the Tranche A Lenders and to the issuance of additional Letters of Credit and
are willing to consent to a subordination of all Tranche B Obligations to credit extensions by the Tranche A Lenders after the date hereof and to Reimbursement Obligations in respect of Primary
Letters of Credit on the terms and conditions set forth in Section 11.20 of the Credit Agreement (as amended hereby); 

        WHEREAS,
after the effectiveness of this Agreement, the Tranche B Lenders that are not Tranche A Lenders shall have no obligation to make any loans or participate in any Letters of
Credit, 

 

other than their obligation to participate in Secondary Letters of Credit and Project LC Loans on account thereof and Tranche A Lenders shall have no obligation to make Loans or participate in any
Letters of Credit other than Tranche A Construction Loans up to the Maximum Tranche A Construction Loan Amount and Primary Letters of Credit up to the Maximum Primary LC Amount on the terms and
conditions set forth herein; 

        WHEREAS,
all of the GenHoldings Lenders are willing to amend the Credit Agreement, the Project Company Guarantees and the Depositary Agreement and waive until the Waiver Expiration Date
(solely for the purposes set forth in Section 2 below) the Existing Defaults, on the terms and conditions expressly set forth in this Agreement. 

        NOW
THEREFORE, in consideration of the Recitals and of the mutual promises and covenants contained herein and for other good and valuable consideration the receipt and sufficiency of
which is hereby acknowledged, the Borrower, the Administrative Agent and the GenHoldings Lenders hereby agree as follows: 

        SECTION
1.    Definitions.    Capitalized terms used and not otherwise defined herein shall have the meanings given to
them in the Credit Agreement (as amended hereby). As used in this Agreement, the following terms shall have the following meanings: 

        "Existing Defaults" means (a) the Borrower Inchoate Default in connection with the failure of the Borrower to make or cause to be
made Cash Equity Contributions for the months of October 2002 and November 2002 in accordance with Section 3.15.1(a) of the Credit Agreement before the Waiver Expiration Date,
(b) the Borrower Inchoate Default in connection with the failure of the Borrower to comply with Section 3.12.9 of the Credit Agreement, (c) the Borrower Events of Default under
Section 7.1.12(a) of the Credit Agreement in connection with the failure of PGET to provide credit support (within the applicable grace period set forth in Section 6.1.7 of each of the
Project Company Guarantees) required under Section 3.4 of each of the PGET Purchase/Sale Agreements, (d) the Borrower Event of Default under Section 7.1.12(b) of the Credit
Agreement in connection with the failure of the Millennium Project to achieve Completion on or before August 20, 2002, and (e) any Borrower Inchoate Default, Borrower Event of Default,
Project Inchoate Default or Project Event of Default which arose (prior to the date hereof) in connection with any public announcement or SEC filings made by NEG (prior to the date hereof). 

        "Maximum Tranche A Construction Loan Amount" is defined in Section 2 hereof. 

        "Maximum Primary LC Amount" is defined in Section 2 hereof. 

        "Waiver Default" means (a) the Borrower or any other Credit Party shall fail to satisfy or perform any of the covenants or
agreements contained herein or (b) any representation or warranty of the Borrower or any other Credit Party herein shall be false, misleading or incorrect in any material respect. A Waiver
Default shall not be a Borrower Inchoate Default or a Borrower Event of Default under the Credit Agreement unless and until the Administrative Agent (acting at direction of the Majority Banks) has
given notice to the Borrower of the same. 

        "Waiver Expiration Date" means the earliest to occur of (i) December 24, 2002, (ii) the date on which the
Administrative Agent gives notice to the Borrower that a Waiver Default has occurred and (iii) the date on which the Administrative Agent gives notice to the Borrower of the occurrence and
continuance of a Borrower Inchoate Default, a Borrower Event of Default, a Project Inchoate Default or a Project Event of Default (other than an Existing Default). 

        SECTION
2.    Limited Waiver.    (a) Subject to the satisfaction of the conditions precedent set forth in
Section 6 hereof and subject to the other terms and conditions hereof, each of the GenHoldings Lenders hereby agrees to waive the Existing Defaults until the Waiver Expiration Date solely for
the following purposes: (i) to allow the Borrower to borrow and the GenHoldings Lenders to advance 

2

 

Tranche A Construction Loans in accordance with the Borrower Budget and the Project Budgets for the purposes set forth on Annex I in an aggregate amount not to exceed (x) $75,000,000 (the
"Maximum Tranche A Construction Loan Amount") less (y) the Available Funds (as defined below),
(ii) to allow the Borrower to request the issuance of, and the LC Bank to issue, Primary Letters of Credit for the purposes and in the amounts set forth on Annex II in an aggregate face amount
not to exceed $30,000,000 (the "Maximum Primary LC Amount"), (iii) to permit disbursements from the Accounts in accordance with the terms of the
Depositary Agreement and (iv) to permit Change Orders submitted before the date hereof (otherwise in accordance with the terms of the Project Company Guarantees),  provided, however, that prior to borrowing any Tranche A Construction Loans, the Borrower shall use in
accordance with the Borrower Budget and the Project Budgets all available funds on deposit in the Pre-Completion Revenue Account (other than amounts used to fund the Millennium Project in
accordance with its Annual Operating Budget) and any other bank accounts maintained by the Borrower or any of its Subsidiaries (other than the Accounts held in accordance with the Depositary
Agreement) (the "Available Funds"). 

        (b)  The
waiver set forth herein shall not be deemed (i) a waiver of any Borrower Inchoate Default, Borrower Event of Default, Project Inchoate Default or Project
Event of Default which now exists or may hereafter arise (other than the Existing Defaults), (ii) a waiver with respect to any term, condition, or obligation of NEG, the Borrower or any other
Credit Party in the Credit Agreement or in any other Credit Document, other than as expressly set forth herein, (iii) a waiver with respect to any event or condition (whether now existing or
hereafter occurring), other than as expressly set forth herein, (iv) to prejudice any right or remedy which the Administrative Agent or any GenHoldings Lender may now or in the future have
under or in connection with the Credit Agreement or any other Credit Document or (v) a waiver with respect to any Existing Default on and after the Waiver Expiration Date. The Borrower hereby
acknowledges that on and after the Waiver Expiration Date, the GenHoldings Lenders will have no obligation to make Construction Loans and the LC Bank will have no obligation to issue Letters of
Credit. 

        SECTION
3.    Amendments to Credit Agreement.    Subject to the satisfaction of the conditions precedent set forth in
Section 6 hereof and subject to the other terms and conditions hereof, each of the GenHoldings Lenders hereby agrees to amend the Credit Agreement as follows: 

        (a)  Section 2.1.1(a)
is amended and restated in its entirety as follows: 

        "(a)    Availability.    Subject to the terms and conditions set forth in this Agreement and in reliance upon the
representations and warranties of Borrower herein set forth, (i) each Tranche A Bank severally agrees to advance to Borrower from time to time during the Construction Loan Availability Period
such loans as Borrower may request pursuant to this Section 2.1.1 in an aggregate principal amount which does not exceed such Bank's
Proportionate Share of the then current Available Construction Loan Commitment (individually, a "Bank Tranche A Construction Loan" and, collectively,
the "Bank Tranche A Construction Loans") and (ii) each Tranche A Lender Group severally agrees, in accordance with the terms of this Agreement,
to advance to Borrower from time to time during the Construction Loan Availability Period such loans as Borrower may request pursuant to this  Section 2.1.1 in an aggregate principal amount which
does not exceed such Lender Group's Proportionate Share of the then current Available
Construction Loan Commitment (individually, a "Lender Group Tranche A Construction Loan" and, collectively, the "Lender Group
Tranche A Construction Loans", and, together with Bank Tranche A Construction Loans and all Tranche B Construction Loans, collectively, "Construction
Loans", and individually, a "Construction Loan"). A Lender Group Tranche A Construction Loan may consist of a CP Conduit
Construction Loan (as defined below) or a Related Bank Construction Loan (as defined below) in accordance with the following two sentences. Each Lender Group Tranche A Construction Loan to be made by
a Tranche A Lender Group shall first be offered to the applicable CP Conduit to fund (each such Lender Group Tranche A Construction Loan funded by 

3

 

the applicable CP Conduit, together with any Related Bank Construction Loan assigned by the applicable Related Bank to such CP Conduit pursuant to  Section 9.14.2, being, individually, a
"CP Conduit Construction Loan" and, collectively, such CP
Conduit's "CP Conduit Construction Loans"), provided that no CP Conduit shall have any obligation
whatsoever to make any loans under this Agreement. In the event such CP Conduit cannot or chooses not to fund such Lender Group Tranche A Construction Loan, the Related Bank that is a member of the
applicable Tranche A Lender Group shall fund such Lender Group Tranche A Construction Loan under its Parallel Funding Commitment (each such Lender Group Tranche A Construction Loan funded by a Related
Bank, together with any CP Conduit Construction Loan assigned by the applicable CP Conduit to such Related Bank pursuant to Section 9.14.2,
being, individually, a "Related Bank Construction Loan" and, collectively, "Related Bank Construction Loans")  provided that in no event shall the aggregate
outstanding principal amount of Related Bank Construction Loans funded by a Related Bank under its
Parallel Funding Commitment exceed the then current Available Parallel Funding Commitment of such Related Bank." 

        (b)  Section 2.1.1(b)
is amended by (x) inserting "and" at the end of clause (v), (y) replacing ";" at the end of clause (vi) with "." and
(z) deleting clauses (vii) and (viii). 

        (c)  Section 2.1.1(d)
is amended and restated as follows: 

        "(d) Construction Loan Principal Payments. Borrower shall repay to Administrative Agent, for the account of each Bank and each
Lender Group, the aggregate unpaid principal amount of all Construction Loans made by each such Bank or each such Lender Group, as the case may be, on the Final Maturity Date. Once repaid,
Construction Loans may not be reborrowed." 

        (d)  Section 2.1.2(a)
is amended by inserting "Tranche A" before the first reference to "Bank". 

        (e)  Section 2.1.2(d)
is amended by replacing "Quarterly Date" each time it appears with "Monthly Date". 

        (f)    The
heading of Section 2.1.3 is amended by deleting "and DSR LC Loans". 

        (g)  Section 2.1.3(a)
is amended and restated as follows: 

        "(a)
Interest Payment Dates. Borrower shall pay accrued interest on the unpaid principal amount of each Loan on each Monthly Date and upon
prepayment (to the extent thereof and including all Optional Prepayments and Mandatory Prepayments), upon conversion from one Type of Loan to another Type, and at maturity,  provided, that any interest
owing by the Borrower to Tranche B Lenders on account of Tranche B Obligations shall not be paid to such Tranche B Lenders
until all Tranche A Obligations are repaid in cash in full and shall instead (until such time as all Tranche A Obligations are repaid in full in cash) be accrued and then capitalized on each Monthly
Date (provided that in December 2002, such capitalization shall occur on December 24, 2002)." 

        (h)  Section 2.1.3(b)
is amended by (i) deleting the first sentence in clause (i), (ii) replacing the text in each of (C), (H) and
(I) of clause (i) with "intentionally omitted", (iii) replacing "ten" (in (F) of clause (i)) with "three" and (z) deleting clause (ii). 

        (i)    Section 2.1.5
is amended by (x) replacing clause (a) with "(a) the obligation of Borrower to repay the Construction Loans made by such Bank or such
Lender Group and to pay interest thereon at the rates provided herein shall be evidenced by a promissory note in the form of  Exhibit B-1 hereto (a "Construction Loan
Note") payable to the order of such
requesting Bank or such requesting Lender Group Agent and in the principal amount of (i) such Bank's and/or such Lender Group's Tranche A Construction Loan Commitment or (ii) the Tranche
B Construction Loans made by such Bank or Lender Group, as the case may be (provided that a Construction 

4

 

Loan Note issued with respect to such Tranche B Loans shall include subordination terms consistent with Section 11.20) and" and
(y) deleting clause (c). 

        (j)    Section 2.1.6(d)
is amended by replacing clauses (i) and (ii) with "deposit such Construction Loans into the Construction Account." 

        (k)  Section 2.1.7(b)
is amended and restated in its entirety as follows: 

"(b)  CP Conduit LIBOR Construction Loans. Subject to Section 2.7, each Construction Loan made by
any Lender Group that is funded by the CP Conduit that is a member of such Lender Group as a CP Conduit Funded LIBOR Construction Loan shall automatically be continued as a CP Conduit Funded LIBOR
Construction Loan at the end of each Interest Period for an additional Interest Period of one month; provided that each such Interest Period shall
commence and end on the fifth Banking Day of the applicable calendar month and no such Interest Period shall extend beyond the Final Maturity Date." 

        (l)    Section 2.1.8(a)
is amended by (w) inserting ", subject to Section 11.20" at the end of the fifth
sentence, (x) deleting the proviso in the sixth sentence, (y) replacing "Amortization Commencement Date" with "Final Maturity Date" (in the seventh sentence) and (z) deleting the
last sentence. 

        (m)  Section 2.1.8(c)
is amended and restated as follows: 

        "(c)
Mandatory Prepayments. Subject to Section 11.20, Borrower shall prepay (or
cause to be prepaid) Loans: 

          (i)  in
connection with a Change of Law to the extent required by Section 2.7.2; 

        (ii)  in
connection with the receipt of Loss Proceeds to the extent required by Section 4.8.2 of the Depositary
Agreement; 

        (iii)  to
the extent that the sum of (x) the aggregate principal amount of Loans outstanding plus (y) the
aggregate face amount of all Letters of Credit Outstanding, exceeds the amounts set forth in the Budgets; and 

        (iv)  to
the extent expressly required by any other provision of this Agreement or any other Credit Document." 

        (n)  Section 2.1.8
is further amended by amending and restating the last paragraph as follows: "Except as otherwise expressly set forth herein, prepayments of less
than all of the outstanding Loans made pursuant to clauses (ii) through (iv) above shall be applied (subject to Section 11.20)  first, to the
prepayment of outstanding Tranche A Construction Loans and Working Capital Loans, pro rata until all Tranche A Construction Loans and
Working Capital Loans have been repaid in full; second, to the prepayment of Project LC Loans on account of Primary Letters of Credit until all such
Project LC Loans have been repaid in full; third, to the cash collateralization of all Primary Letters of Credit outstanding in an amount up to 105% of
the aggregate face amount thereof; fourth, to the prepayment of outstanding Tranche B Construction Loans, in accordance with the principal amounts of
such Tranche B Construction Loans then outstanding, until all such Tranche B Construction Loans have been repaid in full; fifth, to the prepayment of
Project LC Loans on account of Secondary Letters of Credit until all such Project LC Loans have been repaid in full; and sixth, to the cash
collateralization of all Secondary Letters of Credit outstanding in an amount up to 105% of the aggregate face amount thereof." 

        (o)  Section 2.2.2
is amended and restated in its entirety as follows: 

"2.2.2
Availability. The LC Bank shall, subject to the terms and conditions of this Agreement, make Letter(s) of Credit available to Borrower and/or the
Approved Project Companies, for 

5

 

the account of Borrower, solely to enable the Approved Project Companies to provide security for their obligations to the counterparties under the LC Eligible Project Documents in accordance with the
terms of the LC Eligible Project Documents (each, a "Project Letter of Credit" or a "Letter of Credit"
and, collectively, the "Project Letters of Credit" or the "Letters of Credit"). Project Letters of
Credit shall be substantially in the form of Exhibit B-4 (or as otherwise mutually agreed by Administrative Agent, the LC Bank and
Borrower). No Project Letter of Credit shall be issued, renewed, replaced or extended by the LC Bank until such time (or a reasonable period before such time) as required under the applicable LC
Eligible Project Document pursuant to which such Letter of Credit is being issued, as certified to the LC Bank in a duly completed Notice of LC Activity. The Expiration Date of each Letter of Credit
shall be on or prior to the last day of the Working Capital/LC Availability Period." 

        (p)  Section 2.2.3(c)
is amended and restated in its entirety as follows: 

"(c)
The Stated Amount (as increased, if applicable) of the Letter of Credit, provided that the Stated Amount of any requested Letter of Credit shall
not exceed the then current Available Working Capital/Project LC Commitment." 

        (q)  Section 2.2.4(a)
is amended and restated in its entirety as follows: 

"2.2.4
Letter of Credit Loans and Reimbursement Obligations. (a) Project LC Loans. To the extent
provided in Section 2.2.8, each Bank severally agrees to advance to the LC Bank, for the account of Borrower, such Bank's Proportionate Share of
the full amount of any Drawing Payment under any Secondary Letter of Credit and each Tranche A Bank severally agrees to advance to the LC Bank for the account of Borrower, such Tranche A Bank's
Proportionate Share of the full amount of any Drawing Payment under any Primary Letter of Credit. Upon the making of any Drawing Payment, Borrower shall be obligated to reimburse the LC Bank for such
Drawing Payment and, for convenience, such Reimbursement Obligation shall be deemed to constitute a Borrowing of Loans (each, a "Project LC Loan" and,
collectively, the "Project LC Loans") in the amount of such Drawing Payment, consisting of a Project LC Loan made by each applicable Bank in the amount
of such Bank's Proportionate Share of such Drawing Payment. Subject to Section 11.20, all Project LC Loans shall be repaid on each Monthly Date
to the extent of Account Funds available for such purpose in the Debt Payment Account on such Monthly Date, after giving effect to transfers from the Applicable Revenue Account to the Debt Payment
Account on such Monthly Date; provided, however, that each Project LC Loan shall be repaid in full on
the Final Maturity Date. In the event that any Project LC Loan cannot for any reason be made on the date otherwise required above (including, without limitation, as a result of the commencement of a
Bankruptcy Event with respect to Borrower), then each applicable Bank hereby agrees that it shall forthwith purchase from the LC Bank a participation interest in the unreimbursed Drawing Payment made
by the LC Bank under the Project Letter of Credit, in an amount equal to such Bank's Proportionate Share of such reimbursed Drawing Payment, as provided in  Section 2.2.8." 

        (r)  Section 2.2.4(b)
is amended by replacing the text with "Intentionally omitted." 

        (s)  Section 2.2.4(c)
is amended by deleting "and DSR LC Loan". 

        (t)    Section 2.2.6
is amended by replacing the text with "Intentionally omitted." 

        (u)  Section 2.2.7(a)(i) is
amended by (x) replacing "Majority Banks" with "Majority LC Banks" and (y) replacing "the Banks" with "the applicable
Banks". 

        (v)  Section 2.2.8
is amended and restated in its entirety as follows: 

"2.2.8
Bank Participation. Each Tranche A Bank severally agrees to participate with the LC Bank in the extension of credit arising from the issuance of
the Primary Letters of Credit in 

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an amount equal to such Bank's Proportionate Share of the Stated Amount of each Primary Letter of Credit, and the issuance of a Primary Letter of Credit shall be deemed a confirmation to the LC Bank
of such participation in such amount. Each Tranche B Bank severally agrees to participate with the LC Bank in the extension of credit arising from the issuance of the Secondary Letters of Credit in an
amount equal to such Bank's Proportionate Share of the Stated Amount of each Secondary Letter of Credit and the issuance of a Secondary Letter of Credit shall be deemed a confirmation to the LC Bank
of such participation in such amount. The LC Bank may request the applicable Banks to pay to the LC Bank their respective Proportionate Shares of all or any portion of any Drawing Payment made or to
be made by the LC Bank under any Letter of Credit by contacting each applicable Bank and Administrative Agent telephonically (promptly confirmed in writing) at any time after the LC Bank has received
notice of or request for such Drawing Payment, and specifying the amount of such Drawing Payment, such Bank's Proportionate Share thereof, and the date on which such Drawing Payment is to be made or
was made; provided, however, that the LC Bank shall not request the Banks to make any payment under this  Section 2.2.8 in connection with any portion of a Drawing Payment for which the LC Bank has been reimbursed by Borrower (unless such
reimbursement has been thereafter rescinded or recovered by Borrower). Upon receipt of any such request for payment from the LC Bank, each Bank shall pay to the LC Bank such Bank's Proportionate Share
of the unreimbursed portion of such Drawing Payment, together with interest thereon at a per annum rate equal to the Federal Funds Rate, as in effect from time to time, from the date of such Drawing
Payment to the date on which such Bank makes payment. Each Bank's obligation to make each such payment to the LC Bank shall be absolute, unconditional and irrevocable and shall not be affected by any
circumstance whatsoever, including the occurrence or continuation of any Borrower Inchoate Default or Borrower Event of Default, or the failure of any other Bank to make any payment under this  Section 2.2.8, and each Bank further agrees that each such payment shall be made without any offset, abatement withholding or reduction
whatsoever." 

        (w)  Section 2.2.7(b)
is amended by replacing "Majority Banks" with "Majority Tranche A Banks". 

        (x)  Section 2.2.12(a)
is amended by replacing "the sum of its Working Capital/Project LC Commitment and its DSR LC Commitment" with "its Working Capital/Project LC
Commitment". 

        (y)  Section 2.2.14
is inserted as follows: 

"2.2.14.
Resignation by LC Bank. The LC Bank may resign from that capacity at any time by giving seven (7) Banking Days written notice to such
effect to the Borrower and the Administrative Agent. Upon such resignation, the Administrative Agent (with the consent of the Borrower, not to be unreasonably withheld) shall appoint a successor LC
Bank to issue subsequent Letters of Credit, provided, that if the Administrative Agent shall have made and continues to make reasonable efforts to
replace such LC Bank, such LC Bank shall continue in such capacity until a suitable replacement agrees to become the LC Bank." 

        (z)  The
text in Section 2.3.1 is replaced with "Intentionally omitted." 

        (aa) Section 2.3.2
is amended and restated in its entirety as follows: 

"2.3.2  Total Construction Loan Commitment. Subject to Section 2.3.5(a), the aggregate principal
amount of all Tranche A Construction Loans outstanding at any time shall not exceed the then current Committed Tranche A Construction Loan Dollar Amount or, if the then current Committed Tranche A
Construction Loan Dollar amount is (1) reduced by Borrower pursuant to Section 2.3.6(a) or (2) automatically reduced pursuant to  Section 2.3.6(b),
 such adjusted Committed Tranche A Construction Loan Dollar Amount (such then current Committed 

7

 

Tranche A Construction Loan Dollar Amount, as so adjusted from time to time, the "Total Construction Loan Commitment"). The amount of each Bank's and
each Lender Group's Construction Loan Commitment is set forth in Exhibit I hereto (which Exhibit shall be automatically amended without further
action (x) upon the assignment of any Bank's and each Lender Group's Construction Loan Commitment in accordance with the terms hereof to give effect to any such assignment, (y) upon the
addition of a Tranche A Bank or Tranche A Lender Group hereunder pursuant to a Joinder Agreement entered into in accordance with Section 9.17 or
(z) upon any adjustment of the Total Construction Loan Commitment in accordance with this Section 2.3.2 to give effect to any such
adjustment). The amount of each Related Bank's Parallel Funding Commitment is set forth in Exhibit I hereto (which Exhibit shall be automatically
amended without further action (x) upon the assignment of any Related Bank's Parallel Funding Commitment in accordance with the terms hereof to give effect to any such assignment,
(y) upon the addition of a Related Bank hereunder pursuant to a Joinder Agreement entered into in accordance with Section 9.17 or
(z) upon any adjustment of the Construction Loan Commitment of such Related Bank's Tranche A Lender Group in accordance with this  Section 2.3.2 to give effect to any such adjustment).

        (bb) Section 2.3.3
is amended by (x) inserting "(other than the Stated Amount of all Secondary Letters of Credit, and related Project LC Loans and
Reimbursement Obligations, all on account of Tranche B Banks that are not Tranche A Banks)" after "Total Working Capital/Project LC Outstandings", (y) replacing "," at the end of
clause (1) with "or" and (z) deleting "or (3) automatically increased pursuant to the proviso to Section 2.3.6(b)(ii)". 

        (cc) Section 2.3.4
is amended by replacing the text with "Intentionally omitted." 

        (dd) Section 2.3.5(c)
is amended by replacing the text with "Intentionally omitted." 

        (ee) Section 2.3.6(a)
is amended by (x) deleting "or the Total DSR LC Commitment", (y) replacing "Construction Loans" in clause (i) with "Tranche
A Construction Loans" and (z) replacing the text in clause (iii) with "Intentionally omitted." 

        (ff)  Section 2.3.6(b)(ii) is
amended by replacing the text with "Intentionally omitted." 

        (gg) Section 2.4.3(a)
is amended by (x) replacing "Quarterly Date" with "Monthly Date" each time it appears and (y) replacing "quarter" with "month"
each time it appears. 

        (hh) Section 2.4.3(b)
is amended by (x) replacing "Quarterly Date" with "Monthly Date" each time it appears, (y) replacing "quarter" with "month" each
time it appears and (z) replacing "Banks" with "Tranche A Banks". 

        (ii)  Section 2.4.3(c)
is amended by replacing the text with "Intentionally omitted." 

        (jj)  Section 2.4.4
is amended by (x) replacing "Quarterly Date" with "Monthly Date" each time it appears and (y) replacing "quarter" with "month" each
time it appears. 

        (kk) Section 2.4.5
is amended by (x) replacing "Quarterly Date" with "Monthly Date" each time it appears, (y) replacing "quarter" with "month" each time
it appears and (z) inserting "Notwithstanding the terms of the LC Fee Letter, such fronting fees shall be increased to .25%." after the first sentence. 

        (ll)  Section 2.5.5
is amended by (x) inserting "(subject to Section 11.20)" after "shall be applied" and
(y) replacing clauses (a), (b) and (c) with the following: 

        "(a)  first, to any fees, costs, charges or expenses payable to Administrative Agent, the LC Bank, the Banks and the Lenders Groups
hereunder or under the other Credit Documents (other than in connection with the Tranche B Obligations or the Interest Rate Agreements), 

8

 

        (b)  second, to any accrued but unpaid interest then due and owing in respect of the Obligations (other than Tranche B Construction Loans
and Interest Rate Agreements), 

        (c)
third, to outstanding principal then due and owing or otherwise to be prepaid in respect of Tranche A Construction Loans and Working
Capital Loans, pro rata, 

        (d)
fourth, to outstanding principal then due and owing or otherwise to be prepaid in respect of Project LC Loans on account of Primary
Letters of Credit, 

        (e)  fifth, to cash collateralize Primary Letters of Credit outstanding in an amount up to 105% of the face amount thereof, 

        (f)
sixth, to any accrued but unpaid interest and fees, costs, charges and expenses then due and owing in respect of the Tranche B
Construction Loans and interest due and owing in respect of Interest Rate Agreements, pro rata, 

        (g)
seventh, to outstanding principal then due and owing or otherwise to be prepaid in respect of Tranche B Construction Loans and
Interest Rate Agreements, pro rata 

        (h)  eighth, to outstanding principal then due and owing or otherwise to be prepaid in respect of Project LC Loans on account of Secondary
Letters of Credit, 

        (i)
ninth, to cash collateralize Secondary Letters of Credit outstanding in an amount up to 105% of the face amount thereof, and 

        (j)
tenth, to outstanding principal then due and owing or otherwise to be prepaid in respect of the other Obligations." 

