Document:

<PAGE>   1

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
SECTION                                                                                          PAGE

                                                    PRELIMINARY STATEMENTS

                                                          ARTICLE I
                                               DEFINITIONS AND ACCOUNTING TERMS

<S>                    <C>                                                                     <C>
         SECTION 1.01.  Certain Defined Terms.................................................    1
         SECTION 1.02.  Computation of Time Periods; Construction.............................   30
         SECTION 1.03.  Accounting Terms......................................................   31

                                                          ARTICLE II
                                                         COMMITMENTS

         SECTION 2.01.  The Commitments.......................................................   31
         SECTION 2.02.  Fees   ...............................................................   32
         SECTION 2.03.  Reduction of the Commitments..........................................   32
         SECTION 2.04.  Computations of Outstandings..........................................   32

                                                         ARTICLE III
                                                            LOANS

         SECTION 3.01.  Loans  ...............................................................   33
         SECTION 3.02.  Conversion of Loans...................................................   34
         SECTION 3.03.  Interest Periods......................................................   35
         SECTION 3.04.  Other Terms Relating to the Making and Conversion of Loans............   35
         SECTION 3.05.  Repayment of Loans; Term Loan Election; Interest......................   38
         SECTION 3.06.  Additional Interest on Eurodollar Rate Loans..........................   38

                                                          ARTICLE IV
                                                      LETTERS OF CREDIT

         SECTION 4.01.  Issuing Banks.........................................................   39
         SECTION 4.02.  Letters of Credit.....................................................   39
         SECTION 4.03.  Issuing Bank Fees.....................................................   40
         SECTION 4.04.  Reimbursement to Issuing Banks........................................   40
         SECTION 4.05.  Obligations Absolute..................................................   41
         SECTION 4.06.  Liability of Issuing Banks and the Lenders............................   41
</TABLE>

                                      -ii-

<PAGE>   2

<TABLE>
<CAPTION>
                                                          ARTICLE V
                                         PAYMENTS, COMPUTATIONS AND YIELD PROTECTION

<S>                    <C>                                                                     <C>
         SECTION 5.01.  Payments and Computations.............................................   42
         SECTION 5.02.  Interest Rate Determination...........................................   44
         SECTION 5.03.  Prepayments...........................................................   44
         SECTION 5.04.  Yield Protection......................................................   45
         SECTION 5.05.  Sharing of Payments, Etc..............................................   47
         SECTION 5.06.  Taxes  ...............................................................   47

                                                          ARTICLE VI
                                                     CONDITIONS PRECEDENT

         SECTION 6.01.  Conditions Precedent to Commitment Closing............................   49
         SECTION 6.02.  Conditions Precedent to the Initial Extension of Credit...............   52
         SECTION 6.03.  Conditions Precedent to Each Extension of Credit......................   52
         SECTION 6.04.  Determinations Under Sections 6.01 and 6.02...........................   53
         SECTION 6.05.  Reliance on Certificates..............................................   53

                                                         ARTICLE VII
                                                REPRESENTATIONS AND WARRANTIES

         SECTION 7.01.  Representations and Warranties of the Borrower........................   53

                                                         ARTICLE VIII
                                                  COVENANTS OF THE BORROWER

         SECTION 8.01.  Affirmative Covenants.................................................   57
         SECTION 8.02.  Negative Covenants....................................................   60
         SECTION 8.03.  Reporting Obligations.................................................   69

                                                          ARTICLE IX
                                                           DEFAULTS

         SECTION 9.01.  Events of Default.....................................................   71
         SECTION 9.02.  Remedies..............................................................   75

                                                          ARTICLE X
                                                   THE ADMINISTRATIVE AGENT
</TABLE>

                                     -iii-
<PAGE>   3

<TABLE>
<S>                    <C>                                                                     <C>
         SECTION 10.01.  Authorization and Action.............................................   76
         SECTION 10.02.  Indemnification......................................................   78

                                                          ARTICLE XI
                                                        MISCELLANEOUS

         SECTION 11.01.  Amendments, Etc......................................................   78
         SECTION 11.02.  Notices, Etc.........................................................   79
         SECTION 11.03.  No Waiver of Remedies................................................   79
         SECTION 11.04.  Costs, Expenses and Indemnification..................................   80
         SECTION 11.05.  Right of Set-off.....................................................   81
         SECTION 11.06.  Binding Effect.......................................................   81
         SECTION 11.07.  Assignments and Participation........................................   82
         SECTION 11.08.  Confidentiality......................................................   86
         SECTION 11.09.  WAIVER OF JURY TRIAL.................................................   87
         SECTION 11.10.  Governing Law; Submission to Jurisdiction............................   87
         SECTION 11.11.  Relation of the Parties; No Beneficiary..............................   87
         SECTION 11.12.  Execution in Counterparts............................................   87
         SECTION 11.13.  Survival of Agreement................................................   87
         SECTION 11.14.  Waiver of Certain Bankruptcy Claims..................................   88
         SECTION 11.15.  Compliance with Usury Laws...........................................   88
         SECTION 11.16.  Amendments to this Agreement under Certain Circumstances.............   88
</TABLE>

                                      -iv-
<PAGE>   4

Exhibits

EXHIBIT A   -    Form of Notice of Borrowing
EXHIBIT B   -    Form of Notice of Conversion
EXHIBIT C   -    Form of Opinion of Thelen Reid & Priest LLP, special New York
                 counsel to the Borrower
EXHIBIT D   -    Form of Opinion of Kirkland & Ellis, special energy regulatory
                 counsel to the Borrower
EXHIBIT E   -    Form of Opinion of Hughes Hubbard & Reed LLP, counsel to the
                 Administrative Agent
EXHIBIT F   -    Form of Lender Assignment
EXHIBIT G   -    Form of Issuing Bank Agreement

Schedules

SCHEDULE I       Applicable Lending Offices
SCHEDULE II      Ownership of Borrower and Subsidiaries
SCHEDULE III     Support Obligations

                                      -v-
<PAGE>   5

                                CREDIT AGREEMENT

                            Dated as of July 27, 2000

               THIS CREDIT AGREEMENT is made by and among:

               (i)    Orion Power Holdings, Inc., a Delaware corporation (the
                      "BORROWER"),

               (ii)   the banks (the "BANKS") listed on the signature pages
                      hereof and the other Lenders (as hereinafter defined) from
                      time to time party hereto,

               (iii)  the letter of credit issuing banks from time to time party
                      hereto (in such capacity, and together with any bank or
                      financial institution party to an Issuing Bank Agreement,
                      the "ISSUING BANKS"),

               (iv)   Union Bank of California, N.A. ("UNION BANK"), as
                      administrative agent (in such capacity, the
                      "ADMINISTRATIVE AGENT") for the Lenders and the Issuing
                      Banks hereunder,

               (v)    CIBC World Markets Corp., as syndication agent (in such
                      