        (mm)  Section 2.6.1
is amended by replacing "Except" with "Subject to Section 11.20, except". 

        (nn) Section 2.6.2
is amended by (x) replacing "If" with "Subject to Section 11.20, if" and
(y) inserting "(other than with respect to the capitalizing of interest pursuant to Section 2.1.3(a))" after "Lender Groups entitled to
such payments". 

        (oo) Section 2.9.2
is amended by deleting "and the DSR LC Commitment". 

        (pp) Section 3.2
is amended by replacing the text with "Intentionally omitted." 

        (qq) Sections
3.3 and 3.3.1 through 3.3.12 are amended by (x) replacing "Banks", "Lender Groups" and "Majority Banks" each time they appear with "Tranche A Banks",
"Tranche A Lender Groups" and "Majority Tranche A Banks", respectively and (y) inserting the following subsection 3.3.13: 

"3.3.13
Other Conditions to Each Advance. Other than with respect to extensions of credit authorized under the Third Waiver and Amendment dated as of
November 14, 2002, each of the GenHoldings Lenders shall have been satisfied (in its sole discretion), (i) with the results of its due diligence with respect to the assets and
liabilities of the Borrower and each of its Subsidiaries, (ii) with the estimated costs of completion for each Project, (iii) with the status of title to each of the Projects and
ownership of the Project Companies, the Intermediate Holding Companies and the Borrower, (iv) with the valuation of each Project Company's assets, and (v) that there has been no Borrower
Material Adverse Effect or Project Material Adverse Effect." 

        (rr)  Section 3.3.9
is amended by deleting "and each of the conditions set forth in Section 4.8.2(a) of the
Depositary Agreement shall have been satisfied." and replacing it with "in accordance with the terms of Section 4.8.2 of the Depositary Agreement." 

        (ss)  Section 3.4
is amended by replacing "Banks" and "Majority Banks" with "Tranche A Banks" and "Majority Tranche A Banks" respectively. 

9

 

        (tt)  Section 3.5
is amended by replacing "Majority Banks" with "Majority LC Banks". 

        (uu) Sections
3.6, 3.7, 3.9, 3.10 and 3.11 are each amended by replacing the text with "Intentionally omitted." 

        (vv)   Sections
3.12 and 3.12.1 through 3.12.9 are amended by replacing "Banks" and "Majority Banks" each time they appear with "Tranche A Banks" and "Majority
Tranche A Banks". 

        (ww)  Section 3.15.2
is replaced with "Intentionally omitted." 

        (xx) Section 3.15.3(b)
is amended by deleting "(including a Substitute Project that replaces an Approved Project)". 

        (yy) Section 5.1.1(a)
is amended by deleting the second proviso therein. 

        (zz) Section 5.1.1(d)
is amended by replacing the text with "Intentionally omitted." 

        (aaa)  New
Sections 5.15 through 5.18 are inserted as follows: 

"5.15  Other Reporting Requirements. Borrower shall and shall cause its Subsidiaries to, deliver (or cause to be delivered) to the Administrative Agent: 

        (a)  on
or before the fifteenth Banking Day of each calendar month (i) consolidating balance sheets for the Borrower and its Subsidiaries, (ii) a report of
balances owed by each of the Project Companies and Intermediate Holding Companies to the Borrower as at the end of the immediately preceding calendar month, (iii) an operating report (in form
and substance reasonably satisfactory to the Administrative Agent and the Independent Engineer) for the immediately preceding month for the Millennium Project and any other Project that has achieved
Completion and (iv) an updated Borrower Budget, an updated Project Budget (for each Project Company) and an updated Annual Operating Budget (for each Project Company), all in form and substance
acceptable to the Administrative Agent in its sole discretion; 

        (b)  contemporaneously
with the delivery thereof, copies of all reports, financial information, statements and other documents delivered to NEG's revolving credit lenders; 

        (c)  periodic
reports on the status of NEG's global reorganization efforts (including the status of discussions with NEG's other creditors); 

        (d)  timely
notice of the commencement of any material litigation or other proceeding against NEG or any of its Subsidiaries; 

        (e)  on
or prior to the second Banking Day of each week, a written report of current Change Orders; and 

        (f)  any
other reports reasonably requested by the Administrative Agent or FTI Consulting. 

5.16    Management of Projects.    Until requested otherwise by the Administrative Agent, the Borrower shall, and shall cause its
Subsidiaries to, continue to manage in accordance with prudent utility practices, the construction of the Projects (in cooperation with NEG) and to operate the Millennium Project and any other Project
after its completion (on mutually agreeable terms and conditions). 

5.17    Consultants.    The Borrower shall, and shall cause its Subsidiaries to, cooperate in all respects with the consultants and
advisors engaged by the Administrative Agent (including, without limitation, FTI Consulting, The Blackstone Group L.P., PA Consulting Group, Pace Energy Consulting Group LLC and R.W. Beck). 

10

 

5.18    Bankruptcy.    In the event of a filing of a petition for bankruptcy by or against the Borrower or any of its Subsidiaries,
the Borrower shall, and shall cause its Subsidiaries to, take all necessary action to ensure that all Tranche A Construction Loans, all Working Capital Loans, all Project LC Loans and all Primary
Letters of Credit shall be (x) repaid (or cash collateralized) with the proceeds of a debtor-in-possession financing (a "DIP
Facility") or (y) "rolled up" into the DIP facility and given the same priority and collateral as the DIP Facility." 

        (bbb)  Section 6.4
is amended and restated in its entirety as follows: 

"6.4
Sale of Assets. Notwithstanding the terms of Section 5.4 of each of the Project Company Guarantees, Borrower shall not (and shall not permit
its Subsidiaries to) sell, lease, assign, transfer or otherwise dispose of any of its properties or assets, whether now owned or hereafter acquired, without the consent of the Majority Banks,  provided,
however that neither the Borrower nor any of its Subsidiaries shall dispose of any Project or
any interest therein without the prior written consent of each of the GenHoldings Lenders, and the Project Companies may sell assets in the ordinary course of business." 

        (ccc)  Section 6.6
is amended and restated in its entirety as follows: 

"6.6
Distributions. Borrower shall not (and shall not permit its Subsidiaries (notwithstanding the terms of Section 5.7 of each of the Project
Company Guarantees) to) directly or indirectly make or declare any distribution (in cash, property or obligation) on, or make any other payment on account of, any interest in Borrower or any other
Credit Party (including transfers of any tax benefits), or make any payment on account of subordinated obligations (including, without limitation, Subordinated Affiliate Fees, other than any fees
payable under service contracts or other management agreements on terms and conditions acceptable to the Administrative Agent in its sole discretion) (each a "Restricted
Payment"). 

        (ddd)  Section 6.8
is amended and restated as follows: 

"6.8
Transactions with Affiliates. Borrower shall not (and shall not permit its Subsidiaries (notwithstanding the terms of Section 5.8 of each of
the Project Company Guarantees) to) enter into any transaction or agreement (or any transaction under or pursuant to any transaction or agreement) with any of its Affiliates, other than a transaction
that is (i) at arm's length, (ii) fully documented, (iii) for fair consideration and (iv) in accordance with the provisions of the Credit Documents,  provided, however, the Borrower may enter into transactions in furtherance of NEG's restructuring plan
that the Administrative Agent and each of the GenHoldings Lenders (in their sole discretion) determine would not have an adverse effect on the GenHoldings Lenders." 

        (eee)  New
Section 7.1.15 is inserted as follows: 

"7.1.15  Project Disposition. The Projects shall not have been transferred at the direction of the GenHoldings Lenders (on terms and conditions
satisfactory to the Administrative Agent and each of the GenHoldings Lenders in their sole discretion) on or prior to (x) December 31, 2002 or (y) so long as such transfers are
proceeding in a manner satisfactory to the Administrative Agent, March 31, 2003 with the prior written consent of the Administrative Agent." 

        (fff) Section 9.5
is amended by (x) inserting "and" after "Total Construction Loan Commitment," and (y) deleting "and Total DSR LC Commitment". 

        (ggg)  Section 9.9(a)
is amended by (x) replacing "Section 7.1.10(a) (Loss of Control of Borrower) without the prior written consent of the
Supermajority Banks" in the first proviso with "(i) Section 7.1.10(a), without the prior written consent of the Supermajority Banks,
(ii) Section 3.3

11

 

without the prior written consent of each of the Tranche A Banks, (iii) the right of any Equity Party or Credit Party to assign, transfer or otherwise dispose of any of its rights or
obligations under, or permit the termination or release of, any of the Credit Documents, except as expressly permitted by the terms of this Agreement and the other Credit Documents without the prior
written consent of each of the GenHoldings Lenders and (iv) the right to transfer any equity or voting interest in any Credit Party, except as expressly permitted by the terms of this Agreement
and the other Credit Documents without the prior written consent of each of the GenHoldings Lenders", (y) replacing the text in clauses (vi) and (vii) with "Intentionally omitted"
and (z) inserting at the end of clause (ix), ", except with respect to dispositions of assets permitted under Section 6.4." 

        (hhh)  Section 9.11
is amended by inserting "Section 11.20 and" before "any Assignment Agreement." 

        (iii)  Section 9.12(b)
is amended by deleting each reference to "and DSR LC Commitment". 

        (jjj)  Section 9.14.1
is amended by (x) replacing the text in clause (a) with "Intentionally omitted." and (y) inserting "subject to  Section 11.20" after "Proportionate Share" in the last sentence.

        (kkk)  Section 9.17
is amended by (x) inserting "and" at the end of clause (b) and (y) deleting clause (d). 

        (lll)  Section 11.15
is amended by deleting "Substitute Project,". 

        (mmm)  Section 11.20
is inserted as follows: 

"11.20
Subordination. (a) Each of the Tranche B Lenders agrees, for itself and each future holder of the Tranche B Obligations, that unless and
until the Tranche A Obligations have been paid in full, the Tranche A Construction Loan Commitment has been terminated and all Primary Letters of Credit issued have been terminated or cash
collateralized (in an amount up to 105% of the aggregate Stated Amounts thereof), without the express prior written consent of the Administrative Agent and each of the Tranche A Lenders, no Tranche B
Lender will take, demand or receive from the Borrower, and the Borrower will not make, give or permit, directly or indirectly, by set-off, redemption, purchase or in any other manner, any
payment of or security for the whole or any part of the Tranche B Obligations, including, without limitation, any letter of credit or similar credit support facility to support payment of the Tranche
B Obligations. The provisions of this Section 11.20 shall constitute a continuing offer to all persons who, in reliance upon such provisions,
become holders of, or continue to hold, Tranche A Obligations, and such provisions are made for the benefit of the holders of Tranche A Obligations, and such holders are hereby made obligees hereunder
the same as if their names were written herein as such, and they and/or each of them may proceed to enforce such provisions. 

(b)
The expressions "prior payment in full," "payment in full," "paid in full" and any other similar terms or phrases when used in this  Section 11.20 or with respect to the Tranche A Obligations shall
mean the payment in full, in immediately available funds, of all of the Tranche
A Obligations, the termination of all Commitments and the termination, or cash collateralization of any Primary Letters of Credit outstanding (in an amount up to 105% of the aggregate Stated Amounts
thereof). 

(c)
The Tranche B Lenders and the Borrower agree that if the Borrower or any of its Subsidiaries becomes subject to a Bankruptcy Event: 

          (i)  unless
each of the Tranche A Lenders agrees in writing otherwise, all Tranche A Obligations shall be paid in full before any direct or indirect payment or distribution
from any 

12

 

assets of the Borrower, its Subsidiaries or NEG is made with respect to the Tranche B Obligations; 

        (ii)  any
direct or indirect payment or distribution of assets of the Borrower whether in cash, property or securities, to which any Tranche B Lender would be entitled with
respect to Tranche B Obligations except for the provisions hereof, shall be paid or delivered by the Borrower, or any receiver, trustee in bankruptcy, liquidating trustee, disbursing agent or other
Person making such payment or distribution, directly to the Administrative Agent, for the account of the Tranche A Lenders, to the extent necessary to pay in full all Tranche A Obligations, before any
payment or distribution shall be made to any Tranche B Lender; and 

        (iii)  the
Tranche A Lenders may file claims with respect to the Tranche B Obligations in any insolvency proceeding of the Borrower, any of its Subsidiaries or NEG if the
Tranche B Lenders fail to file such claims fourteen days prior to the last date set for the filing of such claims. 

(d)
If any direct or indirect payment or distribution (including, without limitation, a payment or distribution by or from NEG on account of the NEG Equity Guaranty or otherwise), whether consisting
of money, property or securities, shall be collected or received by any Tranche B Lender in respect of the Tranche B Obligations, such Tranche B Lender forthwith shall deliver the same to the
Administrative Agent for the account of the Tranche A Lenders, in the form received, duly indorsed to the Administrative Agent, if required, to be applied to the payment or prepayment of the Tranche A
Obligations until the Tranche A Obligations are paid in full. Until so delivered, such payment or distribution shall be held in trust by such Tranche B Lender as the property of the Tranche A Lenders,
segregated from other funds and property held by such Tranche B Lender. 

(e)
Notwithstanding anything to the contrary contained in this Agreement or any other Credit Document and irrespective of (i) anything contained in any filing or agreement to which the
Administrative Agent, any Tranche A Lender or any Tranche B Lender now or hereafter may be a party and (ii) the rules for determining priority under the Uniform Commercial Code or any other law
governing the relative priorities of secured creditors, the subordination provisions under this Section 11.20 apply notwithstanding the fact that
the security interests and Liens in the Collateral in favor of the Administrative Agent run to each of the GenHoldings Lenders. 

(f)
Subject to the payment in full of the Tranche A Obligations, the Tranche B Lenders shall be subrogated to the extent of the payments made to the Tranche A Lenders pursuant to the provisions of
this Section 11.20 to the rights of the Tranche A Lenders to receive payments or distributions of assets of the Borrower or NEG in respect of the
Tranche A Obligations until the Tranche B Obligations shall be paid in full. For the purposes of such subrogation, payments or distributions to the Administrative Agent, for the account of the Tranche
A Lenders, of any money, property or securities to which any Tranche B Lender would be entitled with respect to Tranche B Obligations except for the provisions of
this Section 11.20 shall be deemed, as among the Borrower, NEG and their respective creditors other than the Tranche A Lenders and such Tranche B
Lenders, to be a payment by the Borrower or NEG to or on account of Tranche B Obligations, it being understood that the provisions of this  Section 11.20 are, and are intended solely, for the
purpose of defining the relative rights of the Tranche B Lenders, on the one hand, and the
Tranche A Lenders, on the other hand. 

(g)
Notwithstanding anything to the contrary in this Section 11.20, the subordination provisions contained in this  Section 11.20 are not applicable
to any extensions of credit other than (x) the extensions of credit scheduled on Annex I and II to the
Third Waiver and Amendment dated 

13

 

as of November 14, 2002 and (y) other extensions of credit, consented to by each of the Tranche B Lenders. 

(h)
This Section 11.20 shall not be amended, supplemented, waived or otherwise modified without the consent of each of the GenHoldings Lenders. 

(i)
Nothing contained in this Section 11.20 or elsewhere in this Agreement is intended to or shall impair, as between the Borrower and the
Tranche B Lenders, the obligation of the Borrower, which is absolute and unconditional, to pay to the Tranche B Lenders the principal of and any interest on the Tranche B Obligations as and when the
same shall become due and payable in accordance with its terms, or is intended to or shall affect the relative rights of the Tranche B Lenders and creditors of the Borrower other than the Tranche A
Lenders, nor shall anything herein or therein prevent the Tranche B Lenders from exercising all remedies otherwise permitted by applicable law upon the occurrence of a Borrower Inchoate Default or
Borrower Event of Default, subject to the rights, if any, under this Section 11.20 of the Tranche A Lenders in respect of cash, property or
securities of the Borrower received upon the exercise of any such remedy." 

        (nnn)  Exhibit A
to the Credit Agreement is amended as follows: 

          (i)  The
definition of "Account Funds" is amended by deleting the proviso therein. 

        (ii)  The
definition of "Allocated Portion" is amended by replacing the text in clause (c) with "intentionally omitted." 

        (iii)  The
definition of "Available Construction Loan Commitment" is amended by replacing "Construction Loans" with "Tranche A Construction Loans". 

        (iv)  The
definition of "Available Working Capital/Project LC Commitment" is amended by inserting "(other than the Stated Amount of all Secondary Letters of Credit and
related Project LC Loans and Reimbursement Obligations in all cases applicable to Tranche B Banks that are not Tranche A Banks)" after "Total Working Capital/Project LC Outstandings". 

        (v)  The
definition of "Bank Construction Loans" is amended and restated as follows: 

        "Bank
Construction Loans" means Bank Tranche A Construction Loans and Bank Tranche B Construction Loans." 

        (vi)  The
definition of "Base Rate Loans" is amended and restated as follows: 

        "'Base
Rate Loans' means, collectively, the Base Rate Construction Loans, the Base Rate Working Capital Loans and the Base Rate Project LC Loans." 

      (vii)  The
definition of "Borrower Permitted Liens" is amended by inserting at the end thereof (before the ".") ", which do not secure, in the aggregate, obligations that
exceed $1,000,000". 

      (viii)  The
definition of "Borrower Permitted Debt" is amended by replacing the text in each of clauses (b) and (c) with "intentionally omitted". 

        (ix)  The
definition of "Commitment Fee" is amended and restated as follows: 

        "'Commitment
Fee' means the Construction Loan Commitment Fee or the Working Capital/Project LC Commitment, as applicable." 

14

  

        (x)  The
definition of "Commitments" is amended and restated as follows: 

        "Commitments"
means (a) with respect to each Lender Group, such Lender Group's Construction Loan Commitment, (b) with respect to each Bank, such Bank's Construction Loan
Commitment and Working Capital/Project LC Commitment, (c) with respect to all Banks and all Lender Groups, the Total Construction Loan Commitment, and (d) with respect to all Banks, the
Total Working Capital/Project LC Commitment. 

        (xi)  The
definition of "Committed Construction Loan Dollar Amount" is replaced with: 

        "'Committed
Tranche A Construction Loan Dollar Amount' means $75,000,000 plus any applicable Incremental Commitments." 

        The
definition of "Committed Working Capital/Project LC Dollar Amount" is amended and restated as follows: 

        "'Committed
Working Capital/Project LC Dollar Amount' means $33,591,900 plus any applicable Incremental Commitments." 

      (xii)  The
definition of "Construction Loan Availability Period" is amended and restated as follows: 

        "'Construction
Loan Availability Period' means the period commencing on November 15, 2002 and ending on the earlier of (i) the Last Completion Date and (ii) the
Final Maturity Date." 

      (xiii)  The
definition of "Credit Agreement' is amended by inserting "(as amended, supplemented or otherwise modified from time to time)" after "March 15, 2002". 

      (xiv)  The
definition of Credit Documents is amended by inserting "(as each may be amended, supplemented or otherwise modified from time to time)" at the end thereof. 

      (xv)  The
definition of "Credit Event" is amended by replacing the text in clause (e) with "intentionally omitted." 

      (xvi)  The
definition of "DSR Required Balance" is amended by replacing "following the Amortization Commencement Date, calculated as of the Amortization Commencement Date;"
with ", calculated as of the first date of such period;". 

    (xvii)  The
definition of "Final Maturity Date" is amended by replacing clause (b) with "(b) December 5, 2003." 

    (xviii)  The
definition of "Interest Period" is amended and restated as follows: 

        "'Interest
Period' means, with respect to any LIBOR Loan, one month which commences on the first day of such Loan or the effective date of any conversion, as the case may be, and ends on
the last Banking Day of such month, provided that no single day shall be deemed to be a part of two consecutive Interest Periods." 

      (xix)  The
definition of "Intermediate Holding Company Permitted Liens" is amended by inserting at the end thereof (before the ".") ", which do not secure, in the aggregate,
obligations that exceed $1,000,000". 

      (xx)  The
definition of "Letter of Credit" is amended and restated as follows: 

        "'Letter
of Credit' means any Project Letter of Credit." 

      (xxi)  The
definition of "Letter of Credit Loan" is amended and restated as follows: 

        "'Letter
of Credit Loan' means a Project LC Loan." 

15

 

    (xxii)  The
definition of "LIBOR Loans" is amended and restated as follows: 

        "'LIBOR
Loans' means, collectively, the LIBOR Construction Loans and the LIBOR Working Capital Loans." 

    (xxiii)  The
definition of "Loans" is amended and restated as follows: 

        "'Loans'
means, collectively, the Construction Loans, the Working Capital Loans and the Project LC Loans." 

    (xxiv)  The
definition of Notes" is amended and restated as follows: 

        "'Notes'
means, collectively, the Construction Loan Notes and the Working Capital/Project LC Notes." 

    (xxv)  The
definition of "Project Company Permitted Debt" is amended by replacing the text in clause (v) with "intentionally omitted". 

    (xxvi)  The
definition of "Project Company Permitted Liens" is amended by inserting at the end thereof (before the ".") ", which do not secure, in the aggregate, obligations
that exceed $1,000,000". 

  (xxvii)  The
definition of "Proportionate Share" is amended and restated as follows: 

        "'Proportionate
Share' means (a) with respect to each Bank and each Lender Group (other than Hedge Banks), the percentage participation of such Bank or such Lender Group, as the
case may be, in the Total Construction Loan Commitment, the aggregate principal amount of Tranche B Construction Loans outstanding or the Total Working Capital/Project LC Commitment (provided that
with respect to Secondary Letters of Credit and Reimbursement Obligations and Project LC Loans related thereto, the Proportionate Shares shall be calculated based upon the Working Capital/Project LC
Loan Commitments set forth for Tranche B Lenders in Exhibit I to this Agreement), as applicable, as set forth in Exhibit I to this Agreement (as amended or supplemented in accordance
with the terms hereof), and (b) with respect to each Hedge Bank, the Proportionate Share that such Hedge Bank is deemed to have pursuant to Section 5.13.3 of this Agreement." 

  (xxviii)  The
definition of "Requisite Spark Spread" is amended by replacing "Amortization Commencement Date" with "Last Completion Date". 

    (xxix)  The
definition of "Total Commitment" is amended and restated as follows: 

        "'Total
Commitment' means the Total Construction Loan Commitment and the Total Working Capital/Project LC Commitment, as applicable." 

      (xxx)  The
following definitions are inserted in their proper alphabetical place: 

        "'Bank
Tranche A Construction Loan' is defined in Section 2.1.1(a)." 

        "'Bank
Tranche B Construction Loans' means Construction Loans made by Banks prior to November 14, 2002." 

        "'Budgets'
means the Borrower Budget, the Project Budgets and the Annual Operating Budget, all as revised from time to time in accordance with this Agreement." 

        "'GenHoldings
Lenders' means, collectively, all of the financial institutions party hereto including, without limitation, the Banks and the Lender Groups." 

        "'Lender
Group Construction Loans' means Lender Group Tranche A Construction Loans and Lender Group Tranche B Construction Loans." 

        "'Lender
Group Tranche A Construction Loan' is defined in Section 2.1.1(a)." 

16

 

        "'Lender
Group Tranche B Construction Loans' means Tranche B Construction Loans made by Tranche B Lender Groups prior to November 14, 2002." 

        "'Majority
LC Banks' means, on any date of determination, Banks having Proportionate Shares in the Project Letter of Credit at issue which in the aggregate exceed 50% on such date." 

        "'Majority
Tranche A Lenders' means Tranche A Banks and Tranche A Lender Groups holding greater than 50% of the Tranche A Obligations." 

        "'Majority
Tranche B Lenders' means Tranche B Banks and Tranche B Lender Groups holding greater than 50% of the Tranche B Obligations." 

        "'Primary
Letters of Credit' means Letters of Credit that are issued after November 14, 2002." 

        "'Secondary
Letters of Credit' means Letters of Credit that were issued on or before November 14, 2002." 

        "'Tranche
A Bank' means each Bank with a Tranche A Construction Loan Commitment." 

        "'Tranche
A Construction Loan Commitment' means, at any time with respect to (i) each Tranche A Bank, such Bank's Proportionate Share of the Total Construction Loan Commitment at
such time, and (ii) each Tranche A Lender Group, such Lender Group's Proportionate Share of the Total Construction Loan Commitment at such time." 

        "'Tranche
A Construction Loans' means Bank Tranche A Construction Loans and Lender Group Tranche A Construction Loans." 

        "'Tranche
A Lender Group' means each Lender Group with a Tranche A Construction Loan Commitment." 

        "'Tranche
A Lenders' means the holders from time to time of the Tranche A Obligations." 

        "'Tranche
A Loans' means Tranche A Construction Loans, Working Capital Loans and Project LC Loans (and Reimbursement Obligations) on account of Primary Letters of Credit." 

        "'Tranche
A Obligations' means the collective reference to the unpaid principal of and interest on the Tranche A Loans and all other obligations and liabilities of the Borrower to the
Administrative Agent, the LC Bank and the Tranche A Lenders in respect of the Tranche A Loans (including, without limitation, interest accruing at the then applicable rate provided in this Agreement
after the maturity of the Tranche A Loans and interest accruing at the then applicable rate provided in this Agreement after the filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding),
whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, this Agreement, or any other
Credit Document and any renewal, extension, restatement, refinancing or refunding thereof, in each case whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs,
expenses or otherwise (including, without limitation, all fees and disbursements of counsel to the Administrative Agent or to the Tranche A Lenders in respect of the Tranche A Loans that are required
to be paid by the Borrower pursuant to the terms of this Agreement)." 

        "'Tranche
B Bank' means a Bank that has made a Bank Tranche B Construction Loan." 

        "'Tranche
B Construction Loans' means Lender Group Tranche B Construction Loans and Bank Tranche B Construction Loans in an aggregate principal amount equal to 

17

 

$1,067,612,000.07, that were advanced by the Tranche B Lender Groups and Tranche B Banks prior to November 14, 2002, and remain outstanding." 

        "'Tranche
B Lender Groups' means each Lender Group that has made Lender Group Tranche B Construction Loans." 

        "'Tranche
B Lenders' means the holders from time to time of the Tranche B Obligations." 

        "Tranche
B Obligations' means the collective reference to the unpaid principal of and interest on the Tranche B Construction Loans and all other obligations and liabilities of the
Borrower to the Tranche B Lenders, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with
this Agreement, in each case whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all fees and
disbursements of counsel) to the Tranche B Lenders that are required to be paid by the Borrower pursuant to the terms of this Agreement or any other Credit Document." 

    (xxxi)  The
definitions of Amortization Commencement Date, Available DSR LC Commitment, Base Rate DSR LC Loan, Bank Group Construction Loan, Committed DSR LC Dollar Amount,
Divestiture Proceeds, Divestiture Profits, DSR Letter of Credit, DSR LC Loan, DSR LC Loan Note, DSR LC Commitment, DSR Commitment Fee, Initial Committed Construction Loan Dollar Amount, Initial
Committed Dollar Amounts, Initial Committed DSR LC Dollar Amount, Initial Committed Working Capital/Project LC Dollar Amount, Lender Group Construction Loan, LIBOR DSR LC Loan, Net Divestiture
Proceeds, Replacement DSR Letter of Credit, Substitute Project, Total DSR LC Commitment and Total DSR LC Outstandings are deleted. 

        (ooo)  Exhibit H
to the Credit Agreement is hereby deleted. 

        (ppp)  Exhibit I
to the Credit Agreement is amended and restated in its entirety as set forth in Annex III hereto. 

        (qqq)  Exhibit S
to the Credit Agreement is amended and restated in its entirety as set forth on Annex IV hereto. 

        SECTION
4.    Amendments to Depositary Agreement.    Subject to the satisfaction of the conditions precedent set forth
in Section 6 hereof and subject to the other terms and conditions hereof, the GenHoldings Lenders hereby agree to amend the Depositary Agreement as follows: 

        (a)  Section 2.7
is amended by (x) deleting "and DSR Letter of Credit" from the heading and the first sentence and (y) replacing the text in
clause (c) with "intentionally omitted." 

        (b)  Section 4.1.2
is amended by (x) replacing "or Disbursement Project Event of Default" with ", Borrower Inchoate Default, Project Inchoate Default or Project
Event of Default" in the fourth sentence and (y) inserting ", Borrower Inchoate Default, Project Inchoate Default or Project Event of Default" after "Borrower Event of Default" in the fifth
sentence. 

        (c)  Section 4.2.2
is amended by inserting ", Borrower Inchoate Default, Project Event of Default, or Project Inchoate Default" after "Borrower Event of Default" each
time it appears. 

        (d)  Section 4.3.2
is amended by (w) replacing the text of clause Fifth with "Intentionally omitted;", (x) inserting "and" at the end of clause Sixth,
(y) replacing clauses Seventh and Eighth with the following clause Seventh: 

"Seventh, transfer to the Debt Service Reserve Account an amount of Account Funds sufficient to cause the amount of Account Funds in the Debt Service
Reserve Account to equal to the then current DSR Required Balance" and 

18

 

(z)    by
inserting ", Borrower Inchoate Default, Project Event of Default or Project Inchoate Default" after "Borrower Event of Default" each time it appears. 

        (e)  Section 4.4.2
is amended by inserting ", Borrower Inchoate Default, Project Event of Default, Project Inchoate Default" after "Borrower Event of Default". 

        (f)    Section 4.6.1
is amended by replacing clauses (a) and (c) as follows: 

"(a)
On or prior to the DSR Start Date, the Borrower shall deliver, or cause to be delivered, to the Depositary Agent for credit to the Debt Service Reserve Account, immediately available funds in
Dollars (other than funds that already constitute Collateral) in an amount not less than the DSR Required Balance as of the DSR Start Date." 

"(c)
Intentionally omitted." 

        (g)  Section 4.6.2
is amended and restated in its entirety as follows: 

"4.6.2
Disbursements from the Debt Service Reserve Account. Account Funds in the Debt Service Reserve Account shall be used only to pay Scheduled Debt
Service (other than amounts described in clause (e) of the definition of Scheduled Debt Service). If on any Scheduled Payment Date there are not sufficient Account Funds in the Debt Payment
Account to pay the Scheduled Debt Service (other than amounts described in clause (e) of the definition of Scheduled Debt Service) due and payable on such Scheduled Payment Date (after giving
effect to transfers from the Post-Completion Revenue Account to the Debt Payment Account on such Scheduled Payment Date), the Administrative Agent shall direct the Depositary Agent to
transfer Account Funds from the Debt Service Reserve Account to the Debt Payment Account in an amount sufficient to make up the deficiency in the Debt Payment Account. If at any time the amount of
Account Funds in the Debt Service Reserve Account exceeds the then current DSR Required Balance, the Administrative Agent shall direct the Depositary Agent to transfer an amount of Account Funds equal
to such excess from the Debt Service Reserve Account to the Post-Completion Revenue Account. Account Funds in the Debt Service Reserve Account that are not disbursed in accordance with
this Section 4.6.2 shall remain in the Debt Service Reserve Account." 

        (h)  Section 4.6.3
is amended by replacing the text with "Intentionally omitted." 

        (i)    Section 4.7
is amended by replacing the text with "Intentionally omitted." 

        (j)    Section 4.8.1(a)
is amended by (x) inserting "and" at the end of clause (iv), (y) replacing "; and" at the end of clause (v) with "."
and (z) deleting clause (vi). 

        (k)  Section 4.8.2
is amended by 

        (x)  replacing
the text in clauses (a), (b) and (d) as follows: 

"(a)
Casualty Insurance Proceeds. The Borrower shall be required to use all Casualty Insurance Proceeds to prepay Loans and, promptly upon the deposit
of any Casualty Insurance Proceeds into the Loss Proceeds Account, the Administrative Agent shall direct the Depositary Agent to (i) transfer such Casualty Insurance Proceeds to the
Administrative Agent for application to the prepayment of Loans in accordance with Section 2.1.8 of the Credit Agreement, or (ii) if
requested by the Borrower pursuant to the second sentence of Section 2.1.8 of the Credit Agreement, transfer such Casualty Insurance Proceeds to
the Prepayment Account." 

"(b)
Condemnation Proceeds. The Borrower shall be required to use all Condemnation Proceeds to prepay Loans and, promptly upon the deposit of any
Condemnation Proceeds into the Loss Proceeds Account, the Administrative Agent shall direct the Depositary Agent to (i) transfer such Condemnation Proceeds to the Administrative Agent for
application to the prepayment of Loans in accordance with Section 2.1.8 of the Credit Agreement, or (ii) if 

19

 

requested by the Borrower pursuant to the second sentence of Section 2.1.8 of the Credit Agreement, transfer such Condemnation Proceeds to the
Prepayment Account." 

"(d)
Other Proceeds. The Borrower shall be required to use all Other Proceeds to prepay Loans and, promptly upon the deposit of any Other Proceeds into
the Loss Proceeds Account, the Administrative Agent shall direct the Depositary Agent to (i) transfer such Other Proceeds to the Administrative Agent for application to the prepayment of Loans
in accordance with Section 2.1.8 of the Credit Agreement, or (ii) if requested by the Borrower pursuant to the second sentence of  Section 2.1.8 of the Credit Agreement, transfer such Other Proceeds to the Prepayment Account." and 

        (y)  deleting
clause (f). 

        (l)    Section 6.4
is amended by (x) deleting ", draws on the DSR Letter of Credit", (y) inserting "or" after "other application of cash," and
(z) deleting "or the proceeds of draws of the DSR Letter of Credit". 

        SECTION
5.    Amendment to Project Company Guarantees; Amendment to Bechtel Escrow Agreement.    

        (a)  Subject
to the satisfaction of the conditions precedent set forth in Section 6 hereof and subject to the other terms and conditions hereof, the GenHoldings
Lenders hereby agree to amend Section 5.15.1 of each of the Project Company Guarantees by adding the following sentence at the end thereof: "Notwithstanding anything in this
Section 5.15.1 of this Guaranty to the contrary, Guarantor may enter into a Change Order at any time with the prior consent of the Administrative Agent, so long as such Change Order does not
exceed $100,000 and all such Change Orders permitted under this sentence do not exceed $1,000,000 in the aggregate." 

        (b)  Subject
to the satisfaction of the conditions precedent set forth in Section 6 hereof, the GenHoldings Lenders hereby agree to amend the definition of "Permitted
Change Order" in each of the Project Company Guarantees by replacing clause (4) with "(4) after giving effect to such Change Order, Project Costs for the Project are within the Budgeted
construction costs (including Contingency) contained in the current Project Budget for the Project." 

        (c)  Subject
to the satisfaction of the conditions precedent set forth in Section 6 hereof, the GenHoldings Lenders hereby agree to an amendment to the escrow
agreement established pursuant to the Athens Project EPC Contract, to increase the required escrow balance in a manner consistent with approved Change Orders. 

        SECTION
6.    Conditions Precedent to Effectiveness of Agreement.    (a) This Agreement shall not be effective
unless and until the date when each of the following conditions shall have been satisfied or waived in the sole discretion of the Administrative Agent: 

          (i)  the
Administrative Agent shall have received and delivered to the Borrower counterparts of this Agreement duly executed by the Borrower, NEG and each of the GenHoldings
Lenders; 

        (ii)  the
Administrative Agent shall have received (x) the Project Company Acknowledgment set forth at the end hereof executed by each Project Company and
(y) the Intermediate Holding Company Acknowledgement set forth at the end hereof executed by each Intermediate Holding Company; 

        (iii)  to
the extent requested by the Administrative Agent, the Borrower shall have (x) terminated, or shall have caused the termination of, outstanding agreements
between the Project Companies and PGET, on mutually agreeable terms and conditions and (y) agreed to cooperate in a transition to a third-party power purchaser; 

20

 

        (iv)  the
Administrative Agent shall have received in cash, all accrued fees of the Administrative Agent's legal counsel, advisors and professionals (limited to Luskin,
Stern & Eisler LLP, Latham & Watkins, Sullivan & Cromwell, one local real estate counsel in each of Arizona, Michigan and Massachusetts, FTI Consulting, PA Consulting Group, R.W.
Beck, Pace Energy Consulting Group LLC, and The Blackstone Group L.P. (other than any success fee)); 

        (v)  the
Administrative Agent shall have received in cash, (x) for the account of the Tranche A Lenders, interest (as otherwise required under the Credit Agreement)
for the period from the date hereof through December 24, 2002 on the Maximum Tranche A Construction Loan Amount and (y) for the account of the Tranche A Banks, Letter of Credit Fees (as
calculated under Section 2.4.4 of the Credit Agreement) in advance on the Maximum Primary LC Amount (provided that such Letter of Credit Fees shall be deposited with the Security Agent in
accordance with Section 11(b) hereof); 

        (vi)  the
Administrative Agent shall have received in cash for its own account, the fee set forth in the Fee Letter dated the date hereof, between the Borrower and the
Administrative Agent; 

      (vii)  the
Administrative Agent shall have received a revised Borrower Budget, revised Project Budgets (for each Project Company) and revised Annual Operating Budgets (for
each Project Company) all in form and substance acceptable to the Administrative Agent and the GenHoldings Lenders (in their sole discretion); 

      (viii)  the
Administrative Agent shall have received in cash, for the account of the Tranche A Banks, in their Proportionate Shares, an upfront fee in the amount of 3% of the
sum of (x) the Maximum Tranche A Loan Amount plus (y) the Maximum Primary LC Amount; 

        (ix)  the
Borrower shall have delivered to the Administrative Agent such other documents as the Administrative Agent shall have reasonably requested; 

        (x)  there
shall be no pending or, to the knowledge of the Borrower after due inquiry, threatened litigation, proceeding, inquiry or other action (i) seeking an
injunction or other restraining order, damages or other relief with respect to the transactions contemplated by this Agreement and the other documents and agreements executed or delivered in
connection herewith or (ii) which affects or could reasonably be expected to affect the business, prospects, operations, assets, liabilities or condition (financial or otherwise) of any Credit
Party, except, in the case of clause (ii), where such litigation, proceeding, inquiry or other action either (x) was disclosed in writing to the GenHoldings Lenders prior
to the effectiveness of the Credit Agreement (or any amendment thereto) or (y) could not reasonably be expected to cause a material adverse effect on the Borrower's business; and 

        (xi)  after
the effectiveness hereof, no Borrower Inchoate Default, Borrower Event of Default, Project Inchoate Default, Project Event of Default or Waiver Default, shall
have occurred and be continuing on the date hereof (other than the Existing Defaults). 

        (b)  The
payments required to be made pursuant to clause (iv) of Section 6(a) hereof shall be made by a Person other than the Borrower or any of its
Subsidiaries. 

        SECTION
7.    Representations and Warranties.    The Borrower hereby represents and warrants to the Administrative
Agent and to the Lenders as follows: 

        (a)  The
Recitals in this Agreement are true and correct in all respects. 

        (b)  All
representations and warranties of the Borrower in the Credit Agreement and of each of the Borrower and the other Credit Parties in the other Credit Documents to
which it is a party are incorporated herein in full by this reference and are true and correct in all material respects as of the date hereof other than (x) such representations and warranties
that expressly relate solely to an earlier date, in which case, they are true and correct as of such earlier date and (y) the 

21

 

representation and warranty contained in Section 4.6 of the Credit Agreement, to the extent of the Existing Defaults. 

        (c)  After
the effectiveness hereof, no Borrower Inchoate Default, Borrower Event of Default, Project Inchoate Default or Project Event of Default, shall have occurred and be
continuing. 

        (d)  Each
of the Borrower and the other Credit Parties has the power and has been duly authorized by all requisite action, to execute and deliver this Agreement and the other
documents and agreements executed and delivered in connection herewith to which it is a party. This Agreement has been duly executed by the Borrower and the other documents and agreements executed and
delivered in connection herewith to which the Borrower or any Credit Party is a party have been duly executed and delivered by each of the Borrower and the other Credit Parties. 

        (e)  This
Agreement is the legal, valid and binding obligation of the Borrower and the other documents and agreements executed or delivered in connection herewith to which
the Borrower or any of the other Credit Parties is a party are the legal, valid and binding obligations of the Borrower and the
other Credit Parties, in each case enforceable against each of the Borrower and the other Credit Parties in accordance with their respective terms, except as such enforceability may be limited by any
applicable bankruptcy, insolvency, reorganization, moratorium, or similar law affecting creditors' rights generally. 

        (f)    The
execution, delivery and performance of this Agreement and the other documents and agreements executed and delivered in connection herewith does not and will not
(i) violate any law, rule, regulation or court order to which any of the Borrower or the other Credit Parties is subject; (ii) conflict with or result in a breach of the certificate of
formation or bylaws or Operating Agreement or Partnership Agreement of the Borrower or any of the other Credit Parties or any other agreement or instrument to which it is party or by which any of the
properties or assets of the Borrower or any of the other Credit Parties are bound; or (iii) result in the creation or imposition of any Lien, security interest or encumbrance on any property or
asset of the Borrower or any of the other Credit Parties or Liens permitted under the Credit Agreement, whether now owned or hereafter acquired, other than Liens in favor of the Administrative Agent
or Liens permitted under the Credit Agreement. 

        (g)  No
consent or authorization of, filing with or other act by or in respect of any Governmental Authority or any other Person is required in connection with the execution,
delivery, performance, validity or enforceability of (i) this Agreement by the Borrower or (ii) the other documents or agreements executed or delivered in connection herewith to which
any of the Borrower or the other Credit Parties is party, or the consummation of the transactions contemplated hereby or thereby, or the continuing operations of any of the Borrower or the other
Credit Parties following the consummation of such transactions. 

        (h)  (i) As
of the date hereof: (A) the aggregate outstanding principal amount of (I) Construction Loans is $1,067,612,000.07, (II) Working
Capital Loans is $0 and (III) Project LC Loans is $0; (B) the aggregate undrawn face amount of Project Letters of Credit is $3,591,900.00; and (C) the Available Equity Commitment
is $354,720,386.00. Interest and fees have accrued on the Loans and Project Letters of Credit as provided in the Credit Agreement. As of and on the date hereof, the obligation of the Borrower and the
other Credit Parties to repay the Loans and the other Obligations, together with all interest and fees accrued thereon, is absolute and unconditional, and there exists no right of set off or
recoupment, counterclaim or defense of any nature whatsoever to payment of the Obligations. 

        (ii)  As
of the date hereof, the liability of NEG under: (A) the NEG Equity Guaranty is in an amount not less than $354,720,386.00; and (B) the NEG EPC
Guarantees and the Other NEG Support Agreements is in an unliquidated amount, in each case, without any right of set off or recoupment, counterclaim or defense of any nature whatsoever. 

22

 

        SECTION
8.    NEG Obligations.    NEG hereby: 

        (a)  as
the equity guarantor under the NEG Equity Guaranty (along with the Borrower, and each of the Borrower's Subsidiaries as a guarantor or a pledgor), agrees to cooperate
with any reasonable proposal by the Administrative Agent regarding disposition of the equity in or assets of any or all of the Project Companies; 

        (b)  agrees
to continue to manage (in cooperation with the Borrower) the construction of the Projects and to operate the Millennium Project and upon Completion, to operate
any other Project (on mutually agreeable terms and conditions) until requested otherwise by the Administrative Agent and, if requested otherwise, to cooperate in a transition to a third-party
management company with respect to each operation; 

        (c)  agrees
to cooperate, and cause its Subsidiaries to cooperate, in all respects with the consultants and advisors engaged by the Administrative Agent (including, without
limitation, FTI Consulting, PA Consulting Group, R.W. Beck, Pace Energy Consulting Group LLC, and The Blackstone Group L.P. and all attorneys engaged by the Administrative Agent); 

        (d)  agrees
to reimburse, or cause the reimbursement of, the Administrative Agent for all reasonable costs, fees and expenses of counsel, consultants and other professionals
(limited to Luskin, Stern & Eisler LLP, Latham & Watkins, Sullivan & Cromwell, FTI Consulting, The Blackstone Group L.P. (other than any success fee), PA Consulting Group, Pace
Energy Consulting Group LLC, R.W. Beck and one local real estate counsel in each of Massachusetts, Arizona and Michigan) engaged by or on behalf of the Administrative Agent; 

        (e)  notwithstanding
the terms of this Agreement, reaffirms and acknowledges all of its obligations under each of the Operative Documents to which is it a party (including,
without limitation, the NEG Equity Guaranty, the NEG EPC Guarantees and the Other NEG Support Agreements) to the extent such obligations relate to the period during which NEG has a beneficial
ownership interest in any of the Projects; 

        (f)    agrees
that in the event of a filing of a petition for bankruptcy by or against the Borrower or any of its Subsidiaries, it shall cooperate with the efforts of the
Borrower and its Subsidiaries to ensure that all Tranche A Construction Loans, all Working Capital Loans, all Primary Letters of Credit and all other extensions of credit made by the GenHoldings
Lenders to the Borrower on or after October 25, 2002, shall be (x) repaid (or cash collateralized) with the proceeds of a debtor-in-possession financing (a
"DIP Facility") or (y) "rolled up" into the DIP facility and given the same priority and collateral as the DIP Facility; 

        (g)  agrees
that, if it shall pay any interest, fees or expenses to any of its creditors for any period of time, it shall pay interest, fees or expenses, as the case may be,
to the GenHoldings Lenders for the same period in connection with extensions of credit made by the GenHoldings Lenders on and after October 25, 2002 (so long as NEG shall not have made a
payment under the Available Equity Commitment); and 

        (h)  agrees
that as of the date hereof, its liability under: (i) the NEG Equity Guaranty is in an amount not less than $354,720,386.00; and (ii) the NEG EPC
Guarantees and the Other NEG Support Agreements is in an unliquidated amount, in each case, without any right of set off or recoupment, counterclaim or defense of any nature whatsoever. 

        SECTION
9.    Effect and Construction of Agreement.    

        (a)  Except
as expressly provided herein, the Credit Agreement and the other Credit Documents shall remain in full force and effect in accordance with their respective terms,
and this Agreement shall not be construed to: 

          (i)  impair
the validity, perfection or priority of any Lien or security interest securing the Obligations; 

23

 

        (ii)  waive
or impair any rights, powers or remedies of the Administrative Agent or any GenHoldings Lender under the Credit Agreement or any other Credit Document upon the
occurrence of the Waiver Expiration Date or otherwise, with respect to the Existing Defaults or otherwise; 

        (iii)  constitute
an agreement by the Administrative Agent or any GenHoldings Lender or require the Administrative Agent or any GenHoldings Lender to extend the Waiver
Expiration Date, or grant additional waivers or waiver periods, or extend the term of the Credit Agreement or the time for payment of any of the Obligations; or 

        (iv)  require
any GenHoldings Lender to make any Loans, issue any Letters of Credit, or provide other extensions of credit to the Borrower except as set forth herein. 

        (b)  This
Agreement shall constitute a Credit Document. 

        (c)  The
occurrence of the Waiver Expiration Date shall be a Borrower Event of Default with no grace period. 

        (d)  The
delivery by the Administrative Agent to the Borrower of notice of a Waiver Default shall constitute a Borrower Event of Default with no grace period. 

        (e)  In
the event of any inconsistency between the terms of this Agreement and the Credit Agreement or any of the other Credit Documents, this Agreement shall govern. The
Borrower acknowledges that it has consulted with counsel and with such other experts and advisors as it has deemed necessary in connection with the negotiation, execution and delivery of this
Agreement. This Agreement shall be construed without regard to any presumption or rule requiring that it be construed against the party causing this Agreement or any part hereof to be drafted. 

        SECTION
10.    Reference to and Effect on the Loan Documents.    Upon the effectiveness hereof, each reference in the
Credit Agreement to "this Agreement," "hereunder," "hereof" or words of like import referring to the Credit Agreement, and each reference in the other Credit Documents to the Credit Agreement,
"thereunder," "thereof" or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement, as modified hereby. 

        SECTION
11.    Miscellaneous.    

        (a)  Notwithstanding
anything in the Credit Documents to the contrary, the proceeds of all Loans shall be used in accordance with the terms of the Credit Agreement and the
other Credit Documents as modified hereby and by the documents executed in connection herewith, provided that proceeds of any Loans shall not be used
(i) to repay any equity holder (direct or indirect) of the Borrower for any Cash Equity Contribution or otherwise or (ii) to make any investments, loans, advances or distributions to any
equity holder (direct or indirect) of the Borrower. 

        (b)  Letter
of Credit Fees received by the Administrative Agent under Section 6(a)(v) hereof shall promptly be deposited with the Security Agent in a segregated
account (the "LC Fee Account") separate and apart from all of the Accounts under the Depositary Agreement. Such Letter of Credit Fees allocable to Primary Letters of Credit shall be disbursed by the
Security Agent to the applicable Tranche A Banks on December 24, 2002 (notwithstanding the occurrence and continuance of any Borrower Event of Default, Borrower Inchoate Default, Project
Inchoate Default or Project Event of Default (including, without limitation, the Existing Defaults)). Any amounts in the LC Fee Account in excess of such Letter of Credit Fees paid to the Tranche A
Banks on December 24, 2002, shall be disbursed (on December 24, 2002) to the Tranche A Lenders in their Proportionate Shares, and applied as a repayment of Tranche A Construction Loans
outstanding on such date (notwithstanding the occurrence and continuance of any Borrower Event of Default, Borrower Inchoate Default, Project Inchoate Default or Project Event of Default (including,
without limitation, the Existing Defaults)). 

24

 

        (c)  Notwithstanding
anything in the Credit Documents to the contrary, Annex I and Annex II hereto may not be amended, supplemented or modified in any way without the prior
written consent of each of the GenHoldings Lenders. 

        (d)  The
Borrower covenants and agrees that any construction management company and any operations and maintenance management company engaged by (or on behalf of) any of the
Project Companies shall be acceptable (and subject to engagement agreements) acceptable to the Administrative Agent and each of the GenHoldings Lenders in their sole discretion. 

        (e)  In
addition to, and not in limitation of, the terms and provisions of the Credit Agreement, the Borrower covenants and agrees that, so long as any Commitment, any Loan
or any Letter of Credit is outstanding and thereafter until satisfaction and payment in cash in full of the Obligations, and to the extent there are funds available for such purpose (if applicable),
it shall comply and shall cause each of its Subsidiaries to comply with all covenants in this Agreement, the Credit Agreement and each of the other Credit Documents. 

        (f)    The
Borrower agrees to execute (and to cause each of the other Credit Parties to execute) such other and further documents and instruments as the Administrative Agent
may request to implement the provisions of this Agreement. 

        (g)  This
Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns. No other person or
entity shall be entitled to claim any right or benefit hereunder, including, without limitation, the status of a third-party beneficiary of this Agreement. 

        (h)  This
Agreement, together with the Credit Agreement and the other Credit Documents, constitutes the entire agreement and understanding among the parties relating to the
subject matter hereof, and supersedes all prior proposals, negotiations, agreements and understandings relating to such subject matter. In entering into this Agreement, the Borrower acknowledges that
it is not relying on any statement, representation, warranty, covenant or agreement of any kind made by the Administrative Agent, any GenHoldings Lender, or any employee, agent or professional of the
Administrative Agent or any GenHoldings Lender, except for the express written agreements of the Administrative Agent and the GenHoldings Lenders set forth herein. 

        (i)    The
provisions of this Agreement are intended to be severable. If any provision of this Agreement shall be held invalid or unenforceable in whole or in part in any
jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or enforceability without in any manner affecting the validity or enforceability of such
provision in any other jurisdiction or the remaining provisions of this Agreement in any jurisdiction. 

        (j)    This
Agreement may be executed in counterparts and by any party to this Agreement on separate counterparts, all of which, when so executed, shall be deemed an original,
but all of such counterparts shall constitute one and the same agreement. Any signature delivered by a party by facsimile transmission shall be deemed to be, and effective as, an original signature
hereto. 

        (k)  Any
notices with respect to this Agreement shall be given in the manner provided for in Section 11.1 of the Credit Agreement. 

        (l)    All
representations, warranties, covenants, agreements, undertakings, waivers and releases of the Borrower contained herein shall survive the occurrence of the Waiver
Expiration Date and payment in full of the Obligations under the Credit Agreement. 

        (m)  No
amendment, modification, rescission, waiver or release of any provision of this Agreement shall be effective unless the same shall be in writing and signed by the
parties hereto. 

        (n)  Any
fees payable hereunder or in connection herewith (including, without limitation, under Section 6(a) hereof) shall be non-refundable and fully
earned when paid. 

25

 

        SECTION
12.    RELEASE OF CLAIMS.    EACH OF NEG AND THE BORROWER HEREBY ACKNOWLEDGES AND AGREES THAT IT DOES NOT HAVE
ANY DEFENSES, COUNTERCLAIMS, OFFSETS, CROSS-COMPLAINTS, CLAIMS OR DEMANDS OF ANY KIND OR NATURE WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF LIABILITY OF THE BORROWER TO
REPAY THE GENHOLDINGS LENDERS AS PROVIDED IN THE CREDIT AGREEMENT AND THE OTHER CREDIT DOCUMENTS OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF ANY KIND OR NATURE FROM THE ADMINISTRATIVE AGENT OR ANY
GENHOLDINGS LENDER. EACH OF NEG AND THE BORROWER HEREBY VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER DISCHARGES THE ADMINISTRATIVE AGENT AND THE GENHOLDINGS LENDERS, AND THE ADMINISTRATIVE AGENT'S
AND EACH GENHOLDINGS LENDER'S PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, OR EXPENSES, AND LIABILITIES
WHATSOEVER, KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS
AGREEMENT IS EXECUTED BY THE BORROWER, WHICH EITHER NEG OR THE BORROWER MAY NOW OR HEREAFTER HAVE AGAINST THE ADMINISTRATIVE AGENT OR ANY GENHOLDINGS LENDER IN THEIR CAPACITIES AS SUCH, AND THE
ADMINISTRATIVE AGENT'S OR ANY GENHOLDINGS LENDER'S PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, IF ANY, IN THEIR CAPACITIES AS SUCH, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT
OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE,
INCLUDING, WITHOUT LIMITATION, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE CREDIT AGREEMENT OR OTHER CREDIT DOCUMENTS, AND NEGOTIATION AND EXECUTION OF THIS AGREEMENT. 

        SECTION
13.    GOVERNING LAW; JURISDICTION; WAIVER OF JURY TRIAL.    The governing law, jurisdictional, venue, service
of process and jury trial waiver provisions set forth in Sections 11.6, 11.14 and 11.15 of the Credit Agreement shall apply to any suit, action or proceeding related to this Agreement. 

26

        IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. 

	 	 	 	 	BORROWER:
	

 	
 	

 	
 	

GENHOLDINGS I, LLC, as Borrower (for itself and as agent under the Depositary Agreement for each Approved Project Company and each Approved Intermediate Holding Company)
	

 	
 	

 	
 	

By:	
 	

        

	 	 	 	 	 	 	Name:

Title:
	

ACKNOWLEDGED AND AGREED:	
 	

 	
 	

 
	

PG&E NATIONAL ENERGY GROUP, INC.	
 	

 	
 	

 
	

By:	
 	

        
	
 	

 	
 	

 
	 	 	Name:

Title:	 	 	 	 

Additional
signature pages omitted 

[INTERMEDIATE
HOLDING COMPANY ACKNOWLEDGEMENT TO

THIRD WAIVER AND AMENDMENT] 

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Exhibit 10.17    
  

        EXECUTION COPY

GUARANTEE AND AGREEMENT

(LA PALOMA)  

 made by  

 PG&E NATIONAL ENERGY GROUP, INC.  

 in favor of  

 CITIBANK, N.A.,

as Security Agent  

 Dated as of April 6, 2001  

TABLE OF CONTENTS  

	 
	 	 
	 	Page

	SECTION I DEFINED TERMS	 	1
	

1.01.	
 	

Definitions	
 	

1
	1.02.	 	Other Definitional Provisions	 	15
	

SECTION II GUARANTEE	
 	

16
	

2.01.	
 	

Guarantee; Payment	
 	

16
	2.02.	 	Extent of Liability	 	16
	2.03.	 	Nature of Guarantee	 	16
	2.04.	 	Demands and Notice; Application of Proceeds	 	17
	2.05.	 	Consent to Modifications, Waivers	 	17
	2.06.	 	Subrogation	 	18
	2.07.	 	Substitute Credit Support	 	18
	

SECTION III REPRESENTATIONS AND WARRANTIES	
 	

18
	

3.01.	
 	

Organization; Powers; Ownership of Property	
 	

18
	3.02.	 	Authorization	 	19
	3.03.	 	Enforceability	 	19
	3.04.	 	Financial Statements	 	19
	3.05.	 	Litigation	 	19
	3.06.	 	Federal Reserve Regulations	 	20
	3.07.	 	Investment Company Act; Public Utility Holding Company Act	 	20
	3.08.	 	No Material Misstatements	 	20
	3.09.	 	Taxes	 	20
	3.10.	 	Employee Benefit Plans	 	20
	3.11.	 	Governmental Approval; Compliance with Law and Contracts	 	20
	3.12.	 	Environmental Matters	 	21
	3.13.	 	Ranking	 	21
	3.14.	 	Unrestricted Subsidiaries	 	24
	3.15.	 	Separateness from PG&E	 	24
	

SECTION IV COVENANTS	
 	

24
	

4.01.	
 	

Maintenance of Ownership	
 	

24
	4.02.	 	Existence	 	24
	4.03.	 	Compliance with Law; Business and Properties	 	24
	4.04.	 	Financial Statements, Reports, Etc.	 	26
	4.05.	 	Insurance	 	26
	4.06.	 	Taxes, Etc.	 	26
	4.07.	 	Maintaining Records; Access to Properties and Inspections	 	26
	4.08.	 	Risk Management Procedures	 	26
	4.09.	 	Merger	 	26
	4.10.	 	Investments	 	26
	4.11.	 	Liens	 	27
	4.12.	 	Indebtedness	 	28
	4.13.	 	Transactions with Affiliates	 	30
	4.14.	 	Distributions	 	30
	4.15.	 	Financial Covenants	 	30
	4.16.	 	Separateness from PG&E Corp.	 	33
	4.17.	 	PG&E Gen Credit Agreement Covenants	 	33
	

SECTION V NEG TRIGGER EVENTS	
 	

33

	

5.01.	
 	

NEG Trigger Events	
 	

33
	

SECTION VI MISCELLANEOUS	
 	

34
	

6.01.	
 	

Amendments	
 	

34
	6.02.	 	Successors and Assigns	 	34
	6.03.	 	GOVERNING LAW	 	34
	6.04.	 	No Waiver, Cumulative Remedies	 	34
	6.05.	 	Authority and Rights of Security Agent	 	35

Schedules  

	1.01A	 	Existing Sale-Leaseback Transactions
	1.01B	 	Terms and Conditions of Subordination for Indebtedness to Affiliates
	1.01C	 	Terms and Conditions of Subordination for Indebtedness to Non-Affiliates
	3.05	 	Litigation
	3.12	 	Environmental Matters
	3.14	 	Unrestricted Subsidiaries
	4.01	 	Certain Restricted Subsidiaries not Subject to Sections 4.01 or 4.02
	4.10	 	Other Existing Investments
	4.11	 	Other Existing Liens
	4.12(a)	 	Indebtedness under Certain Credit Agreements
	4.12(f)	 	Other Existing Indebtedness
	4.13	 	Description of Existing Management, Operation, Sharing and Similar Arrangements with Affiliates

Exhibits  

	A	 	Form of Payment Demand

GUARANTEE AND AGREEMENT  

        GUARANTEE AND AGREEMENT dated as of April 6, 2001 (this "Guarantee and Agreement") by PG&E NATIONAL ENERGY
GROUP, INC., a Delaware corporation (this "Guarantor"), in favor of Citibank, N.A. as security agent (in such capacity, the
"Security Agent") for the Creditors. 

W I T N E S S E T H  

        WHEREAS, as contemplated by the Participation Agreement, dated as of March 7, 2000, among La Paloma Generating Company, LLC, La Paloma Generating
Trust Ltd., Wilmington Trust Company, the Lenders party thereto, the Tranche A Banks party thereto, the Investors party thereto and Citibank, N.A., as administrative agent and security agent
(the "Participation Agreement"), the Lenders, Investors and other Creditors have agreed to make extensions of credit subject to the terms of the
Operative Documents; 

        WHEREAS,
as contemplated by the Omnibus Restructuring Agreement, dated as of April 6, 2001, among PG&E Corporation, the Guarantor, PG&E Generating Company, LLC, La Paloma
Generating Company, LLC, La Paloma Generating Trust Ltd., Wilmington Trust Company, the Lenders party thereto, the Tranche A Banks party thereto, the Investors party thereto, Citibank, N.A. and
the other parties thereto (the "Omnibus Restructuring Agreement"), the parties thereto have agreed to certain amendments, waivers and modifications
regarding the transactions contemplated by the Operative Documents (as defined in the Participation Agreement) in accordance with the terms of the Omnibus Restructuring Agreement; 

        WHEREAS,
it is a condition precedent to the effectiveness of the Omnibus Restructuring Agreement that the Guarantor shall have executed and delivered this Guarantee and Agreement to the
Security Agent for the benefit of the Creditors; 

        WHEREAS,
the Guarantor owns directly or indirectly all of the membership interests in the Company, and the Guarantor will derive substantial direct and indirect benefit from the
extensions of credit pursuant to the Operative Documents; 

        NOW,
THEREFORE, in consideration of the Creditors agreeing to make further extensions of credit pursuant to the Operative Documents as amended by the Omnibus Restructuring Agreement and
the agreements contemplated thereby, the Guarantor agrees as follows: 

SECTION I DEFINED TERMS  

        1.01.    Definitions.    (a) Unless otherwise defined herein, capitalized terms used herein shall have the
meanings given to them in the Participation Agreement (as amended by the Omnibus Restructuring Agreement). 

        (b)  The
following terms shall have the following meanings: 

        "$1.1 Billion PG&E Gen Credit Agreement" shall mean the $1,100,000,000 Credit Agreement, dated as of September 1, 1998, as amended
as of the date hereof, among PG&E Gen and the lenders party thereto. 

        "Actual Knowledge" shall mean, with respect to any Person as to any event or circumstance, the actual knowledge of the Responsible Officer
of such Person or receipt by such Person from the Administrative Agent or Security Agent, as the case may be, of notice of such event or circumstance. 

        "Affiliate" shall mean, when used with respect to a specified Person, another Person that directly or indirectly controls or is controlled
by or is under common control with the Person specified. For this purpose, "control" of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through ownership of voting shares, by contract or otherwise. 

 

        "Asset Company" shall mean any entity (a) (i) whose principal purpose is the acquisition, improvement, installation, design,
engineering, construction, development, completion, financing, maintenance or operation of all or any part of a project or projects, or any asset related thereto, used in the business of generating,
transmitting, transporting, distributing, producing or storing electric power, thermal energy, natural gas or other fuel or other energy-related businesses and (ii) substantially all its assets
are limited to those assets being financed (or to be financed), or the operation of which is being financed (or to be financed), in whole or in part by a Project Financing Facility entered into by
such entity and/or any Investment Vehicle that owns such entity or by contributions or intercompany loans from the Guarantor, any Restricted Subsidiary or any such Investment Vehicle or
(b) which entity is a Subsidiary of an entity described in clause (a) and the business and assets of which are related to the business of such entity and which does not incur any
Indebtedness other than (A) intercompany loans from an Asset Company which is the parent of such Subsidiary, the Guarantor, any Restricted Subsidiary or any Investment Vehicle that indirectly
owns such Subsidiary, (B) Indebtedness of the type described in Section 4.12(i) or (C) Indebtedness under a Project Financing Facility. 

        "Business Day" shall mean any day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or
required by law to close. 

        "Cash Equivalents" shall mean (a) any evidence of indebtedness with a maturity of 180 days or less issued or directly and
fully guaranteed or insured by the United States, Canada or any U.S. agency or instrumentality; (b) certificates of deposit or acceptances or Eurodollar time deposits with a maturity of
180 days or less of, and overnight bank deposits and demand accounts with (i) any financial institution that is not a foreign bank or a foreign bank holding company that has a bankwatch
rating of at least B/C by Fitch and a commercial paper rating of at least A-1 by S&P, F1 by Fitch or P-1 by Moody's or (ii) any financial institution that is a foreign
bank or a foreign bank holding company that has a sovereign risk rating of at least AA by Fitch, a bankwatch rating of at least B by Fitch, a commercial paper rating of at least A-1 by
S&P, F1 by Fitch or P-1 by Moody's and a minimum of US$20 billion in assets; (c) commercial paper with a maturity of 180 days or less issued by a U.S. or Canadian
incorporated company that is not an Affiliate of the Guarantor and rated at least A-1 by S&P, F1 by Fitch or at least P-1 by Moody's; (d) Repurchase Agreements with a
maturity of 90 days or less made with banks which meet the criteria in clause (b) above and primary government security dealers (as defined by the Federal Reserve System) which meet the
criteria in clause (c) above, and are fully collateralized by investments meeting the criteria of clause (a) above; (e) tax-exempt municipal obligations of any state
of the United States, or any municipality of any such state which mature within 180 days from the date of acquisition thereof and which, in each case, are rated at least MIG-1 or
VMIG-1 by Moody's, and SP-1/A-1 or AA/A-1 by S&P; and (f) institutional money market funds that exclusively invest in any of the foregoing. 

        "Cash Flow Available for Fixed Charges" for any period shall mean, without duplication, (i) EBITDA of the Guarantor and its
Consolidated Subsidiaries which are not Unrestricted Subsidiaries for such period, minus (ii) EBITDA for such period of such Consolidated
Subsidiaries that are financed with Indebtedness of such Subsidiary or which are direct or indirect Subsidiaries of a Financed Subsidiary of the Guarantor,  plus (iii) Distributions received by the
Guarantor from Subsidiaries described in the foregoing clause (ii) during such period except to
the extent the amount of such Distributions previously constituted "Cash Flow Available for Fixed Charges" during such period as a result of clause (viii) below,  minus (iv) Distributions
described in the foregoing clause (iii) that are attributable to extraordinary gains or other
non-recurring items described in clause (iii) of the definition of "EBITDA", minus (v) any income reported by the Guarantor
for such period for Persons that are not Consolidated
Subsidiaries of the Guarantor, plus (vi) Distributions received by the Guarantor from Persons described in the foregoing 

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clause (v) during such period, minus (vii) Distributions described in the foregoing clause (vi) that are attributable to
extraordinary gains or other non-recurring items described in clause (iii) of the definition of "EBITDA", plus,(viii) cash and
Cash Equivalents of Subsidiaries described in clause (ii) above that are legally and contractually available to such Subsidiary for the payment of dividends to the Guarantor, but only to the
extent that the source of such cash and Cash Equivalents is from such Subsidiary's EBITDA for such period or from repayments during such period to such Subsidiary of loans made by such Subsidiary. 

        "Consolidated Net Worth" shall mean, as of any date of determination thereof, the amount which would be reflected as stockholders' equity
upon a consolidated balance sheet of the Guarantor (but excluding any portion thereof attributable to Unrestricted Subsidiaries) determined in accordance with GAAP, excluding other comprehensive
income arising from the accounting treatment of hedging and mark-to-market transactions. 

        "Consolidated Subsidiary" shall mean with respect to any Person at any date any Subsidiary or other entity the accounts of which would be
consolidated in accordance with GAAP with those of such Person in its consolidated financial statements as of such date. 

        "Consolidated Tangible Net Assets" shall mean at any date the total net assets of the Guarantor and its Consolidated Subsidiaries (other
than Unrestricted Subsidiaries) determined in accordance with GAAP, excluding, however, from the determination of total net assets (i) goodwill, organizational expenses, research and product
development expenses, trade marks, trade names, copyrights, patents, patent applications, licenses and rights in any thereof, and other similar intangibles, (ii) all deferred charges or
unamortized debt discount and expenses, (iii) all reserves carried and not deducted from assets, (iv) securities which are not readily marketable, (v) cash held in sinking or
other analogous funds established for the purpose of redemption, retirement or prepayment of capital stock or other equity interests or Indebtedness, and (vi) any items not included in clauses
(i) through (v) above which are treated as intangibles in conformity with GAAP. 

        "Credit Support Arrangements" shall mean any Guaranty, letter of credit or other instrument or arrangement issued as support for the
payment or performance obligations of a party under any Trading Arrangement. 

        "Distribution" shall mean, in respect of any Person, (i) any payment of any dividends or other distributions with respect to the
capital stock or other equity interests of such Person (except distributions in such capital stock or other equity interests) and (ii) any purchase, redemption or other acquisition or
retirement for value of any capital stock or other equity interests of such Person or any Affiliate of such Person unless made contemporaneously from the net proceeds of the sale of capital stock or
other equity interests. 

        "EBITDA" shall mean, with respect to any Person for any period, the (i) income (or loss) before interest and taxes of such Person,  plus (ii) to the extent
deducted in determining such income (or loss), depreciation, amortization and other similar non-cash charges
and reserves, minus (iii) to the extent recognized in determining such income (or loss), extraordinary gains (or losses), restructuring charges
or other non-recurring items, plus (iv) to the extent deducted in determining such income (or loss), Lease Payment Obligations
described in clause (iii) of the definition of "Lease Payment Obligations". 

        "Equity Funding Arrangement" shall mean (i) an agreement to provide a capital contribution to or other equity investment in any
Asset Company or Investment Vehicle in connection with any Project Financing Facility, (ii) a Guaranty, letter of credit or other similar arrangement with respect to any obligations of any
Asset Company or Investment Vehicle under a Project Financing Facility, (iii) a Guaranty of any Investment Vehicle's obligation to make a capital contribution to or 

3

 

other equity investment in any Asset Company or Investment Vehicle in connection with a Project Financing Facility or (iv) a Guaranty, letter of credit or other similar arrangement to support
any of the obligations or arrangements described in clauses (i) through (iii) hereof. 

        "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time. 

        "ERISA Affiliate" shall mean any trade or business (whether or not incorporated) that is a member of a group of (i) organizations
described in Sections 414(b) or 414(c) of the Code and (ii) solely for purposes of the Lien created under Section 412(n) of the Code, organizations described in Sections 414(m) or 414(o)
of the Code of which the Guarantor is a member. 

        "ERISA Event" shall mean (i) the Guarantor or any ERISA Affiliate shall fail to pay when due an amount or amounts aggregating in
excess of $15,000,000 which it shall have become liable to pay under Title IV of ERISA; or (ii) notice of intent to terminate a Material Plan shall be filed under Title IV of ERISA by the
Guarantor or any ERISA Affiliate, any plan administrator or any combination of the foregoing; or (iii) the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose
liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any Material Plan; or (iv) a condition shall exist by
reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or (v) there shall occur a complete or partial withdrawal from, or a
default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which could cause the Guarantor or any ERISA Affiliate to incur a current payment
obligation in excess of $15,000,000; or (vi) receipt by the Guarantor or any ERISA Affiliate of notice from one or more Multiemployer Plans of intent to terminate or that it is insolvent or in
reorganization (within the meaning of Section 4241 or 4245 of ERISA, as applicable) which termination, insolvency or reorganization, individually or together with other such events, could cause
the Guarantor and/or any ERISA Affiliate, individually or in the aggregate, to incur a current payment obligation in excess of $15,000,000; or (vii) the Guarantor or any ERISA Affiliate shall
engage in one or more non-exempt
"prohibited transactions" (as defined in Section 406 of ERISA or Section 4975 of the Code) which could result in a current payment obligation of the Guarantor and/or any ERISA Affiliate
individually or in the aggregate, in an amount or amounts aggregating in excess of $15,000,000; or (viii) the occurrence of any event or series of events of which the nature described in
clauses (i) through (vii) with respect to any Plan or Multiemployer Plan which, individually or in the aggregate, could result in a liability to the Guarantor and/or any ERISA Affiliate,
individually or in the aggregate, in an amount or amounts aggregating in excess of $50,000,000. 

        "ET Credit Agreements" shall mean (i) the $50,000,000 Credit Agreement, dated as of November 13, 1998, between PG&E Energy
Trading Gas Corporation, PG&E Energy Trading, Canada Corporation, ET Holdings, PG&E Energy Trading Power, L.P. and Bank of Montreal and (ii) the $35,000,000 Credit Agreement, dated as of
November 13, 1998, between PG&E Energy Trading—Gas Corporation, PG&E Energy Trading, Canada Corporation, PG&E Energy—Trading Power Holdings Corporation, PG&E Energy
Trading Power, L.P. and The Chase Manhattan Bank, as each may be amended, modified or supplemented from time to time. 

        "ET Holdings" shall mean PG&E Energy Trading Holdings Corporation, a California corporation. 

        "Federal Reserve System" shall mean the Federal Reserve System of the United States of America. 

        "Financed Subsidiary" shall mean any direct or indirect Subsidiary of the Guarantor that is financed with Indebtedness of such Subsidiary. 

4

 

        "Financial Officer" of any Person shall mean the chief financial officer, principal accounting officer, treasurer, associate or assistant
treasurer, or any responsible officer analogous to the foregoing or designated by the one of the foregoing Persons, of such Person. 

        "Fitch" shall mean Fitch, Inc. 

        "Fixed Charges" shall mean, with respect to the Guarantor for any period, the sum, without duplication, of (i) the aggregate amount
of interest expense and commitment and other fees with respect to Funded Indebtedness of the Guarantor Scheduled to be Paid for such period, including (A) the net costs under Swaps,
(B) all capitalized interest, (C) the interest portion of any deferred payment obligation and (D) the Lease Payment Obligations of the Guarantor Scheduled to be Paid by the
Guarantor during such period, and (ii) the aggregate amount of all mandatory scheduled payments (whether designated as payments or prepayments) and scheduled sinking fund payments with respect
to principal of any
Funded Indebtedness of the Guarantor, including payments in the nature of principal under Lease Obligations, provided that with respect to any Funded
Indebtedness of the Guarantor consisting of Equity Funding Arrangements, "Fixed Charges" shall not include any of the foregoing enumerated items to the extent paid by a Subsidiary of the Guarantor (so
long as the funds used to make such payments were not provided by the Guarantor). 

        "Funded Indebtedness" of a Person shall mean all Indebtedness of such Person (after intercompany eliminations) other than any Guaranty
obligations that are not reasonably quantifiable under standard accounting practices as of the date of determination. 

        "GAAP" shall mean generally accepted accounting principles, applied on a consistent basis. 

        "Governmental Approvals" shall mean all authorizations, consents, approvals, licenses and exemptions of, registrations and filings with,
and notices and reports to all Governmental Authorities. 

        "Government Authority" shall mean any Federal, state, county, municipal or other local governmental authority or judicial or regulatory
agency, board, body, commission or instrumentality. 

        "GTN" shall mean PG&E Gas Transmission, Northwest Corporation, a California corporation. 

        "GTN Credit Agreements" shall mean (i) the $750,000,000 Indenture, dated as of May 22, 1995, between GTN and The First
National Bank of Chicago, as trustee and (ii) the $100,000,000 Amended and Restated Credit Agreement and $50,000,000 364-Day Credit Agreement, each dated May 24, 1999,
between GTN, the lenders party thereto and Citicorp USA, Inc., as administrative agent for such lenders, including any commercial paper supported by credit facilities made available under such
credit agreements, as the same may be amended, modified or supplemented from time to time. 

        "Guarantee Draw Amount" shall mean, as of the date of payment by the Guarantor, the Maximum Guarantee Amount on such date. 

        "Guaranteed Obligations" shall mean the collective reference to all payment obligations and liabilities of the Company (including, without
limitation, interest accruing at the applicable rate provided in the applicable Operative Document and interest accruing at the applicable rate provided in the applicable Operative Document after the
filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding relating to the Company, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding) to any Creditor, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred under
the
Participation Agreement, the Construction Agency Agreement, the Lease, the Structural Guarantee or any of the other Operative Documents. 

5

 

        "Guarantor" shall be defined as in the recitals hereto. 

        "Guaranty" shall mean (a) a guaranty by a Person (other than by endorsement of negotiable instruments for collection in the
ordinary course of business), directly or indirectly, in any manner, of any part or all of the obligations of another Person; and (b) an agreement by a Person, direct or indirect, contingent or
otherwise, and whether or not constituting a guaranty, the practical effect of which is to assure the payment or performance (or payment of damages in the event of nonperformance) of any part or all
of the obligations of another Person (other than in respect of operating leases not otherwise included in the definition of "Lease Obligations"), whether by (i) the purchase of securities or
obligations, (ii) the purchase, sale or lease of property or the purchase or sale of services primarily for the purpose of enabling the obligor with respect to such obligation to make any
payment or performance (or payment of damages in the event of nonperformance) of or on account of any part or all of such obligation, or to assure the obligee of such obligation against loss,
(iii) repayment of amounts drawn down by beneficiaries of letters of credit, (iv) the maintenance of working capital, equity capital, available cash or other financial statement
condition so as to enable the primary obligor to pay Indebtedness; (v) the provision of equity or other capital under or in respect of equity or other capital subscription arrangements,
(vi) the supplying of funds to or investing in a Person on account of all or any part of such Person's obligation or indemnifying or holding harmless, in any way, such Person against any part
or all of such obligation or (vii) the placing of any Lien on property (including, without limitation, accounts and contract rights) of a Person to secure another Person's Indebtedness. 

        "Incipient NEG Trigger Event" shall mean any condition or event which, with notice or lapse of time or both, would become a NEG Trigger
Event. 

        "Indebtedness" of any Person shall mean (i) all indebtedness of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, (iv) all
indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession or sale of such property), (v) all Lease Obligations of such Person, (vi) all obligations, contingent or
otherwise, of such Person under any issued and outstanding acceptance, letter of credit or similar instruments, (vii) all obligations of such Person to redeem or purchase any capital stock of
such Person which is mandatorily redeemable, (viii) all Swaps of such Person and (ix) any Guaranty of such Person with respect to liabilities of the type described in clauses
(i) through (viii) hereof. 

        "Investment" shall mean the acquisition of any interest in any Person or property, a loan or advance to any Person or other arrangement
for the purpose of providing funds or credit to any Person, a capital contribution in or to any Person, or any other investment in any Person or property, or any Guaranty of any of the foregoing. 

        "Investment Vehicle" shall mean each Subsidiary of the Guarantor which is organized solely to acquire, make or hold one or more
Investments in an Asset Company or Asset Companies, either directly or indirectly through one or more other Investment Vehicles. 

        "Lease Obligations" shall mean, without duplication, (i) any Indebtedness represented by obligations under a lease that is required
to be capitalized for financial reporting purposes and (ii) the present value, determined using a discount rate equal to the incremental borrowing rate (as defined in Statement of Financial
Accounting Standards No. 13) of the Person incurring such obligations, of rent obligations under leases of electric generating assets or natural gas pipelines and related facilities. 

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        "Lease Payment Obligations" shall mean, with respect to any Person for any period, (i) the interest component of all Lease
Obligations of such Person that are described in clause (i) of the definition of "Lease Obligations" and that are Scheduled to be Paid during such period,  plus (ii) the principal portion of
all Lease Obligations of such Person that are described in clause (i) of the definition of "Lease
Obligations" that are Scheduled to be Paid during such period, plus (iii) all rent payment obligations relating to Lease Obligations of such
Person described in clause (ii) of the definition of "Lease Obligations" and that are Scheduled to be Paid during such period. 

        "Letter Agreement" shall mean the letter agreement, dated as of April 6, 2001, from NEG LLC addressed to the Security Agent, for
the benefit of the Creditors. 

        "Lien" shall mean, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect
of such asset or any interest or title of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset. 

        "Material Adverse Effect" shall mean a materially adverse change in (a) the business, assets, property or condition (financial or
otherwise) or operations of the Guarantor and its Subsidiaries taken as whole, or (b) the ability of the Guarantor to perform its obligations under this Guarantee and Agreement. 

        "Material Plan" shall mean any Plan or Plans having aggregate Unfunded Liabilities in excess of $50,000,000. 

        "Maximum Guarantee Amount" shall mean, as of any date of payment by the Guarantor, the aggregate of the amount of the unpaid principal of
all Tranche A Loans (or, if higher, an amount equal to the aggregate outstanding Tranche A Loan Commitments in effect at such time, or, if not in effect at such time, in effect immediately prior to
any termination thereof) and the amount of all accrued and unpaid interest thereon and other amounts payable in connection with the Tranche A Loans. 

        "Minimum Consolidated Net Worth" shall mean US$1.8 billion. 

        "Minimum Non-Trading Consolidated Net Worth" shall mean US$1.4 billion. 

        "Moody's" shall mean Moody's Investors Service, Inc. 

        "Multiemployer Plan" shall mean a multiemployer plan as defined in Section 4001(a)(3) of ERISA to which the Guarantor or any ERISA
Affiliate is making, or accruing an obligation to make, contributions, or has within any of the preceding six years made, or accrued an obligation to make, contributions. 

        "NEG/ET Letter of Credit Facilities" shall mean a letter of credit facility entered into by ET Holdings, any of its Subsidiaries and/or
the Guarantor in an aggregate amount not to exceed $500,000,000, as the same may be amended, modified or supplemented from time to time. 

        "NEG Downgrade Event" shall mean (i) unless the NEG Guarantee Release Date has occurred, the Guarantor's senior unsecured long term
debt (x) ceases to be rated at least BBB- by S&P and (y) ceases to be rated at least Baa3 by Moody's (or if ratings of such debt have not been issued by such rating agencies,
such debt ceases to be impliedly rated by an issuer rating or indicative rating at least BBB- by S&P and Baa3 by Moody's) and the Guarantor fails to provide to the Security Agent, within
thirty (30) days after the date on which such event occurs, a Substitute Credit Support Instrument in the amount of the Substitute Credit Support Amount or (ii) if a Substitute Credit
Support Instrument in the form of a guaranty pursuant to clause (b) of the definition thereof has been provided in accordance with Section 2.07, from and after the 

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effectiveness of such Substitute Credit Support Instrument, the senior unsecured long term debt of the guarantor thereunder (x) ceases to be rated at least BBB- by S&P and
(y) ceases to be rated at least Baa3 by Moody's (or if ratings of such debt have not been issued by such rating agencies, such debt ceases to be impliedly rated by an issuer rating or
indicative rating at least BBB- by S&P and Baa3 by Moody's) and the guarantor thereunder fails to provide to the Security Agent, within thirty (30) days after the date on which such
event occurs, a Substitute Credit Support Instrument in the amount of the Substitute Credit Support Amount. 

        "NEG Guarantee Release Date" shall mean the earliest of (x) the date on which the Guaranteed Obligations have been paid in full,
(y) the date on which NEG pays an amount equal to the Maximum Guarantee Amount to the Security Agent in accordance with the terms of this Guarantee and Agreement and (z) the date on
which this Guarantee and Agreement terminates in accordance with Section 2.07(b) hereof. 

        "NEG LLC" shall mean PG&E National Energy Group, LLC, a Delaware limited liability company. 

        "NEG Trigger Event" shall mean any of the events set forth in Section V of this Guarantee and Agreement. 

        "Non-Trading Consolidated Net Worth" shall mean, as of any date of determination thereof, the amount which would be reflected
as stockholders' equity upon a consolidated balance sheet of the Guarantor (but excluding any portion thereof attributable to (i) Unrestricted Subsidiaries or (ii) ET Holdings or any
Subsidiary thereof) excluding other comprehensive income arising from the accounting treatment of hedging and mark-to-market transactions. 

        "Other NEG Guarantees" shall mean (i) the Guarantee and Agreement, dated as of April 6, 2001, made by the Guarantor in favor
of Citibank, N.A., for the benefit of the lenders and investors under the Participation Agreement, dated as of August 28, 1999, among Lake Road Generating Company, L.P., Lake Road
Trust Ltd., Wilmington Trust Company, the Lenders party thereto, the Tranche A Banks party thereto, the Investors party thereto and Citibank, N.A. (as amended by the Omnibus Restructuring
Agreement, dated as of April 6, 2001, among the same parties and other parties thereto), (ii) the Guarantee and Agreement to be delivered by the Guarantor in favor of the security agent
thereunder, for the benefit of the lenders and investors under the Participation Agreement, dated as of November 22, 2000, among Harquahala Generating Company, LLC, Harquahala Generating Trust
of Delaware Ltd., Wilmington Trust Company, the Lenders party thereto, the Investors party thereto, Société Générale and State Street
Bank and Trust Company and (iii) the Guarantee and Agreement to be delivered by the Guarantor in favor of Société Générale, for the
benefit of the lenders under the Credit Agreement to be executed among PG&E National Energy Group Construction Company, LLC, the lenders party thereto and Société
Générale. 

        "Payment Demand" shall mean the payment demand in the form of Exhibit A. 

        "PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. 

        "Permitted Encumbrances" shall mean, as to any Person at any date, any of the following: 

          (i)  Liens
for taxes, assessments or governmental charges not then delinquent, and Liens for taxes, assessments or governmental charges then delinquent but the validity of
which is being contested at the time by such Person in good faith and for which adequate reserves have been established in accordance with GAAP, and (ii) Liens incurred or created in connection
with or to secure the performance of bids, tenders, contracts (other than for the payment of money), leases, statutory obligations, surety bonds or appeal bonds, and carriers', 

8

 

warehousemen's, mechanics' or materialmen's Liens, assessments or similar encumbrances incurred in the ordinary course of business; 

        (ii)  easements,
restrictions, exceptions or reservations in any property and/or rights of way of such Person for the purpose of roads, pipe lines, substations, transmission
lines, transportation lines, distribution lines, removal of oil, gas, lignite, coal or other minerals or timber, and other like purposes, or for the joint or common use of real property, rights of
way, facilities and/or equipment, and defects, irregularities and deficiencies in titles of any property and/or rights of way, which do not individually or in the aggregate materially impair the use
or value of such property and/or rights of way for the purposes for which such property and/or rights of way are held by such Person; 

        (iii)  rights
reserved to or vested in any municipality or public authority to use, control or regulate any property of such Person; 

        (iv)  any
obligations or duties, affecting the property of such Person, to any municipality or public authority with respect to any franchise, grant, license or permit; 

        (v)  any
judgment Lien against such Person securing a judgment for an amount not exceeding $50,000,000, so long as the finality of such judgment is being contested by
appropriate proceedings conducted in good faith and execution thereon is stayed; 

        (vi)  any
Lien arising by reason of deposits with or giving of any form of security to any federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, for any purpose at any time as required by law or governmental regulation as a condition to the transaction of any business or the exercise of
any privilege or license, or to enable such Person to maintain self-insurance or to participate in any fund for liability on any insurance risks or in connection with workers'
compensation, unemployment insurance, old age pensions or other social security or to share in the privileges or benefits required for companies participating in such arrangements; or 

      (vii)  any
landlords' Lien on fixtures or movable property located on premises leased by such Person in the ordinary course of business so long as the rent secured thereby is
not in default. 

        "Permitted Sale-Leaseback Transactions" shall mean (i) Sale-Leaseback transactions by any Restricted
Subsidiary or Asset Company, entered into on or prior to the date of this Guarantee and Agreement and identified on Schedule 1.01A and (ii) one or more Sale/Leaseback transactions
entered into by any Asset Company in connection with or as part of a Project Financing Facility entered into after the date of execution of this Guarantee and Agreement. 

        "Permitted Subordinated Indebtedness" shall mean all unsecured Indebtedness of the Guarantor that shall have been subordinated to all
Indebtedness of the Guarantor under this Guarantee and Agreement and otherwise containing terms and conditions set forth in Schedule 1.01B with respect to Indebtedness of the Guarantor to
Affiliates of the Guarantor or in Schedule 1.01C with respect to Indebtedness of the Guarantor to non-Affiliates of the Guarantor. 

9

  

        "Person" shall mean any individual, corporation, partnership, joint venture, association, joint-stock company, limited liability company,
trust, unincorporated organization, governmental authority or any other entity. 

        "PG&E" shall mean Pacific Gas & Electric Company, a California corporation. 

        "PG&E Corp." shall mean PG&E Corporation, a California corporation. 

        "PG&E Gen" shall mean PG&E Generating Company, LLC, a Delaware limited liability company. 

        "PG&E Gen Credit Agreements" shall mean (i) the $1.1 Billion PG&E Gen Credit Agreement, including any commercial paper supported by
credit facilities made available thereunder, and (ii) the $10,000,000 Credit Agreement, dated as of December 14, 1999, between PG&E Gen and ABN AMRO Bank N.V., as each may be amended,
modified or supplemented from time to time. 

        "PG&E Gen Credit Agreement Refinancing Date" shall mean the date on which the commitments and all amounts outstanding under the $1.1
Billion PG&E Gen Credit Agreement are refinanced by one or more credit facilities of the Guarantor. 

        "Plan" shall mean any employee pension benefit plan described under Section 3(2) of ERISA (other than a Multiemployer Plan) subject
to the provisions of Title IV of ERISA that is maintained by the Guarantor or any ERISA Affiliate or with respect to which the Guarantor or any ERISA Affiliate could have liability under
Section 4069 of ERISA. 

        "Project Financing Facility" shall mean any loan, note purchase agreement, indenture, lease, credit agreement, reimbursement agreement,
letter of credit or other facility pursuant to which an Asset Company or Investment Vehicle which directly or indirectly owns an Asset Company incurs Indebtedness,  provided that any such Indebtedness is
recourse only to (a) the assets of such Asset Company or any Asset Company which is a Subsidiary of such
Asset Company, (b) the equity or ownership interests of such Asset Company or any Investment Vehicle which owns such Asset Company
or (c) any Equity Funding Arrangements provided with respect to such Asset Company or Investment Vehicle or a Lien on any such Equity Funding Arrangements. 

        "Projections" shall mean the projections contained in the presentation materials distributed by the Guarantor to the Creditors during the
bank meeting held on March 21, 2001 in New York City. 

        "Ratio of Cash Flow to Fixed Charges" shall mean, as of the end of each fiscal quarter the Guarantor, the ratio of (a) Cash Flow
Available for Fixed Charges of the Guarantor for the period of four consecutive fiscal quarters ending on, or most recently ended prior to, such date to (b) Fixed Charges of the Guarantor for
such period, excluding from the calculation of Fixed Charges all Trading Arrangements and Credit Support Arrangements. 

        "Ratio of Debt to Capitalization" shall mean, as of any date, the ratio of the aggregate principal amount of Funded Indebtedness of the
Guarantor and PG&E Gen to the Total Capitalization of the Guarantor (excluding from the calculation of Funded Indebtedness all Trading Arrangements, Credit Support Arrangements and Swaps);  provided
that any Equity Funding Arrangements shall only be included in Funded Indebtedness in an amount equal to the lesser of (x) the maximum
amount that would be payable under such Equity Funding Arrangements (assuming a drawing is permissible as of the date of determination) and (y) the amount outstanding under any underlying
Indebtedness to which any payment under such Equity Funding Arrangements would be applied (assuming such Indebtedness were due and payable as of the date of determination). 

        "Refinanceable Facilities" has the meaning ascribed thereto in Section 4.12(a). 

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        "Repurchase Agreement" shall mean any written agreement: 

          (i)  that
provides for (i) the transfer of one or more United States or Canadian Governmental Securities or any security issued by a U.S. agency or instrumentality in
an aggregate principal amount at least equal to the amount of the Transfer Price (defined below) to the Guarantor or any Restricted Subsidiary from a financial institution that is (1) a member
of the Federal Reserve System having a minimum of US$20 billion in assets, and (2) has commercial paper rated at least A-1 by S&P, at least F1 by Fitch or at least
P-1 by Moody's, against a transfer of funds (the "Transfer Price") by the Guarantor or such Restricted Subsidiary to such financial
institution and (ii) a simultaneous agreement by the Guarantor or such Restricted Subsidiary, in connection with such transfer of funds, to transfer to such financial institution the same or
substantially similar United States or Canadian Governmental Securities or any security issued by a U.S. agency or instrumentality for a price not less than the Transfer Price plus a reasonable return
thereon at a date certain not later than 180 days after such transfer of funds, 

        (ii)  in
respect of which the Guarantor or such Restricted Subsidiary shall have the right, whether by contract or pursuant to applicable law, to liquidate such agreement
upon the occurrence of any default thereunder, and 

        (iii)  in
connection with which the Guarantor or such Restricted Subsidiary, or an agent thereof, shall have taken all action required by applicable law or regulations to
perfect a Lien in such United States or Canadian Governmental Securities or any security issued by a U.S. agency or instrumentality. 

        "Responsible Officer" of the Guarantor, shall mean any president or senior vice president of the Guarantor. 

        "Restricted Subsidiary" shall mean any Subsidiary of the Guarantor that is not (x) an Asset Company, (y) an Investment
Vehicle or (z) an Unrestricted Subsidiary. 

        "S&P" shall mean Standard & Poor's Ratings Service, a division of McGraw Hill Companies, Inc. 

        "Sale/Leaseback" shall mean any lease whereby any Person becomes or remains liable as lessee or as guarantor or other surety of any
property, whether now owned or hereafter acquired, that such Person has sold or transferred or is to sell or transfer to any other Person (other than any Subsidiary of such Person), as part of a
financing transaction to which such Person is a party, in contemplation of leasing such property to such Person. 

        "Scheduled to be Paid" shall mean, with respect to any liability or expense for any period, the amount of such liability or expense
scheduled to be paid during such period or the amount of such liability or expense that would have been scheduled to be paid during such period had the payment schedule with respect to such liability
or expense been divided equally into successive periods having a duration equal to the duration of such period. 

        "Subsidiary" shall mean, with respect to any Person (the "Parent"), any corporation or
other entity of which sufficient securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions are at
the time directly or indirectly owned by such Parent. 

        "Substitute Credit Support Amount" shall mean, as of the date any Substitute Credit Support Instrument is provided, 105% of the amount of
the outstanding principal of all Tranche A Loans (or, if higher, an amount equal to 105% of the aggregate outstanding Tranche A Loan Commitments in effect at such
time, or, if not in effect at such time, in effect immediately prior to any termination thereof) as determined by the Administrative Agent. 

13

 

        "Substitute Credit Support Instrument" shall mean either (a) an irrevocable letter of credit issued in form and substance
satisfactory to the Security Agent in its reasonable judgment and from a bank or trust company with a combined capital and surplus of at least $1,000,000,000 whose unsecured senior long term debt is
rated at least "A" by S&P and "A2" by Moody's; provided that such letter of credit shall contain provisions that authorize a draw on such letter of
credit in the event that (i) either (A) there is a downgrade in the credit rating of the issuer of such letter of credit to below the level specified above or (B) such issuer is
no longer rated by both S&P and Moody's and such letter of credit is not replaced with a Substitute Credit Support Instrument within thirty (30) days after such event, (ii) such letter
of credit is not replaced or renewed by no later than fifteen (15) Business Days prior to its date of expiration or (iii) an Event of Default shall have occurred and be continuing and
the Guaranteed Obligations are then due and payable or (b) a Guaranty in form and substance satisfactory to, and issued by a Subsidiary of the Guarantor acceptable to, each Creditor in its sole
discretion. 

        "Swaps" shall mean, with respect to any Person, payment obligations with respect to interest rate swaps, currency swaps and similar
obligations obligating such Person to make payments, whether periodically or upon the happening of a contingency. The amount of the obligation under any Swap shall be the amount determined in respect
thereof as of the end of the then most recently ended fiscal quarter of such Person, based on the assumption that such Swap had terminated at the end of such fiscal quarter, and in making such
determination, if any agreement relating to such Swap provides for the netting of amounts payable by and to such Person thereunder of if any such agreement provides for the simultaneous payment of
amounts by and to such Person, then in each such case, the amount of such obligation shall be the net amount so determined. 

        "Total Capitalization" shall mean, with respect to the Guarantor, the sum, without duplication, of (i) total common stock equity or
analogous ownership interests of the Guarantor, (ii) preferred stock and preferred securities of the Guarantor, (iii) additional paid in capital or analogous interests of the Guarantor,
(iv) retained earnings of the Guarantor, excluding other comprehensive income arising from accounting treatment of hedging and mark-to-market transactions and
(v) the aggregate principal amount of Funded Indebtedness of the Guarantor and PG&E Gen. 

        "Trading Arrangement" shall mean any transaction entered into by PG&E Energy Trading—Power, L.P., a Delaware limited
partnership, PG&E Energy Trading Gas Corporation, a California corporation, or PG&E Energy Trading, Canada Corporation, an Alberta corporation, any other Restricted Subsidiary, Asset Company or
Investment Vehicle, whether pursuant to master trading agreements or otherwise, for (1) the purchase and sale of energy, capacity, ancillary services and other energy or energy-related
products, including transmission rights, environmental allowances and offsets and storage; (2) the purchase and sale of natural gas, coal, oil and other fuel, including transportation and
storage rights; (3) the purchase and sale of fuel conversion services, including tolling arrangements; (4) the purchase and sale of any energy or energy-related derivatives, including
weather derivatives; (5) hedging
arrangements with respect to any of the foregoing and interest rate, foreign currency or credit exposure; or (6) any similar arrangements entered into in the ordinary course of business as
conducted by such Persons or by other Persons in the energy trading, energy services, power generating, electric transmission or gas transmission and storage businesses (including technologies related
to such businesses). 

        "Unfunded Liabilities" shall mean, with respect to any Plan at any time, the amount (if any) by which (i) the value of all benefit
liabilities under such Plan, determined on a plan termination basis using the assumptions prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market value
of all Plan assets allocable to such liabilities under Title IV of ERISA (excluding any accrued but unpaid contributions), all determined as of the then most recent valuation date for such Plan, but
only to the extent that such excess represents a potential liability 

14

 

of the Guarantor or any ERISA Affiliate to the PBGC or any other Person under Title IV of ERISA. 

        "United States" or "U.S." or "US" shall
mean the United States of America. 

        "United States or Canadian Governmental Securities" shall mean securities issued, or fully guaranteed or insured by the United States or
Canadian government. 

        "Unrestricted Subsidiary" shall mean any Subsidiary of the Guarantor designated as such on the Closing Date, or, after the Closing Date,
designated as such at the time of formation thereof or, if acquired by the Guarantor, at the time of acquisition thereof, but, in any such case, only if at such time (i) no NEG Trigger Event,
Incipient NEG Trigger Event or NEG Downgrade Event has occurred and is continuing or would occur as a result thereof and (ii) such Subsidiary or any of its Subsidiaries does not own any capital
stock or Indebtedness of or have any Investment in, or own or hold any Lien on any property of, any other Subsidiary of the Guarantor which is not a Subsidiary of the Subsidiary to be so designated or
otherwise an Unrestricted Subsidiary. 

        "USGenNE" shall mean USGen New England, Inc., a Delaware corporation and an indirect, wholly-owned Subsidiary of the Guarantor. 

        "USGenNE Credit Agreement" shall mean the $575,000,000 Credit Agreement, dated as of September 1, 1998, among USGenNE, the lenders
party thereto, The Chase Manhattan Bank, as competitive advance facility agent and as administrative agent for the lenders thereunder, and The Chase Manhattan Bank, as the issuer of letters of credit
thereunder, the same may be amended, modified or supplemented from time to time. 

        1.02.    Other Definitional Provisions.    The following rules of usage shall apply unless otherwise required by the
context or unless otherwise specified herein: 

        (a)  Definitions
set forth herein shall be equally applicable to the singular and plural forms of the terms defined. 

        (b)  References
in any document to articles, sections, paragraphs, clauses, annexes, appendices, schedules or exhibits are references to articles, sections, paragraphs,
clauses, annexes, appendices, schedules or exhibits in such document. 

        (c)  The
headings, subheadings and table of contents used herein are solely for convenience of reference and shall not constitute a part hereof nor shall they affect the
meaning, construction or effect of any provision hereof. 

        (d)  References
to any Person shall include such Person, its successors and permitted assigns and transferees. 

        (e)  Reference
to any agreement means such agreement as amended, supplemented or otherwise modified from time to time in accordance with the applicable provisions thereof. 

        (f)    References
to any law includes any amendment or modification to such law and any rules or regulations issued thereunder or any law enacted in substitution or replacement
thereof. 

        (g)  The
words "hereof," "herein", "hereto" and "hereunder" and words of similar import when used in this Guarantee and Agreement shall refer to this Guarantee and Agreement
as a whole and not to any particular provision of this Guarantee and Agreement. 

        (h)  References
to "including" means including without limiting the generality of any description preceding such term and for purposes hereof the rule of  ejusdem generis shall not be applicable to limit a general
statement, followed by or referable to an enumeration of specific matters, to matters similar
to those specifically mentioned. 

15

 

        (i)    Each
of the parties to this Guarantee and Agreement and their counsel have reviewed and revised, or requested revisions to this Guarantee and Agreement, and the usual
rule of construction that any ambiguities are to be resolved against the drafting party shall be inapplicable in the construing and interpretation of this Guarantee and Agreement and any amendments
hereto. 

        (j)    Except
as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time;  provided that for purposes of
determining compliance with any covenant set forth herein, such terms shall be construed in accordance with GAAP as in
effect on the date hereof applied on a basis consistent with the application used in preparing the Guarantor's audited financial statements. 

SECTION II GUARANTEE  

        2.01.    Guarantee; Payment.    (a) Subject to the terms herein, the Guarantor unconditionally guarantees to
the Security Agent for the benefit of the Creditors, the prompt and complete payment when due of the Guaranteed Obligations. This is a guarantee of payment and not of collection. 

        (b)  When
and at such time as an Event of Default shall have occurred and be continuing, the Security Agent shall be entitled to make a Payment Demand to the Guarantor in
accordance with Section 2.04 for the payment of all due and unpaid Guaranteed Obligations, subject to the provisions of Section 2.02. The Guarantor shall pay such Guaranteed Obligations
to the Security Agent within five (5) Business Days of receipt of such Payment Demand. 

        (c)  When
and at such time as a NEG Trigger Event (whether or not an Event of Default is then continuing) shall have occurred and be continuing, the Security Agent shall be
entitled (to the extent that a Payment Demand has not been made pursuant to paragraph (b) of this Section) to make a Payment Demand for the payment of the Guarantee Draw Amount. The Guarantor
shall pay the Guarantee Draw Amount to the Security Agent within five (5) Business Days of receipt of such Payment Demand. 

        (d)  If
an Event of Default is continuing at any time after payment of the Guarantee Draw Amount is made pursuant to paragraph (c) of this Section, the Security Agent
shall be entitled to make a Payment Demand in an amount equal to the Maximum Guarantee Amount applicable at such time less any amount previously paid by the Guarantor pursuant to paragraph (c)
of this Section. The Guarantor shall pay such amount to the Security Agent within five (5) Business Days of receipt of such Payment Demand. 

        2.02.    Extent of Liability.    The Guarantor's liability for the Guaranteed Obligations under this Guarantee and
Agreement is limited to the Maximum Guarantee Amount. Except as the same comprise Guaranteed Obligations under the Operative Documents, the Guarantor shall not be liable hereunder for special,
consequential, exemplary, tort or other damages. The Guarantor agrees to pay all out-of-pocket expenses (including the reasonable fees and expenses of Security Agent's counsel)
incurred for the enforcement of the rights of Security Agent hereunder; provided that the Guarantor shall not be liable for any such expenses if no
payment in respect of the Guaranteed Obligations is due. Subject to reinstatement pursuant to Section 2.03, this Guarantee and Agreement shall remain in full force and effect until the NEG
Guarantee Release Date unless otherwise terminated in writing by the Guarantor and the Security Agent. 

        2.03.    Nature of Guarantee.    The Guarantor acknowledges and agrees that its guarantee obligations under this
Guarantee and Agreement shall be construed as continuing, absolute and unconditional without regard to (a) the validity, regularity or enforceability of any Operative Documents, any of the
Guaranteed Obligations or any other collateral security therefor or guaranty or right of offset with respect thereto at any time or from time to time held by the Security Agent or any 

16

 

Creditor, (b) any defense, set-off or counterclaim (other than a defense of payment or performance) which may at any time be available to or be asserted by the Company or the
Guarantor against the Security Agent or any Creditor, or (c) any other circumstance whatsoever (with or without notice to or knowledge of the Company or the Guarantor) which constitutes, or
might be construed to constitute, an equitable or legal discharge of the Guaranteed Obligations (other than payment or performance), in bankruptcy or in any other instance. The Guarantor's obligations
hereunder with respect to any Guaranteed Obligations shall not be affected by the existence, validity, enforceability, substitution, perfection, or extent of any collateral for such Guaranteed
Obligations. The Security Agent shall be entitled but shall not be obligated to file any claim relating to the Guaranteed Obligations owing to it if the Company becomes subject to a bankruptcy,
reorganization or similar proceeding and the failure of the Security Agent to so file shall not affect the Guarantor's obligations hereunder. If any payment to the Security Agent made by the Company
or the Guarantor with respect to any Guaranteed Obligations is rescinded or must otherwise be returned for any reason whatsoever, the Guarantor shall remain liable therefor hereunder (and its
obligations reinstated hereunder if previously terminated) with respect to such Guaranteed Obligations as if such payment had not been made. The Guarantor reserves the right to assert defenses that
the Company may have under the Operative Documents to payment of any Guaranteed Obligation other than (i) defenses arising from the bankruptcy, insolvency, incapacity, liquidation or
dissolution of the Company, and (ii) defenses arising out of the matters described above in this Section 2.03 or any other circumstance or event that might otherwise constitute a legal
or equitable discharge of a guarantor or a surety generally. 

        2.04.    Demands and Notice; Application of Proceeds.    (a) A Payment Demand shall be sufficient notice to the
Guarantor to pay under this Guarantee and Agreement. The Guarantor shall make all payments of amounts owing pursuant to this Guarantee and Agreement by wire transfer of immediately available funds to
the account specified by the Security Agent in the Payment Demand. Notices under this Guarantee and Agreement shall be deemed received if sent to the address specified below: (i) on the day
received if served by overnight express delivery, (ii) on the next Business Day if served by facsimile transmission when sender has machine confirmation that facsimile was transmitted to the
correct fax number listed below, and (iii) four Business Days after mailing if sent by certified, first class mail, return receipt requested. Any party may change its address to which notice is
given hereunder by providing notice thereof in accordance with this Section 2.04. 

	To the Guarantor:	 	PG&E National Energy Group, Inc.

7500 Old Georgetown Road, 13th floor

Bethesda, MD 20814

Attention: General Counsel

Fax: 301.280.6913
	

To the Security Agent:	
 	

Citibank, N.A.

111 Wall Street, 14th Floor, Zone 3

New York, NY 10005

Attention: Citibank Agency & Trusts

Fax: 212.657.3862

Tel: 212.657.7403

        (b)  The
Security Agent shall apply the proceeds of any payment made hereunder to the Security Agent in accordance with Section 5.13(e) of the Security Deposit
Agreement and the other provisions of the Operative Documents. 

        2.05.    Consent to Modifications, Waivers.    The Security Agent and the Company may mutually agree to modify the
Operative Documents, extend the time of payment or otherwise modify the terms of payment of any of the Guaranteed Obligations, without in any way impairing or affecting this Guarantee and Agreement.
The Security Agent may resort to the Guarantor for payment of any of the 

17

 

Guaranteed Obligations, whether or not the Security Agent shall have resorted to any collateral security, or shall have proceeded against (or otherwise exhausted Security Agent's remedies against)
the Company or any other obligor principally or secondarily obligated with respect to any of the Guaranteed Obligations. The Guarantor hereby waives demand (except in accordance with Sections 2.01 and
2.04), promptness, diligence (subject to any applicable statute of limitations), notice of acceptance of this Guarantee and Agreement, and also presentment, protest and notice of protest or dishonor
of any evidences of obligations hereby guaranteed. 

        2.06.    Subrogation.    The Guarantor waives any rights of subrogation or reimbursement from the Company or any other
Person that may accrue to Guarantor with respect to the payment of any Guaranteed Obligation by Guarantor to Security Agent under this Guarantee and Agreement until the time that all Guaranteed
Obligations owing to the Security Agent and the Creditors are fully and indefeasibly paid and the Commitments are terminated. Upon such full and indefeasible payment of all the Guaranteed Obligations
owing to the Security Agent and the Creditors and the termination of the Commitments, the Guarantor shall be subrogated to the rights of the Security Agent and the Creditors against the
Company, and the Security Agent agrees to take at Guarantor's expense such steps as the Guarantor may reasonably request to cause the implementation of such subrogation. 

        2.07.    Substitute Credit Support.    Notwithstanding anything to the contrary set forth herein, the following
provisions shall apply: 

        (a)  At
any time prior to the termination of the Guaranteed Obligations, the Guarantor may deliver or cause to be delivered to Security Agent a Substitute Credit Support
Instrument with a stated amount at least equal to the Substitute Credit Support Amount in substitution for this Guarantee and Agreement in accordance with this Section 2.07. 

        (b)  Upon
delivery of a Substitute Credit Support Instrument together with a legal opinion satisfactory to the Administrative Agent that the delivery of such instrument would
not constitute a preference in a bankruptcy of the Guarantor or, if no legal opinion is delivered with such Substitute Credit Support Instrument, upon the 91st day after the delivery of
such Substitute Credit Support Instrument (so long as no bankruptcy, insolvency or other similar event has occurred with respect to the Guarantor), this Guarantee and Agreement shall terminate and the
Guarantor shall be relieved of any liability hereunder. Within ten (10) days of the receipt of such Substitute Credit Support Instrument together with such legal opinion, if applicable, or on
the 91st day after delivery of such Substitute Credit Support Instrument (so long as no bankruptcy, insolvency or other similar event has occurred with respect to the Guarantor), if
applicable, the Security Agent shall return to the Guarantor this Guarantee and Agreement together with any certificate or other documentation reasonably requested by the Guarantor in order to confirm
the cancellation of this Guarantee and Agreement. 

SECTION III REPRESENTATIONS AND WARRANTIES  

        The Guarantor represents and warrants to the Security Agent and each of the Creditors as of the date hereof and on each date extensions of credit are to be made
pursuant to the Participation Agreement and on or prior to the Conversion Date as follows (except to the extent that any representation or warranty hereunder is made with respect to an earlier date,
in which case such representation and warranty shall be deemed to have been made on such earlier date): 

        3.01.    Organization; Powers; Ownership of Property.    The Guarantor and each of its Subsidiaries (other than
Unrestricted Subsidiaries) (a) is duly formed, validly existing and in good standing under the laws of the jurisdiction of its formation, except, with respect to such Subsidiaries, where the
failure to be validly existing or in good standing is not reasonably likely to result in a Material Adverse Effect, (b) has all requisite power and authority to own its property and assets and
to carry on its business as now conducted and as proposed to be conducted, (c) is qualified to do business in every jurisdiction 

18

 

where such qualification is required, except where the failure so to qualify is not reasonably likely to result in a Material Adverse Effect, (d) as to the Guarantor only, has the power and
authority to execute, deliver and perform its obligations under this Guarantee and Agreement, and (e) owns and has good and marketable title to all of its properties and assets, subject to no
Liens other than those permitted by Section 4.11 hereof, except where the failure to own or to have good and marketable title to such property or asset is not reasonably likely to result in a
Material Adverse Effect. 

        3.02.    Authorization.    The execution, delivery and performance by the Guarantor of this Guarantee and Agreement
(a) have been duly authorized by all requisite corporate action on the part of the Guarantor, and (b) will not (i) violate (A) any provision of any law, statute, rule or
regulation to which the Guarantor is subject, (B) the articles of incorporation or by-laws of the Guarantor, (C) any order of any Governmental Authority to which the
Guarantor is subject, or (D) any material provision of any indenture, agreement or other instrument to which the Guarantor is a party or by which it or any of its property is or may be bound,
which such violation is reasonably likely to result in a Material Adverse Effect, (ii) constitute (alone or with notice or lapse of time or both) a default under any such indenture, agreement
or other instrument, which such default is reasonably likely to result in a Material Adverse Effect or (iii) result in the creation or imposition of any Lien upon any property or assets of the
Guarantor, which such Lien is reasonably likely to result in a Material Adverse Effect. 

        3.03.    Enforceability.    This Guarantee and Agreement constitutes a legal, valid and binding obligation of the
Guarantor enforceable in accordance with its terms except to the extent that enforcement may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights
generally. 

        3.04.    Financial Statements.    (a) The unaudited consolidated balance sheet of the Guarantor and its
Consolidated Subsidiaries as of December 31, 1999, and the related consolidated statements of income, retained earnings and cash flows for the fiscal period then ended, a copy of which was
delivered to the Administrative Agent on March 21, 2000, fairly presented in conformity with GAAP, the consolidated financial position of the Guarantor and its Consolidated Subsidiaries as of
such date and their consolidated results of operations and cash flows for such period ending on such date. 

        (b)  The
unaudited consolidated balance sheet of the Guarantor and its Consolidated Subsidiaries as of December 31, 2000, and the related consolidated statements of
income and retained earnings for the fiscal period then ended, a copy of which was delivered to the Administrative Agent on March 21, 2000, fairly presented in conformity with GAAP, the
consolidated financial position of the Guarantor and its Consolidated Subsidiaries as of such date and their consolidated results of operations for such period ending on such date. As of the date
hereof, there has been no material adverse change in the financial statements of the Guarantor from the unaudited financial statements referred to in the preceding sentence. 

        (c)  The
assumptions used in preparing the Projections were made in good faith and are reasonable as of the date of such Projections and as of the date hereof. 

        (d)  Since
December 31, 2000, there has been no development or condition that has had, or could reasonably be expected to result in, a Material Adverse Effect
(assuming that the transactions contemplated by the Other NEG Guarantees shall have occurred). 

        3.05.    Litigation.    Except as set forth on Schedule 3.05, there is no action, suit or proceeding pending
against, or to the Actual Knowledge of the Guarantor threatened against or affecting, the Guarantor or any of its Subsidiaries (other than Unrestricted Subsidiaries) before any court or arbitrator or
any governmental body, agency or official in which an adverse decision is reasonably likely to result in a Material Adverse Effect or call into question the enforceability of this Guarantee and
Agreement. 

19

 

        3.06.    Federal Reserve Regulations.    (a) Neither the Guarantor nor any of its Subsidiaries is engaged
principally, or as one of its important activities, in the business of extending, credit for the purpose of purchasing or carrying Margin Stock. 

        (b)  Not
more than 25% of the value of the assets of the Guarantor is represented by Margin Stock. 

        3.07.    Investment Company Act; Public Utility Holding Company Act.    (a) Neither the Guarantor nor any of
its Subsidiaries is an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940. 

        (b)  The
Guarantor is not a "holding company" but is a "subsidiary company" and an "affiliate" of a "holding company", the Parent, that is exempt from all provisions, except
Section 9(a)(2), of the Public Utility Holding Company Act of 1935, as amended, and the execution, delivery and performance by the Guarantor of this Guarantee and Agreement and its obligations
hereunder do not violate any provision of such Act or any rule or regulation thereunder. 

        3.08.    No Material Misstatements.    The reports, financial statements and other written information furnished by or
on behalf of the Guarantor to the Security Agent or any Creditor pursuant to or in connection with this Guarantee and Agreement do not contain, when taken as a whole, any untrue statement of a
material fact and do not omit, when taken as a whole, to state any fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading in any
material respect. 

        3.09.    Taxes.    The Guarantor has filed or caused to be filed all Federal and material state and local tax returns
which to its Actual Knowledge are required to be filed by it, and has paid or caused to be paid all material taxes shown to be due and payable on such returns or on any assessments received by it,
other than any taxes or assessments the validity of which is being contested in good faith by appropriate proceedings and with respect to which appropriate accounting reserves have to the extent
required by GAAP been set aside. Each Subsidiary of the Guarantor (other than any Unrestricted Subsidiary) has filed or caused to be filed all Federal and material state and local tax returns which to
the Actual Knowledge of the Guarantor or such Subsidiary are required to be filed by such Subsidiary, and has paid or caused to be paid all material taxes shown to be due and payable on such returns
or on any assessments received by it, other than the taxes the failure of which to pay or file a return with respect thereto is not reasonably likely to result in a Material Adverse Effect. 

        3.10.    Employee Benefit Plans.    With respect to each Plan, the Guarantor and its ERISA Affiliates are in
compliance in all material respects with the applicable provisions of ERISA and the Code and the final regulations and published interpretations thereunder. No ERISA Event has occurred that alone or
together with any other ERISA Event has resulted or is reasonably likely to result in a Material Adverse Effect. 

        3.11.    Governmental Approval; Compliance with Law and Contracts.    Each of the Guarantor and each of its
Subsidiaries (other than Unrestricted Subsidiaries) is in compliance with (a) and has obtained each Governmental Approval applicable to it in respect of this Guarantee and Agreement, the
conduct of its business and the ownership of its property, each of which (i) is in full force and effect, (ii) is sufficient for its purpose without any material restraint or adverse
condition and (iii) is not subject to any waiting period, further action on the part of any Governmental Authority or other Person, or stay or injunction, (b) all applicable laws
relating to its business and (c) each indenture, agreement or other instrument to which it is a party or by which it or any of its property is or may be bound that is material to the conduct of
its business, except in each such case for noncompliances which, and Governmental Approvals the failure to possess which, are not, singly or in the aggregate, reasonably likely to result in a Material
Adverse Effect. 

20

 

        3.12.    Environmental Matters.    Except as set forth in Schedule 3.12 or as set forth in or contemplated by
the financial statements or other reports of the type referred to in Section 3.04 hereof and which have been delivered to the Administrative Agent on or prior to the date hereof, the Guarantor
and each of its Subsidiaries (other than Unrestricted Subsidiaries) have complied in all material respects with all Federal, state, local and other statutes, ordinances, orders, judgments, rulings and
regulations relating to environmental pollution or to environmental or nuclear regulation or control, except to the extent that failure to so comply is not reasonably likely to result in a Material
Adverse Effect. Except as set forth in or contemplated by such financial statements or other reports, neither the Guarantor nor any of its Subsidiaries (other than Unrestricted Subsidiaries) has
received notice of any material failure so to comply, except where such failure is not reasonably likely to result in a Material Adverse Effect. Except as set forth in or contemplated by such
financial statements or other reports, no facilities of the Guarantor or any of its Subsidiaries (other than Unrestricted Subsidiaries) are used to manage any hazardous wastes, hazardous substances,
hazardous materials, toxic substances, toxic pollutants or substances similarly denominated, as those terms or similar terms are used in the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response Compensation and Liability Act, the Hazardous Materials Transportation Act, the Toxic Substance Control Act, the Clean Air Act, the Clean Water Act or any other applicable law
relating to environmental pollution, or any
nuclear fuel or other radioactive materials, in violation of any law or any regulations promulgated pursuant thereto, except to the extent that such violations, individually or in the aggregate, are
not reasonably likely to result in a Material Adverse Effect. Except as set forth in or contemplated by such financial statements or other reports, the Guarantor is aware of no events, conditions or
circumstances involving environmental pollution or contamination that are reasonably likely to result in a Material Adverse Effect. 

        3.13.    Ranking.    Under applicable laws in force on the date hereof, the claims and rights of the Security Agent
under this Guarantee and Agreement in respect of the Guaranteed Obligations shall not be subordinate to, and shall rank at least pari passu in all respects with, the claims and rights of any other
holders of unsecured Indebtedness of the Guarantor. 

21

   
        3.14.    Unrestricted Subsidiaries.    All Unrestricted Subsidiaries designated as such on the date hereof are
identified on Schedule 3.14. 

        3.15.    Separateness from PG&E.    (a) The Guarantor has operated as a business entity separate and distinct
in all relevant respects from PG&E Corp. and PG&E such that the Guarantor believes there exists no reasonable basis for a substantive consolidation of NEG LLC with either PG&E Corp. or PG&E in the
event of a bankruptcy proceeding with respect to either of such Persons. 

        (b)  Any
transfer of assets or funds from PG&E Corp. or PG&E (either directly or through PG&E Corp.) to the Guarantor during the period from the date of the Guarantor's
incorporation on December 18, 1998 until the date hereof (i) was for reasonably equivalent value, (ii) was received by the Guarantor in good faith and for value and
(iii) was made without intent to hinder, delay or defraud creditors of the transferor. 

SECTION IV COVENANTS  

        The Guarantor covenants and agrees with the Security Agent and the Creditors that, from and after the date of this Guarantee and Agreement until the Guaranteed
Obligations and the Commitments shall have terminated: 

        4.01.    Maintenance of Ownership.    The Guarantor shall continue (x) to own at least 50% of the equity
ownership interests of, and (y) control the management and operations of, each of its Restricted Subsidiaries (except for certain Restricted Subsidiaries listed on Schedule 4.01);  provided
that (I) the Guarantor will in any event continue to own at least 80% of the equity ownership interests of ET Holdings and GTN, and
(II) the Guarantor will continue to own (i) prior to the PG&E Gen Credit Agreement Refinancing Date, 100% of the equity ownership interests of PG&E Gen; and (ii) thereafter, at
least 80% of the equity ownership interests of PG&E Gen; provided, further, that the Guarantor may wind
up, dissolve or liquidate any Restricted Subsidiary (other than PG&E Gen, ET Holdings and GTN) without complying with the foregoing, so long as assets thereof are transferred or otherwise conveyed to
another Restricted Subsidiary or the Guarantor. 

        4.02.    Existence.    The Guarantor will, and will cause each of its Subsidiaries (other than Unrestricted
Subsidiaries) to, do or cause to be done all things necessary to preserve and keep in full force and effect its legal existence and all rights, licenses, permits, franchises and authorizations
necessary or desirable in the normal conduct of its business, except as otherwise permitted pursuant to Sections 4.01 (including Schedule 4.01) and 4.09, and in the case of any such
Subsidiaries, except as such failure to so preserve or to keep its legal existence and such rights, licenses, permits, franchises or authorizations in full force and effect is not reasonably likely to
result in a Material Adverse Effect. 

        4.03.    Compliance with Law; Business and Properties.    The Guarantor will, and will cause each of its Restricted
Subsidiaries to, comply with all applicable material laws, rules, regulations and orders of any Governmental Authority, whether now in effect or hereafter enacted, except where the validity or
applicability of such laws, rules, regulations or orders is being contested by appropriate proceedings in good faith or where such non-compliance is not reasonably likely to result in a
Material Adverse Effect; comply with the terms of each indenture, agreement or other instrument to which it is a party and enforce all of its rights thereunder, except to the extent that noncompliance
or failure to enforce is not reasonably likely to cause a Material Adverse Effect; and at all times maintain and preserve all property material to the conduct of its business and keep such property in
good repair, working order and condition and from time to time make, or cause to be made, all needful and proper repairs, renewals, additions, improvements and replacements thereto necessary in order
that the business carried on in connection therewith may be properly conducted at all times, except where the failure to take any such actions is not reasonably likely to result in a Material Adverse
Effect. 

24

 

        4.04.    Financial Statements, Reports, Etc.    The Guarantor will furnish to the Security Agent, which will promptly
forward the same to each Lender: 

        (a)  as
soon as available and in any event within 120 days after the end of each fiscal year of the Guarantor, a consolidated balance sheet of the Guarantor and its
Consolidated Subsidiaries as of the end of such fiscal year and the related consolidated statements of income, retained earnings and cash flows for such fiscal year, setting forth in each case in
comparative form the figures for the previous fiscal year, to the extent available, all reported on by an independent public accountant of nationally recognized standing; 

        (b)  as
soon as available and in any event within 45 days after the end of each of the first three quarters of each fiscal year of the Guarantor a consolidated balance
sheet of the Guarantor and its Consolidated Subsidiaries as of the end of such quarter and the related consolidated statements of income for such quarter and for the portion of the Guarantor's fiscal
year ended at the end of such quarter, and the related consolidated statement of cash flows for such quarter and for the portion of the Guarantor's fiscal year ended at the end of such quarter, in
each case setting forth comparative figures for the previous dates and periods, to the extent available, all certified (subject to normal year-end adjustments) as to fairness of
presentation, GAAP and consistency by a Financial Officer of the Guarantor; 

        (c)  simultaneously
with any delivery of each set of financial statements referred to in paragraphs (a) and (b) above, (i) an unconsolidated balance
sheet of the Guarantor and the related unconsolidated statements of income, retained earnings and cash flows as of the same date and for the same periods applicable to the statements delivered
pursuant to paragraph (a) or (b) above, as applicable, all certified (subject to normal year-end adjustments in the case of quarterly statements) as to fairness of
presentation by a Financial Officer of the Guarantor and (ii) a certificate of a Financial Officer of the Guarantor (A) setting forth in reasonable detail the calculations required to
establish whether the Guarantor was in compliance with the requirements of Section 4.15 on the date of such financial statements, and schedules setting forth all Indebtedness described in
Section 4.12(o) that was incurred during the applicable period and (B) stating whether any NEG Trigger Event or Incipient NEG Trigger Event exists on the date of such certificate and, if
any NEG Trigger Event or Incipient NEG Trigger Event then exists, setting forth the details thereof and the action which the Guarantor is taking or proposes to take with respect thereto; 

        (d)  simultaneously
with the delivery of each set of financial statements referred to in paragraph (a) above, a statement of the firm of independent public accountants
which reported on such statements confirming the calculations set forth in the Financial Officer's certificate delivered simultaneously therewith pursuant to subsection (c) above; 

        (e)  promptly
upon a Responsible Officer of the Guarantor obtaining Actual Knowledge of the occurrence of any NEG Trigger Event or Incipient NEG Trigger Event, a certificate
of a Financial Officer of the Guarantor setting forth the details thereof and the action which the Guarantor is taking or proposes to take with respect thereto; 

        (f)    on
or prior to the date of incurrence of any Indebtedness pursuant to Section 4.12(c) or (l) or the date of any Distribution pursuant to
Section 4.14, (i) a certificate of a Financial Officer of the Guarantor setting forth in reasonable detail the calculations demonstrating compliance by the Guarantor with the applicable
financial tests, together with the pro forma calculations referred to in the applicable Section, and copies of all financial statements and other
supporting documents and reports, if any, upon which the Guarantor relied in making such calculations, and (ii) with respect to Section 4.12(c) and (l) only, written evidence of
the confirmation of the rating agency ratings, to the extent such confirmation is required under Section 4.12 (c) or (l), as the case may be; 

25

 

        (g)  (i) on
or prior to the date hereof, copies of the PG&E Gen Credit Agreements, ET Credit Agreements, GTN Credit Agreements, and USGenNE Credit Agreements, in each
case accompanied by a certificate of a Responsible Officer of the Guarantor stating that such copies are true and complete, and (ii) promptly upon any refinancing of the loans under any such
facility, copies of the refinancing documents, accompanied by a certificate of a Responsible Officer of the Guarantor stating that such copies are true and complete; and 

        (h)  on
each date extensions of credit are to be made pursuant to the Participation Agreement and on or prior to the proposed Conversion Date, a certificate to the effect
that the representations and warranties made by the Guarantor and contained in Section III hereof are true and correct in all material respects as of such date, except to the extent made with
respect to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects as of such earlier date. 

        4.05.    Insurance.    The Guarantor will, and will cause each of its Subsidiaries (other than Unrestricted
Subsidiaries) to, maintain such insurance or self insurance, to such extent and against such risks, including fire and other risks insured against by extended coverage, as is customary with companies
similarly situated and in the same or similar businesses except, in the case of any such Subsidiaries, where such failure to so maintain is not reasonably likely to result in a Material Adverse
Effect. 

        4.06.    Taxes, Etc.    The Guarantor will, and will cause each of its Subsidiaries (other than Unrestricted
Subsidiaries) to, pay and discharge promptly when due all material taxes, assessments and governmental charges imposed upon it or upon its income or profits or in respect of its property, in each case
before the same shall become delinquent or in default and before penalties accrue thereon, unless and to the extent that the same are being contested in good faith by appropriate proceedings and
adequate reserves with respect thereto shall, to the extent required by GAAP, have been set aside except, in the case of any such Subsidiaries, where such failure to so pay or discharge is not
reasonably likely to result in a Material Adverse Effect. 

        4.07.    Maintaining Records; Access to Properties and Inspections.    The Guarantor will, and will cause each of its
Restricted Subsidiaries to, maintain financial records in accordance with GAAP and, upon reasonable notice and at reasonable times, permit authorized representatives designated by the Administrative
Agent or the Security Agent to visit and inspect its properties, books and records and to discuss its affairs, finances and condition with its officers. 

        4.08.    Risk Management Procedures.    The Guarantor will, and will cause each of its Restricted Subsidiaries to,
maintain in effect prudent risk management procedures with respect to Trading Arrangements and Swaps. 

        4.09.    Merger.    The Guarantor will not consolidate or merge with or into any Person, or sell, lease or otherwise
transfer, in a single transaction or in a series of transactions, all or substantially all of its assets to any Person or Persons, unless (i) the surviving Person or transferee is formed under
the laws of a State of the United States of America and assumes or is responsible by operation of law for all the Guaranteed Obligations and (ii) no NEG Trigger Event, Incipient NEG Trigger
Event or NEG Downgrade Event shall have occurred or be continuing at the time of or after giving effect to such consolidation or merger or transfer. 

        4.10.    Investments.    The Guarantor will not make any Investment, or permit any of its Restricted Subsidiaries to
make any Investment, except: 

        (a)  Investments
in any Restricted Subsidiary, Investment Vehicle or Asset Company (or any Person that will become a Restricted Subsidiary, Investment Vehicle or Asset
Company, as the case may be, upon the making of such Investment); or 

26

 

        (b)  Investments
(not otherwise permitted under this Section 4.10) existing on the date of execution of Guarantee and Agreement which are identified on a
Schedule 4.10; or 

        (c)  Investments
permitted to be incurred as Indebtedness under Section 4.12; or 

        (d)  (i) Investments
made by any Restricted Subsidiary in the Guarantor or any Restricted Subsidiary in connection with the Guarantor's cash management program or
(ii) Investments in Cash Equivalents; or 

        (e)  Investments
constituting "Equity Funding Arrangements" permitted hereunder; or 

        (f)    Investments
otherwise made by the Guarantor and its Restricted Subsidiaries in the ordinary course of business as conducted by the Guarantor or its Restricted
Subsidiaries or by other Persons in the energy trading, energy services, power generation, electric transmission or gas transmission and storage businesses (including technologies related to such
businesses); or 

        (g)  Investments
in connection with obligations in support of Trading Arrangements; or 

        (h)  Investments
in any Unrestricted Subsidiary with amounts which would otherwise be available for distribution in accordance with Section 4.14. 

        4.11.    Liens.    The Guarantor will not create or assume or permit to exist any Lien, or permit any Restricted
Subsidiary, Investment Vehicle or Asset Company to, create or assume or permit to exist any
Lien, in respect of any of its property or assets of any kind (real or personal, tangible or intangible), except: 

        (a)  Liens
granted pursuant to Lease Obligations described in clause (i) of the definition of "Lease Obligations" and permitted by Section 4.12; or 

        (b)  Liens
on cash collateral securing Equity Funding Arrangements, Credit Support Arrangements, Investments or Indebtedness permitted hereunder; or 

        (c)  Liens
in favor of the administrative agent under the PG&E Gen Credit Agreement on funds in the "Cash Collateral Account" and on the "Cash Collateral Account" to secure
the reimbursement obligations of PG&E Gen in respect of letters of credit as provided for in the PG&E Gen Credit Agreement; or 

        (d)  Liens
existing on the assets of any Person at the time such Person becomes a Subsidiary of the Guarantor; or 

        (e)  Liens
on the equity or ownership interests of any Asset Company or any Investment Vehicle which owns such Asset Company and Liens on any Equity Funding Arrangements
securing the applicable Project Financing Facility; or 

        (f)    Liens
on any of the assets of any Asset Company or Investment Vehicle securing or in connection with the applicable Project Financing Facility; or 

        (g)  Liens
on any asset of the Guarantor or any Restricted Subsidiary incurred or assumed for the purpose of financing all or any part of the cost of acquiring, constructing
or improving such asset, provided that such Lien attaches contemporaneously with, or within 12 months of, the purchase, construction or
improvement of such asset; or 

        (h)  Liens
with respect to the assets of and membership interests or other equity interests in ET Holdings and its Subsidiaries to secure the NEG/ET Letter of Credit
Facilities; or 

        (i)    Other
Liens (not otherwise permitted under this Section 4.11) existing as of the date of this Guarantee and Agreement and identified on Schedule 4.11; or 

        (j)    Permitted
Encumbrances; or 

27

 

        (k)  without
limiting the ability to incur Liens under the other subsections of this Section 4.11, extensions or renewals of any Lien otherwise permitted to be
incurred under this Section 4.11 securing Indebtedness in an amount not exceeding the principal amount of, and accrued interest on, the Indebtedness secured by such Lien as so extended or
renewed at the time of such extension or renewal; provided that such Lien shall apply only to the same property theretofore subject to the same and
fixed improvements constructed thereon. 

        4.12.    Indebtedness.    The Guarantor will not incur, create, assume or permit to exist Indebtedness, or permit any
Restricted Subsidiary, Investment Vehicle or Asset Company to, incur, create, assume or permit to exist Indebtedness, except: 

        (a)  Indebtedness
under (i) the USGenNE Credit Agreements, the GTN Credit Agreements, the ET Credit Agreements and NEG/ET Letter of Credit Facilities (the
"Refinanceable Facilities") and (ii) the PG&E Gen Credit Agreements and the other credit facilities entered into by the Guarantor or any
Restricted Subsidiary prior to the date of this Guarantee and Agreement and identified on Schedule 4.12(a); provided, that this subsection (a) shall not be deemed to permit an amendment
to the facilities referred to in this subsection (a) which has the effect of increasing the available commitments thereunder or, in the case of the PG&E Gen Credit Agreements, extending the
maturity of the loans thereunder; or 

        (b)  Lease
Obligations (1) under leases for any office buildings in which the Guarantor or any of its Subsidiaries has or will have offices; (2) under leases
for any equipment not to exceed $10,000,000 in the aggregate outstanding at any time; or (3) described in clause (i) of the definition thereof of the Guarantor and its Restricted
Subsidiaries if, immediately after the incurrence of any such Lease Obligation, the outstanding aggregate principal amount of all such Lease Obligations (other than those Lease Obligations incurred
under subsections (c), (j), (l) and (q) below) would not exceed 2% of Consolidated Tangible Net Assets; or 

        (c)  Indebtedness
of (i) any Asset Company under any Project Financing Facility or (ii) any Investment Vehicle under any Project Financing Facility;  provided, that if any Asset Company owned (directly or
indirectly) by such Investment Vehicle has incurred any Indebtedness under a Project Financing
Facility, then such Investment Vehicle may only incur Indebtedness under a Project Financing Facility if (I)(x) after giving effect to such Indebtedness, the Ratio of Cash Flow to Fixed Charges
of the Guarantor would not be less than 2.0:1.0, calculated on a pro forma basis to include such Indebtedness and related cash flows, (y) the
Guarantor's senior unsecured long-term debt is, at the time of such incurrence, rated at least BBB by S&P and Baa2 by Moody's (or if ratings of such debt have not been issued by such
rating agencies, such debt is impliedly rated by an issuer rating or indicative rating of at
least BBB by S&P and Baa2 by Moody's), and (z) the Guarantor obtains a reaffirmation of such ratings from S&P and Moody's (taking into account the Indebtedness to be incurred by such Investment
Vehicle under this Section 4.12(c)) or (II) such Investment Vehicle owns only one Asset Company and such Indebtedness is incurred in connection with a Project Financing Facility and the
proceeds thereof are promptly invested in such Asset Company; or 

        (d)  Trading
Arrangements and Credit Support Arrangements, to the extent such arrangements constitute Indebtedness; or 

        (e)  Indebtedness
with respect to any securitization, receivables financing or similar transaction entered into by ET Holdings, GTN, USGenNE or any of their respective
Subsidiaries; or 

        (f)    Indebtedness
not otherwise permitted under this Section 4.12, existing on the date of this Guarantee and Agreement and set forth on Schedule 4.12(f); or 

        (g)  Indebtedness
under any Swap; or 

28

 

        (h)  Permitted
Subordinated Indebtedness; or 

        (i)    Indebtedness
between any of the Guarantor, any Restricted Subsidiary, Investment Vehicle, any Asset Company or any Indebtedness under any short-term
overdraft lines of credit or similar arrangements entered into in the ordinary course of business, in each case associated with the Guarantor's cash management program; or 

        (j)    Indebtedness
attributable to any Permitted Sale-Leaseback Transactions; or 

        (k)  Any
Guaranty constituting Indebtedness of the Guarantor or any Restricted Subsidiary, Investment Vehicle or Asset Company under clause (ix) of the definition of
"Indebtedness" to the extent that the obligations covered by such Guaranty are not reasonably quantifiable under GAAP; or 

        (l)    other
Indebtedness of the Guarantor or any Restricted Subsidiary (other than PG&E Gen) incurred after the date of this Guarantee and Agreement,  provided that (i) after giving effect to any such
Indebtedness, the Ratio of Cash Flow to Fixed Charges of the Guarantor would not be less than 2.0:1.0 (calculated on a pro forma basis as of the end of
the most recent fiscal quarter with respect to which financial statements of the Guarantor are available and assuming for such purpose that such Indebtedness was incurred one year prior to the end of
such fiscal quarter and taking into account any related cash flows) and (ii) if such Indebtedness would constitute Indebtedness of a Restricted Subsidiary, no Asset Company, Investment Vehicle
or Restricted Subsidiary owned directly or indirectly by such Restricted Subsidiary has Indebtedness outstanding which would otherwise be permitted under Section 4.12(a), (b)(3), (c), (h), (j),
(l), (o) or (p); provided, further, that clause (ii) of this Section 4.12(l) will not be applicable if the Guarantor obtains a
reaffirmation of the rating of its senior unsecured long-term debt of at least BBB by S&P and Baa2 by Moody's (or if ratings of such debt have not been issued by such rating agencies, such
debt is impliedly rated by an issuer rating or indicative rating of at least BBB by S&P and Baa2 by Moody's) after taking into account the Indebtedness to be incurred by such Restricted Subsidiary and
related cash flows; or 

        (m)  Indebtedness
of the Guarantor or any Restricted Subsidiary in respect of letters of credit or surety, performance or bid bonds used in the ordinary course of business
not in excess of $25,000,000 in the aggregate outstanding at any time; or 

        (n)  Indebtedness
constituting intercompany loans (1) between the Guarantor and its Restricted Subsidiaries or between such Restricted Subsidiaries or (2) made
by the Guarantor, any Restricted Subsidiary, any Investment Vehicle or any Asset Company to any Investment Vehicle or any Asset Company or (3) made by any Investment Vehicle to the Guarantor,
any Restricted Subsidiary, or any other Investment Vehicle; or 

        (o)  Equity
Funding Arrangements; or 

        (p)  without
limiting the ability to incur Indebtedness under the other subsections of this Section 4.12, any refinancing of any Indebtedness permitted under
Section 4.12(f) and under the Refinanceable Facilities, provided that either (i) (x) the average life of any refinanced Indebtedness shall
not be less than the average life of the Indebtedness so refinanced (plus fees and expenses, including any premium or defeasance costs, of such refinancing), taking into account the prepayment or
repayment of a portion of any such Indebtedness, and (y) the principal amount of the refinanced Indebtedness shall not exceed the principal amount plus accrued interest thereon of the
Indebtedness so refinanced, or (ii) the Guarantor shall demonstrate pro forma compliance with the financial ratio described in
Section 4.12(l) above; or 

29

 

        (q)  Indebtedness
of any Subsidiary of the Guarantor existing at the time such Person becomes a Subsidiary of the Guarantor (except for any such Indebtedness of such
Subsidiary incurred in contemplation of or to finance the acquisition of such Subsidiary); or 

        (r)  Indebtedness
of the Guarantor incurred in connection with a refinancing of any Indebtedness of PG&E Gen under the PG&E Gen Credit Agreements in an aggregate principal
amount not to exceed $1,250,000,000. 

        4.13.    Transactions with Affiliates.    The Guarantor will not enter into, or permit any Restricted Subsidiary,
Investment Vehicle or Asset Company to enter into, any transaction with any Affiliate of the Guarantor (other than the Guarantor, any Subsidiary of the Guarantor, any Investment Vehicle and any Asset
Company), except: 

        (a)  transactions
with such Affiliates upon fair and reasonable terms which are no less favorable to the Guarantor than would be obtained in a comparable arm's length
transaction with a Person not an Affiliate of the Guarantor; 

        (b)  management,
operating, sharing or other similar services arrangements between and among the Guarantor, its Subsidiaries and its other Affiliates either existing on the
date hereof and described on Schedule 4.13 or entered into after the date hereof on commercially reasonable terms; 

        (c)  tax
sharing arrangements between the Guarantor and PG&E Corp. approximating the tax position that the Guarantor would be in if it were not part of PG&E Corp.'s
consolidated group, as determined by the management of the Guarantor in its reasonable business judgment or such other arrangements as may be approved by the Lenders prior to the date hereof; or 

        (d)  paying
or declaring any Distribution to the extent permitted under Section 4.14. 

        The
provisions of this Section 4.13 shall not apply to (i) transactions between the Guarantor or any of its Subsidiaries, on the one hand, and any employee of the Guarantor
or any of its Subsidiaries, on the other hand, that are approved by the Board of Directors of the Guarantor or any committee of the Board of Directors and (ii) the payment of reasonable and
customary regular fees to directors of the Guarantor or any Subsidiary of the Guarantor. 

        4.14.    Distributions.    The Guarantor will not declare or make any Distribution if (a) an NEG Trigger Event,
Incipient NEG Trigger Event or NEG Downgrade Event has occurred and is continuing or shall occur after giving effect to such Distribution, (b) the Ratio of Cash Flow to Fixed Charges of the
Guarantor determined as of the end of the immediately preceding fiscal quarter was not at least 2.0:1.0 or (c) the Guarantor fails to satisfy the requirements of the test set forth in
Section 4.15(b), or the Guarantor fails to have a Consolidated Net Worth of at least $2.15 billion, in each case calculated on a pro forma
basis as of the end of the most recent fiscal period with respect to which financial statements of the Guarantor are available (assuming such Distribution and all material events with respect to the
Guarantor and its Subsidiaries which occurred after the end of such fiscal period had occurred on the
last day of such fiscal period); provided that the Guarantor may declare and make Distributions of assets of or equity ownership interests in any
Unrestricted Subsidiary at any time without complying with the foregoing. 

        4.15.    Financial Covenants:    (a) The Guarantor shall not, as of the end of each fiscal quarter, permit the
Ratio of Cash Flow to Fixed Charges to be less than 1.5:1.0. 

30

   
        (b)  The Guarantor shall not, as of the end of each fiscal quarter, permit the Ratio of Debt to Capitalization to be greater than 0.6:1.0. 

        (c)  The
Guarantor shall not, at the end of each fiscal quarter, permit (i) Consolidated Net Worth to be less than the Minimum Consolidated Net Worth and
(ii) Non-Trading Consolidated Net Worth to be less than the Minimum Non-Trading Consolidated Net Worth. 

        4.16.    Separateness from PG&E Corp.    The Guarantor shall (i) maintain adequate capital in light of the
business in which it is engaged; (ii) maintain books and corporate records separate from PG&E Corp. and PG&E; (iii) not commingle assets with PG&E Corp. or PG&E; and (iv) conduct
business in its own name and hold itself out as separate from PG&E Corp. and PG&E. The Guarantor shall promptly notify the Security Agent upon a Responsible Officer of the Guarantor obtaining Actual
Knowledge that a creditor of PG&E Corp. or of PG&E has made a claim or filing in writing seeking the substantive consolidation of NEG LLC in any bankruptcy proceeding of PG&E Corp. or of PG&E. 

        4.17.    PG&E Gen Credit Agreement Covenants.    Prior to the PG&E Gen Credit Agreement Refinancing Date, the
Guarantor will not permit PG&E Gen to default in any material respect in the due observance or performance of its covenants under Sections 5.08, 5.11, 5.12, 5.13 and 5.14 of the $1.1 Billion PG&E Gen
Credit Agreement. 

        4.18.    Audited 2000 Financial Statements.    The audited financial statements for the fiscal year ended
December 31, 2000 to be delivered by the Guarantor pursuant to Section 4.04(a) shall not reflect any material adverse change from the unaudited financial statements for the same period
referred to in Section 3.04(b). 

SECTION V NEG TRIGGER EVENTS  

        5.01.    NEG Trigger Events.    The following shall constitute NEG Trigger Events: 

        (a)  any
Event of Default; or 

        (b)  any
representation or warranty made or deemed made by (1) the Guarantor in or in connection with the execution and delivery of this Guarantee and Agreement, or
(2) NEG LLC in the Letter Agreement, shall prove to have been false or misleading in any material respect when so made, deemed made or furnished; or 

        (c)  the
Guarantor shall default in any material respect in the due observance or performance of any agreement contained in Section 4.01, Section 4.09,
Section 4.14 or Section 4.15; or 

        (d)  (1)
the Guarantor shall default in any material respect in the due observance or performance of any covenant, condition or agreement contained in this Guarantee and
Agreement (other than those specified in 5.01(c) above), or (2) NEG LLC shall default in any material respect in the due observance or performance of any covenant, condition or agreement
contained in the Letter Agreement, and in each case, such default shall continue unremedied for a period of 30 days after notice thereof from the Security Agent; or 

        (e)  the
Guarantor or any Restricted Subsidiary shall default in respect of any Indebtedness or default in its obligations to make payments when due under any Equity Funding
Arrangements which at the time have an aggregate principal amount outstanding or, in the case of Equity Funding Arrangements, due and unpaid, in excess of $50,000,000, and as a result thereof such
Indebtedness shall have been accelerated or otherwise be or become due or subject to prepayment in full prior to its stated maturity; or 

        (f)    an
involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of the
Guarantor or any Restricted Subsidiary or of a substantial part of the property or assets of the Guarantor or any Restricted 

33

 

Subsidiary under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal or state bankruptcy, insolvency, receivership or similar law, (ii) the
appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Guarantor or any Restricted Subsidiary or (other than in connection with any proceeding relating
solely to one or more Unrestricted Subsidiaries, Investment Vehicles or Project Companies of the Guarantor) for a substantial part of the property or assets of the Guarantor or any Restricted
Subsidiary or (iii) the winding up or liquidation of the Guarantor or any Restricted Subsidiary; and such proceeding or petition shall continue undismissed for 60 days or an order or
decree approving or ordering any of the foregoing shall be entered; or 

        (g)  the
Guarantor or any Restricted Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States
Code, as now constituted or hereafter amended, or any other Federal or state bankruptcy, insolvency, receivership or similar law, (ii) consent to the institution of, or fail to contest in a
timely and appropriate manner, any proceeding or the filing of any petition described in Section 5.01(f) above, (iii) apply for or consent to the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for the Guarantor or any Restricted Subsidiary (other than in connection with any proceeding relating solely to one or more Unrestricted
Subsidiaries, Investment Vehicles or Project Companies of the Guarantor) for a substantial part of the property or assets of the Guarantor or any Restricted Subsidiary, (iv) file an answer
admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, or (vi) take any corporate action
for the purpose of effecting any of the foregoing, become unable, admit in writing its inability, or fail generally, to pay its debts as they become due; or 

        (h)  one
or more final judgments for the payment of money in an aggregate amount in excess of $50,000,000 (exclusive of amounts covered by insurance) shall be rendered
against the Guarantor or any Restricted Subsidiary and such judgment or order shall remain undischarged, unbonded or unstayed for a period of 60 days; or 

        (i)    an
ERISA Event shall have occurred that, either alone or in combination with other ERISA Events that shall have occurred, is reasonably likely to result in a Material
Adverse Effect. 

SECTION VI MISCELLANEOUS  

        6.01.    Amendments.    No provision of this Guarantee and Agreement may be amended or waived except in accordance
with the Collateral Agency and Intercreditor Agreement. 

        6.02.    Successors and Assigns.    This Guarantee shall bind and benefit the successors and permitted assigns of
Guarantor and Security Agent and inure to the benefit of the Creditors and their successors and permitted assigns. This Guarantee shall not be deemed to benefit any Person except Security Agent and
the Creditors and their successors and permitted assigns. 

        6.03.    GOVERNING LAW.    THIS GUARANTEE SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. THE GUARANTOR IRREVOCABLY SUBMITS, FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION RELATING TO THIS GUARANTEE, OR FOR
RECOGNITION AND ENFORCEMENT OF
ANY JUDGMENT IN RESPECT HEREOF OR THEREOF, TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK.

        6.04.    No Waiver, Cumulative Remedies.    (a) No failure to exercise, nor any delay in exercising, on the
part of the Security Agent or any Lender, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall
preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Security Agent or any Creditor of any right or remedy hereunder on any one
occasion shall not be 

34

 

construed as a bar to any right or remedy that the Security Agent or such Creditor would otherwise have on any future occasion. 

        (b)  The
rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law. 

        6.05.    Authority and Rights of Security Agent.    The Guarantor acknowledges that the rights and responsibilities of
the Security Agent under this Guarantee and Agreement with respect to any action taken by the Security Agent or the exercise or non-exercise by the Security Agent of any option, right,
request, judgment or other right or remedy provided for herein or resulting or arising out of this Guarantee and Agreement shall, as between the Security Agent and the Creditors, be governed by the
Operative Documents and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Security Agent and the Guarantor, the Security Agent shall be
conclusively presumed to be acting with full and valid authority so to act or refrain from acting, and the Guarantor shall not be under any obligation, or entitlement, to make any inquiry respecting
such authority. The Security Agent shall be afforded the rights, privileges and immunities set forth in Section 3 of the Collateral Agency and Intercreditor Agreement as if fully set forth
herein. 

35

        IN WITNESS WHEREOF, the parties hereto have caused this Guarantee and Agreement to be duly executed by their respective officers thereunto duly authorized as of the day and year first
above written. 

	 	 	PG&E NATIONAL ENERGY GROUP, INC.
	

 	
 	

By:	

 
	 	 	 	
 Name:

Title:

	Agreed and Accepted:	 	 
	
CITIBANK, N.A., NOT IN ITS INDIVIDUAL CAPACITY BUT SOLELY IN ITS CAPACITY AS SECURITY AGENT, FOR THE BENEFIT OF THE CREDITORS	
 	

 
	

By:	

 	
 	

 
	 	
 Name:

Title:

	 	 

 
 

Schedule 1.01A    
  

Existing Sale/Leaseback Transactions  

        Facility Lease Agreement, dated as of November 30, 1998, between Bear Swamp Generating Trust No. 1 and USGen New England, Inc. 

        Lease,
dated as of May 12, 1988, by and between General Electric Corporation and Altresco Pittsfield, Inc. 

 
 

SCHEDULE 1.01B    
  

TERMS AND CONDITIONS OF SUBORDINATION

FOR INDEBTEDNESS OF GUARANTOR TO AFFILIATES  

        All Permitted Subordinated Indebtedness (as defined in the Guarantee and Agreement to which this Schedule 1.01B is attached) incurred by PG&E National
Energy Group, Inc., a Delaware corporation (the "Guarantor"), owing to any Affiliate (as defined in the Guarantee and Agreement) of the Guarantor
shall be subject to the following terms and conditions, which shall be incorporated in a written agreement (the "Agreement") between the Guarantor and
any Affiliate to which any such Indebtedness is owed. 

        Section 1.01.    Subordination of Liabilities.    The Guarantor, for itself, its successors and assigns,
covenants and agrees and each holder of the indebtedness evidenced by [DESCRIBE INDEBTEDNESS DOCUMENTATION] (the "Subordinated
Indebtedness") by its acceptance thereof likewise covenants and agrees that the payment of the principal of, and interest on, and all other amounts owing in respect of, the
Subordinated Indebtedness is hereby expressly subordinated, to the extent and in the manner hereinafter set forth, to the prior payment in full in cash or discharge in full of Senior Indebtedness (as
defined in Section 1.08) in cash. The subordination provisions set forth herein shall constitute a continuing offer to all persons who, in reliance upon such provisions, become holders of, or
continue to hold, Senior Indebtedness, and such provisions are made for the benefit of the holders of Senior Indebtedness, and such holders are hereby made obligees hereunder to the same extent as if
their names were written herein as such, and they and/or each of them may proceed to enforce such provisions. 

        Section 1.02.    Guarantor Not to Make Payments with Respect to Subordinated Indebtedness in Certain
Circumstances.    (a) Upon the maturity of any Senior Indebtedness (including interest thereon or fees or any other amounts owing in respect thereof), whether
at stated maturity, by acceleration or otherwise, all principal thereof and premium, if any, and interest thereon or fees or any other amounts owing in respect thereof, in each case to the extent due
and owing at such time, shall first be paid in full in cash or discharge in full, or such payment duly provided for in cash or in a manner satisfactory to the holder or holders of such Senior
Indebtedness, before any payment is made on account of the principal of (including installments thereof), or interest on, or any amount otherwise owing in respect of, the Subordinated Indebtedness.
Each holder of the Subordinated Indebtedness hereby agrees that, so long as an Event of Default (as defined below), or event that with notice or lapse of time or both would constitute an Event of
Default, in respect of any Senior Indebtedness exists, it will not ask, demand, sue for, or otherwise take, accept or receive, any amounts owing in respect of the Subordinated Indebtedness. As used
herein, the term "Event of Default" shall mean any NEG Trigger Event (as defined below) or any Event of Default, under and as defined in, the relevant documentation governing
any Senior Indebtedness, and in any event shall include any payment default with respect to any Senior Indebtedness. 

        (b)  In
the event that notwithstanding the provisions of the preceding subsection (a) of this Section 1.02, the Guarantor shall make any payment on account of
the principal of, or interest on, or amounts otherwise owing in respect of, the Subordinated Indebtedness at a time when payment is not permitted by said subsection (a), such payment shall be held by
the holder of the Subordinated Indebtedness, in trust for the benefit of, and shall be paid forthwith over and delivered to, the holders of Senior Indebtedness or their representative or
representatives under the agreements pursuant to which the Senior Indebtedness may have been issued, as their respective interests may appear, for application pro rata to the payment of all Senior
Indebtedness remaining unpaid to the extent necessary to pay all Senior Indebtedness in full in cash in accordance with the terms of such Senior Indebtedness, after giving effect to any concurrent
payment or distribution to or for the holders of Senior Indebtedness. Without in any way modifying the subordination provisions set forth herein or affecting the subordination effected hereby, the
Guarantor shall give the holder of the Subordinated 

Indebtedness prompt written notice of any maturity of Senior Indebtedness after which such Senior Indebtedness remains unsatisfied. 

        Section 1.03.    Subordinated Indebtedness Subordinated to Prior Payment of all Senior Indebtedness on Dissolution, Liquidation or Reorganization
of Guarantor.    Upon any distribution of assets of the Guarantor upon any dissolution, winding up, liquidation or reorganization of the Guarantor (whether in
bankruptcy, insolvency or receivership proceedings or upon an assignment for the benefit of creditors or otherwise): 

        (a)  the
holders of all Senior Indebtedness shall first be entitled to receive payment in full in cash or in a manner satisfactory to the holder or holders of such Senior
Indebtedness of the principal thereof, premium, if any, and interest (including, without limitation, all interest accruing after the commencement of any bankruptcy, insolvency, receivership or similar
proceeding at the rate provided in the governing documentation whether or not such interest is an allowed claim in such proceeding) and all other amounts due thereon before the holder of the
Subordinated Indebtedness is entitled to receive any payment on account of the principal of or interest on or any other amount owing in respect of the Subordinated Indebtedness, 

        (b)  any
payment or distribution of assets of the Guarantor of any kind or character, whether in cash, property or securities to which the holder of the Subordinated
Indebtedness would be entitled except for the subordination provisions set forth herein, shall be paid by the liquidating trustee or agent or other person making such payment or distribution, whether
a trustee or agent, directly to the holders of Senior Indebtedness or their representative or representatives under the agreements pursuant to which the Senior Indebtedness may have been issued, to
the extent necessary to make payment in full of all Senior Indebtedness remaining unpaid, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness; and 

        (c)  in
the event that, notwithstanding the foregoing provisions of this Section 1.03, any payment or distribution of assets of the Guarantor of any kind or character,
whether in cash, property or securities, shall be received by the holder of the Subordinated Indebtedness on account of principal of, or interest or other amounts due on, the Subordinated Indebtedness
before all Senior Indebtedness is paid in full in cash or in a manner satisfactory to the holder or holders of such Senior Indebtedness or otherwise discharged in full, or effective provisions made
for its payment, such payment or distribution shall be received and held in trust for and shall be paid over to the holders of the Senior Indebtedness remaining unpaid or unprovided for or their
representative or representatives under the agreements pursuant to which the Senior Indebtedness may have been issued, for application to the payment of such Senior Indebtedness until all such Senior
Indebtedness shall have been paid in full in cash or in a manner satisfactory to the holder or holders of such Senior Indebtedness or otherwise discharged in full, after giving effect to any
concurrent payment or distribution to the holders of such Senior Indebtedness. 

        Without
in any way modifying the subordination provisions set forth herein or affecting the subordination effected hereby, the Guarantor shall give prompt written notice to the holder of
the Subordinated Indebtedness of any dissolution, winding up, liquidation or reorganization of the Guarantor (whether in bankruptcy, insolvency or receivership proceedings or upon an assignment for
the benefit of creditors or otherwise). 

        Section 1.04.    Furtherance of Subordination.    Each holder of the Subordinated Indebtedness agrees as
follows: 

        (a)  If
any proceeding referred to in Section 1.03 above is commenced by or against the Guarantor: 

          (i)  the
Security Agent (as defined in the Guarantee and Agreement referred to in Section 1.08 below), acting on behalf of each holder of the Senior Indebtedness, is
hereby irrevocably authorized and empowered (in its own name or in the name of the holder of the Subordinated Indebtedness or otherwise), but shall have no obligation, to demand, sue for, collect and
receive every payment or distribution referred to in Section 1.03(b) and give 

acquittance therefor and to file claims and proofs of claim and take such other action (including, without limitation, voting the claims arising under the Subordinated Indebtedness or enforcing any
security interest or other lien securing payment of the Subordinated Indebtedness) as it may deem necessary or advisable for the exercise or enforcement of or causing the enforcement of any of the
rights or interests of the holders of the Senior Indebtedness hereunder; and 

        (ii)  each
holder of the Subordinated Indebtedness shall duly and promptly take such action as the holders of the Senior Indebtedness may request (A) to collect the
Subordinated Indebtedness for the account of the holders of the Senior Indebtedness and to file appropriate claims or proofs of claim in respect of the Subordinated Indebtedness, (B) to execute
and deliver to the holders of the Senior
Indebtedness such powers of attorney, assignments or other instruments as the holders of the Senior Indebtedness may request in order to enable the holders of the Senior Indebtedness to enforce any
and all claims with respect to, and any security interests and other liens securing payment of, the Subordinated Indebtedness, and (C) to collect and receive any and all payments or
distributions that may be payable or deliverable upon or with respect to the Subordinated Indebtedness. 

        (iii)  The
holders of the Senior Indebtedness are hereby authorized to demand specific performance of this Agreement, whether or not the Guarantor shall have complied with
any of the provisions hereof applicable to it, at any time when the holder of the Subordinated Indebtedness shall have failed to comply with any of the provisions of this Agreement applicable to it.
The holder of the Subordinated Indebtedness hereby irrevocably waives any defense based on the adequacy of a remedy at law that might be asserted as a bar to such remedy of specific performance. 

        Section 1.05.    Subrogation.    Subject to the prior payment in cash in full or discharge in full of all
Senior Indebtedness in cash, the holder of the Subordinated Indebtedness shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of assets of the
Guarantor applicable to the Senior Indebtedness until all amounts owing in respect of the Subordinated Indebtedness shall be paid or discharged in full, and for the purpose of such subrogation no
payments or distributions to the holders of the Senior Indebtedness by or on behalf of the Guarantor or by or on behalf of the holder of the Subordinated Indebtedness by virtue of the subordination
provisions set forth herein that otherwise would have been made to the holder of the Subordinated Indebtedness, shall be deemed to be payment by the Guarantor to or on account of the Senior
Indebtedness, it being understood that the subordination provisions set forth herein are and are intended solely for the purpose of defining the relative rights of the holder of the Subordinated
Indebtedness, on the one hand, and the holders of the Senior Indebtedness, on the other hand. 

        Section 1.06.    Obligation of the Guarantor Unconditional.    Nothing contained in the subordination
provisions set forth herein or in the documents evidencing the Subordinated Indebtedness is intended to or shall impair, as between the Guarantor and the holder of the Subordinated Indebtedness, the
obligation of the Guarantor, which is absolute and unconditional, to pay to the holder of the Subordinated Indebtedness the principal of and interest on the Subordinated Indebtedness as and when the
same shall become due and payable in accordance with its terms, or is intended to or shall affect the relative rights of the holder of the Subordinated Indebtedness and creditors of the Guarantor
other than the holders of the Senior Indebtedness, nor shall anything herein or therein prevent the holder of the Subordinated Indebtedness from exercising all remedies otherwise permitted by
applicable law, subject to the rights, if any, under the subordination provisions set forth herein of the holders of Senior Indebtedness in respect of cash, property, or securities of the Guarantor
received upon the exercise of any such remedy. Upon any distribution of assets of the Guarantor referred to herein, the holder of the Subordinated Indebtedness shall be entitled to rely upon any order
or decree made by any court of competent jurisdiction in which such dissolution, winding up, liquidation or reorganization proceedings are pending, or a certificate of the liquidating trustee or agent
or other person making any distribution to the holder of the Subordinated Indebtedness, for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of the
Senior Indebtedness and other indebtedness of the 

Guarantor, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or hereto. 

        Section 1.07.    Subordination Rights Not Impaired by Acts or Omissions of Guarantor or Holders of Senior
Indebtedness.    (b) No rights of any present or future holders of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any
way be prejudiced or impaired by an act or failure to act on the part of the Guarantor or by any act or failure to act in good faith by any such holder, or by any noncompliance by the Guarantor with
the terms and provisions of the Subordinated Indebtedness, regardless of any knowledge thereof which any such holder may have or be otherwise charged with. The holders of the Senior Indebtedness may,
without in any way affecting the obligations of the holder of the Subordinated Indebtedness with respect thereto, at any time or from time to time and in their absolute discretion, change the manner,
place or terms of payment of, change or extend the time of payment of, or renew or alter, any Senior Indebtedness, or amend, modify or supplement any agreement or instrument governing or evidencing
such Senior Indebtedness or any other document referred to therein, or exercise or refrain from exercising any other of their rights under the Senior Indebtedness including, without limitation, the
waiver of a default thereunder and the release of any collateral securing such Senior Indebtedness, all without notice to or consent from the holder of the Subordinated Indebtedness. 

        Section 1.08.    Senior Indebtedness.    (a) The term "Senior
Indebtedness" shall mean all Obligations (as defined below) of the Guarantor under the Guarantee and Agreement (as defined below). 

        (c)  As
used in this Agreement, the terms set forth below shall have the respective meanings provided below: 

        "Guarantee and Agreement" shall mean the Guarantee and Agreement, dated as of April 6, 2001, by the Guarantor, in favor of
Citibank, N.A., as Security Agent (in such capacity, the "Security Agent") for the Creditors, as same may be amended, modified, extended, renewed,
restated or supplemented from time to time, and including any agreement extending the maturity of, refinancing or restructuring all or any portion of, or increasing the Obligations under such
agreement or of any successor agreements. 

        "NEG Trigger Event" shall have the meaning assigned to such term in the Guarantee and Agreement. 

        "Obligations" shall mean the Guaranteed Obligations (as defined in the Guarantee and Agreement) and all other payment obligations of the
Guarantor under the Guarantee and Agreement. 

 
 

SCHEDULE 1.01C    
  

TERMS AND CONDITIONS OF SUBORDINATION

FOR INDEBTEDNESS OF GUARANTOR TO NON-AFFILIATES  

        All Permitted Subordinated Indebtedness (as defined in the Guarantee and Agreement to which this Schedule 1.01C is attached) incurred by PG&E National
Energy Group, Inc., a Delaware corporation (the "Guarantor"), owing to any person other than an Affiliate (as defined in the Guarantee and
Agreement) of the Guarantor shall be evidenced by a promissory note and shall have the following subordination provisions attached as Annex A thereto or incorporated within the text thereof (mutatis
mutandis), and shall include in the text of such promissory note the language: "THE INDEBTEDNESS EVIDENCED BY THIS NOTE IS SUBORDINATE AND JUNIOR IN RIGHT OF PAYMENT TO ALL
SENIOR INDEBTEDNESS (AS DEFINED IN ANNEX A HERETO) TO THE EXTENT PROVIDED IN ANNEX A."

ANNEX A  

        Section 1.01.    Subordination of Liabilities.    The Guarantor for itself, its successors and assigns,
covenants and agrees and each holder of the promissory note to which this Annex A is attached (the "Note") by its acceptance thereof likewise covenants
and agrees that the payment of the principal of, and interest on, and all other amounts owing in respect of, the Note is hereby expressly subordinated, to the extent and in the manner hereinafter set
forth, to the prior payment in full in cash or discharge in full of the Senior Indebtedness (as defined in Section 1.08) in cash. The provisions of this Annex A shall constitute a continuing
offer to all persons who, in reliance upon such provisions, become holders of, or continue to hold, Senior Indebtedness, and such provisions are made for the benefit of the holders of Senior
Indebtedness, and such holders are hereby made obligees hereunder to the same extent as if their names were written herein as such, and they and/or each of them may proceed to enforce such provisions. 

        Section 1.02.    Guarantor Not to Make Payments with Respect to Notes in Certain Circumstances.    

        (a)  Upon
the maturity of any Senior Indebtedness (including interest thereon or fees or any other amounts owing in respect thereof), whether at stated maturity, by
acceleration or otherwise, all principal thereof and premium, if any, and interest thereon or fees or any other amounts owing in respect thereof, in each case to the extent due and owing at such time,
shall first be paid in full in cash or discharged in full, or such payment duly provided for in cash or in a manner satisfactory to the holder or holders of such Senior Indebtedness, before any
payment is made on account of the principal of (including installments thereof), or interest on, or any amount otherwise owing in respect of, the Note. Each holder of the Note hereby agrees that, so
long as an Event of Default (as defined below), or event that with notice or lapse of time or both would constitute an Event of Default, in respect of any Senior Indebtedness exists, it will not ask,
demand, sue for, or otherwise take, accept or receive, any amounts owing in respect of the Note. As used herein, the term "Event of Default" shall mean
any NEG Trigger Event or any Event of Default, under and as defined in, the relevant documentation governing any Senior Indebtedness, and, in any event shall include any payment default with respect
to any Senior Indebtedness. 

        (b)  In
the event that notwithstanding the provisions of the preceding subsection (a) of this Section 1.02, the Guarantor shall make any payment on account of
the principal of, or interest on, or amounts otherwise owing in respect of, the Note at a time when payment is not permitted by said subsection (a), such payment shall be held by the holder of the
Note, in trust for the benefit of, and shall be paid forthwith over and delivered to, the holders of Senior Indebtedness or their representative or representatives under the agreements pursuant to
which the Senior Indebtedness may have been issued, as their respective interests may appear, for application pro rata, to the payment of all Senior Indebtedness remaining unpaid to the extent
necessary to pay all Senior Indebtedness in full in cash in accordance with the term of such Senior Indebtedness, after giving effect to any concurrent payment or distribution to or for the holders of
Senior Indebtedness. 

Without in any way modifying the provisions of this Annex A or affecting the subordination effected hereby, the Guarantor shall give the holder of the Note prompt written notice of any maturity of
Senior Indebtedness after which such Senior Indebtedness remains unsatisfied. 

        Section 1.03.    Note Subordinated to Prior Payment of all Senior Indebtedness on Dissolution, Liquidation or Reorganization of
Guarantor.    Upon any distribution of assets of the Guarantor upon any dissolution, winding up, liquidation or reorganization of the Guarantor (whether in
bankruptcy, insolvency or receivership proceedings or upon an assignment for the benefit of creditors or otherwise): 

        (a)  the
holders of all Senior Indebtedness shall first be entitled to receive payment in full in cash or in a manner satisfactory to the holder or holders of such Senior
Indebtedness of the principal thereof, premium, if any, and interest (including, without limitation, all interest accruing after the commencement of any bankruptcy, insolvency, receivership or similar
proceeding at the rate provided in the governing documentation whether or not such interest is an allowed claim in such proceeding) and all other amounts due thereon before the holder of the Note is
entitled to receive any payment on account of the principal of or interest on or any other amount owing in respect of the Note; 

        (b)  any
payment or distribution of assets of the Guarantor of any kind or character, whether in cash, property or securities to which the holder of the Note would be
entitled except for the provisions of this Annex A shall be paid by the liquidating trustee or agent or other person making such payment or distribution, whether a trustee or agent; directly to the
holders of Senior Indebtedness or their representative or representatives under the agreements pursuant to which the Senior Indebtedness may have been issued, to the extent necessary to make payment
in full of all Senior Indebtedness remaining unpaid, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness; and 

        (c)  in
the event that, notwithstanding the foregoing provisions of this Section 1.03, any payment or distribution of assets of the Guarantor of any kind or character,
whether in cash, property or securities, shall be received by the holder of the Note on account of principal of, or interest or other amounts due on, the Note before all Senior Indebtedness is paid in
full in cash or in a manner satisfactory to the holder or holders of such Senior Indebtedness or otherwise discharged in full, or effective provisions made for its payment, such payment or
distribution shall be received and held in trust for and shall be paid over to the holders of the Senior Indebtedness remaining unpaid or unprovided for or their representative or representatives
under the agreements pursuant to which the Senior Indebtedness may have been issued, for application to the payment of such Senior Indebtedness until all such Senior Indebtedness shall have been paid
in full in cash or in a manner satisfactory to the holder or holders of such Senior Indebtedness or otherwise discharged in full, after giving effect to any concurrent payment or distribution to the
holders of such Senior Indebtedness. 

        Without
in any way modifying the provisions of this Annex A or affecting the subordination effected hereby, the Guarantor shall give prompt written notice to the holder of the Note of
any dissolution, winding up, liquidation or reorganization of the Guarantor (whether in bankruptcy, insolvency or receivership proceedings or upon an assignment for the benefit of creditors or
otherwise). 

        Section 1.04.    In Furtherance of Subordination.    Each holder of the Note agrees as follows: 

        (a)  If
any proceeding referred to in Section 1.03 above is commenced by or against the Guarantor 

          (i)  the
Security Agent (as defined in the Guarantee and Agreement referred to in Section 1.08 below), acting on behalf of each holder of the Senior Indebtedness, is
hereby irrevocably authorized and empowered (in its own name or in the name of the holder of the Note or otherwise), but shall have no obligation, to demand, sue for, collect and receive every payment
or distribution referred to in Section 1.03(b) and give acquittance therefor and to file claims and proofs of claim and take such other action (including, without limitation, voting the claims
arising under the Note or enforcing any security interest or other lien securing payment 

of the Note) as it may deem necessary or advisable for the exercise or enforcement of or causing the enforcement of any of the rights or interests of the holders of the Senior Indebtedness hereunder;
and 

        (ii)  The
holders of the Senior Indebtedness are hereby authorized to demand specific performance of this Note, whether or not the Guarantor shall have complied with any of
the provisions hereof applicable to it, at any time when the holder of the Note shall have failed to comply with any of the provisions of this Note applicable to it. The holder of the Note hereby
irrevocably waives any defense based on the adequacy of a remedy at law that might be asserted as a bar to such remedy of specific performance. 

        Section 1.05.    Subrogation.    Subject to the prior payment in cash in full or discharge in full of all
Senior Indebtedness in cash, the holder of the Note shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of assets of the Guarantor applicable
to the Senior Indebtedness until all amounts owing on the Note shall be paid or discharged in full, and for the purpose of such subrogation no payments or distributions to the holders of the Senior
Indebtedness by or on behalf of the Guarantor or by or on behalf of the holder of the Note by virtue of this Annex A which otherwise would have been made to the holder of the Note, shall be deemed to
be payment by the Guarantor to or on account of the Senior Indebtedness, it being understood that the provisions of this Annex A are and are intended solely for the purpose of defining the relative
rights of the holder of the Note, on the one hand, and the holders of the Senior Indebtedness, on the other hand. 

        Section 1.06.    Obligation of the Guarantor Unconditional.    Nothing contained in this Annex A or in the Note
is intended to or shall impair, as between the Guarantor and the holder of the Note, the obligation of the Guarantor, which is absolute and unconditional, to pay to the holder of the Note the
principal of and interest on the Note as and when the same shall become due and payable in accordance with its terms, or is intended to or shall affect the relative rights of the holder of the Note
and creditors of the Guarantor other than the holders of the Senior Indebtedness, nor shall anything herein or therein prevent the holder of the Note from exercising all remedies otherwise permitted
by applicable law, subject to the rights, if any, under this Annex A of the holders of Senior Indebtedness in respect of cash, property, or securities of the Guarantor received upon the exercise of
any such remedy. Upon any distribution of assets of the Guarantor referred to in this Annex A, the holder of the Note shall be entitled to rely upon any order or decree made by any court of competent
jurisdiction in which such dissolution, winding up, liquidation or reorganization proceedings are pending, or a certificate of the liquidating trustee or agent or other person making any distribution
to the holder of the Note, for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of the Senior Indebtedness and other indebtedness of the Guarantor, the
amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Annex A. 

        Section 1.07.    Subrogation Rights Not Impaired by Acts or Omissions of Guarantor or Holders of Senior
Indebtedness.    No rights of any present or future holders of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by an act or failure to act on the part of the Guarantor or by any act or failure to act in good faith by any such holder, or by any noncompliance by the Guarantor with the
terms and provisions of the Note, regardless of any knowledge thereof which any such holder may have or be otherwise charged with. The holders of the Senior Indebtedness may, without in any way
affecting the obligations of the holder of the Note with respect thereto, at any time or from time to time and in their absolute discretion, change the manner, place or terms of payment of, change or
extend the time of payment of, or renew or alter, any Senior Indebtedness, or amend, modify or supplement any agreement or instrument
governing or evidencing such Senior Indebtedness or any other document referred to therein, or exercise or refrain from exercising any other of their rights under the Senior Indebtedness including,
without limitation, the waiver of a default thereunder and the release of any collateral securing such Senior Indebtedness, all without notice to or consent from the holder of the Note. 

        Section 1.08.    Senior Indebtedness.    (a) The term "Senior
Indebtedness" shall mean all Obligations (as defined below) of the Guarantor under the Guarantee and Agreement (as defined below). 

        (b)  As
used in this Annex A, the terms set forth below shall have the respective meanings provided below: 

        "Guarantee and Agreement" shall mean the Guarantee and Agreement, dated as of April 6, 2001, by the Guarantor, in favor of
Citibank, N.A., as Security Agent (in such capacity, the "Security Agent") for the Creditors, as same may be amended, modified, extended, renewed,
restated or supplemented from time to time, and including any agreement extending the maturity of, refinancing or restructuring all or any portion of, or increasing the Obligations under such
agreement or of any successor agreements. 

        "NEG Trigger Event" shall have the meaning assigned to such term in the Guarantee and Agreement. 

        "Obligations" shall mean the Guaranteed Obligations (as defined in the Guarantee and Agreement) and all other payment obligations of the
Guarantor under the Guarantee and Agreement. 

 
 

Schedule 3.05    
  

Litigation  

        None. 

 
 

Schedule 3.12    
  

Environmental Matters  

        The Brayton Point and Salem Harbor generating stations, located in Massachusetts, have received requests from the U.S. Environmental Protection Agency ("EPA")
pursuant to Section 114 of the Clean Air Act seeking detailed operating and maintenance histories. In addition, the Commonwealth of Massachusetts is considering the adoption of regulations
requiring additional air emissions reductions from electric generating facilities located there, including both Brayton Point and Salem Harbor, and various citizens' groups have from time to time
raised concerns about air emissions from these facilities. 

        The
Brayton Point station is currently operating pursuant to a memorandum of understanding regarding its cooling water systems, pending issuance of a new NPDES permit to be issued under
the Clean Water Act. The Rhode Island Department of Environmental Management and various citizens groups have alleged a connection between declining fish populations in Mt. Hope Bay and thermal
discharges from the Brayton Point cooling system. They have asked that the EPA commence an enforcement action, which as of this date EPA has declined to do. 

        In
April 2000, an environmental group served notice of its intent to file a citizens' suit under the Resource Conservation and Recovery Act, as a result of the handling,
storage, treatment and disposal of wastes at the Brayton Point and Salem Harbor generating stations. In September 2000, an agreement was signed with this group and the Massachusetts Department
of Environmental Protection resolving the issue and implementation of the agreement is underway. 

        As
of the date hereof, Guarantor does not believe these matters will have a Material Adverse Effect and accordingly they are being discussed herein for disclosure purposes only. 

  

 
 

Schedule 3.14    
  

Unrestricted Subsidiaries  

Alhambra
Pacific Joint Venture

Barakat & Chamberlin, Inc.

BPS I, Inc.

Citrus Generating Company, L.P.

Conaway Conservancy Group Joint Venture

Coopers Hawk Power Corporation

Creston Financial Group, Inc.

DPR, Inc.

Eucalyptus Power Corporation

Fellows Generating Company, L.P.

Gannet Power Corporation

Gator Generating Company, L.P.

Gilia Enterprises

Heron Power Corporation

J. Makowski Associates, Inc.

Loon Power Corporation

Marengo Ranch Joint Venture

Mason Generating Company

McSweeney Ranch Joint Venture

Merlin Power Corporation

Oat Creek Associates Joint Venture

Okeelanta Power, L.P.

Pelican Power Corporation

PG&E Australia

PG&E Corporation Australia Pty Ltd.

PG&E Corporation Australian Holdings Pty Ltd.

PG&E Energy Services Ventures, Inc.

PG&E Energy Trading Australia Pty Ltd.

PG&E Gas Transmission Australia Pty Ld.

PG&E Gas Transmission Bundaberg Pty Ltd.

PG&E Gas Transmission Queensland Pty Ltd.

PG&E Gas Transmission Unit Holdings Pty Ltd.

PG&E Generating New England, Inc.

PG&E Generating New England, L.L.C.

PG&E International Development Holdings, LLC

PG&E Management Services Company

PG&E Overseas, Inc.

PG&E Overseas, Ltd.

PG&E Pacific I, Ltd.

PG&E Pacific II, Ltd.

PTP Services, LLC

Quantum Ventures

Rancho Murieta Joint Venture

Real Estate Energy Solutions, Inc.

Rocksavage Services I, Inc.

The Conaway Ranch Company

Valley Real Estate, Inc. 

50

 
 

Schedule 4.01    
  

Certain Restricted Subsidiaries not Subject to Section 4.01 or 4.02  

First
Massachusetts Land Company, LLC

J. Makowski Pittsfield, Inc.

J. Makowski Services, Inc.

JMCS I Management, Inc.

Pacific Gas Transmission Company

Pacific Gas Transmission International, Inc.

PG&E National Energy Group Company

PG&E International, Inc.

PG&E Operating Services Company

PG&E Operating Services Holdings, Inc.

PG&E Overseas Holdings I, Ltd.

PG&E Overseas Holdings II, Ltd.

USGen Fuel Services, Inc.

USGen Holdings, Inc.

USGen Services Company, LLC

USOSC Holdings, Inc. 

 
 

Schedule 4.10    
  

Other Existing Investments  

        PG&E Gas Transmission, Northwest Corporation holds a 50 percent interest in Stanfield Hub Services, LLC. 

        PG&E
Gas Transmission, Northwest Corporation holds a note receivable from PG&E Corporation of $75,000,000. 

        PG&E
Gas Transmission Corporation holds 242,410 shares of common stock of Aerie Networks, Inc. Paperwork is under way to complete the planned transfer of those shares to GTN
Holdings, LLC. 

        PG&E
Energy Trading—Gas Corporation holds a 40.6 percent membership interest in True Quote LLC. 

 
 

Schedule 4.11    
  

Other Existing Liens  

        None. 

 
 

Schedule 4.12(a)    
  

Indebtedness under Certain Credit Agreements  

        None. 

 
 

Schedule 4.12(f)    
  

Other Existing Indebtedness  

        None. 

 
 

Schedule 4.13    
  

Descriptions of Existing Management, Operation, Sharing

and Similar Arrangements with Affiliates  

	Document Name
 
	 	Document Date

	Continuing Services Agreement between PG&E Generating Company LLC and Pacific Gas & Electric Company	 	10/15/99
	Restated Continuing Services Agreement between PG&E Generating Company and Pacific Gas & Electric Company	 	10/15/99
	Restated Continuing Services Agreement between Pacific Gas & Electric Company and PG&E Energy Trading—Gas Corporation	 	10/15/99
	Restated Continuing Services Agreement between Pacific Gas & Electric Company and PG&E Energy Trading—Power, L.P.	 	10/15/99
	Restated Continuing Services Agreement between Pacific Gas & Electric Company and PG&E Gas Transmission, Northwest Corporation	 	10/15/99
	Continuing Services Agreement between Pacific Gas & Electric Company and PG&E National Energy Group, Inc.	 	8/7/00
	Restated Continuing Services Agreement between Pacific Gas & Electric Company and PG&E Shareholdings, Inc.	 	10/15/99
	Promissory Note by Attala Power Corporation in favor of PG&E Corporation, as amended by Amendment No. 1 dated April 6, 2001	 	9/28/00
	Promissory Note by PG&E Corporation in favor of PG&E Gas Transmission, Northwest Corporation	 	10/26/00

 
 

Exhibit A    
  

Form of Payment Demand  

[Date]

PG&E
National Energy Group, Inc.

7500 Old Georgetown Road, 13th floor

Bethesda, MD 20814 

Attention:
General Counsel 

        Re:
La Paloma—NEG Guarantee 

Ladies
and Gentlemen: 

        Reference
is made to (i) the Participation Agreement, March 7, 2000, among La Paloma Generating Company, LLC (the
"Company"), La Paloma Generating Trust Ltd., Wilmington Trust Company, the Lenders party thereto, the Tranche A Banks party thereto, the
Investors party thereto and Citibank, N.A., as administrative agent and security agent, as amended by the Omnibus Restructuring Agreement, dated as of April 6, 2001, among PG&E Corporation,
PG&E National Energy Group, Inc. (the "Guarantor"), PG&E Generating Company, LLC, La Paloma Generating Company, LLC, La Paloma Generating
Trust Ltd., Wilmington Trust Company, the Lenders party thereto, the Tranche A
Banks party thereto, the Investors party thereto, Citibank, N.A. and the other parties thereto (the "Participation Agreement") and (ii) the
Guarantee and Agreement, dated as of April 6, 2001, made by the Guarantor in favor of Citibank, N.A., as Security Agent, for the benefit of the Lenders (the "Guarantee
and Agreement"). 

        Unless
otherwise defined herein, terms defined in the Guarantee and Agreement shall have their defined meanings when used herein. 

        [An
Event of Default has occurred and is continuing. Pursuant to Section 2.01(b) of the Guarantee and Agreement, the Security Agent hereby demands payment from the
Guarantor, within 5 Business Days from receipt hereof, of the Guaranteed Obligations consisting of the following: 

	(a)
	$[                        ]
of principal amount of Tranche A Loans,

	(b)
	$[                        ]
of interest on such principal amount of Tranche A Loans;

	(c)
	$[                        ]
of all other payment obligations and liabilities of the Company; and

	(d)
	interest
on the sum of all amounts under clauses (a), (b) and (c) above, accruing at the Overdue Rate from [date amounts became due] until such
amounts are paid in full. 

provided, that the amount payable by the Guarantor on account of this payment demand shall not exceed the Maximum Guarantee Amount.](1) 

        [An
NEG Trigger Event has occurred and is continuing. Pursuant to Section 2.01(c) of the Guarantee and Agreement, the Security Agent hereby demands payment from the
Guarantor, within 5 Business Days from receipt hereof, of the Guarantee Draw Amount in the amount of $[                        ].]
(2) 

        [An
Event of Default has occurred and is continuing and a Security Agent has made a Payment Demand pursuant to Section 2.01(c) of the Guarantee and Agreement. Pursuant
to Section 2.01(d) of the Guarantee and Agreement, the Security Agent hereby demands payment from the Guarantor, within 5 Business Days from receipt hereof, of
$[                        ] (such amount being equal to the Maximum Guarantee Amount less the amount previously paid by the
Guarantor pursuant to such prior 

 

payment demand), plus interest thereon accruing at the Overdue Rate until such amount is paid in full.](3) 

	 	 	Very truly yours,
	

 	
 	

CITIBANK, N.A., as Security Agent
	

 	
 	

By:	
 	

 
	 	 	 	 	
 Name:

Title:

	(1)
	This
option will apply if demand is pursuant to Section 2.01(b) of the Guarantee and Agreement.

	(2)
	This
option will apply if demand is pursuant to Section 2.01(c) of the Guarantee and Agreement.

	(3)
	This
option will apply if demand is pursuant to Section 2.01(d) of the Guarantee and Agreement. 

2

QuickLinks

Exhibit 10.17

Schedule 1.01A

SCHEDULE 1.01B

SCHEDULE 1.01C

Schedule 3.05

Schedule 3.12

Schedule 3.14

Schedule 4.01

Schedule 4.10

Schedule 4.11

Schedule 4.12(a)

Schedule 4.12(f)

Schedule 4.13

Exhibit A

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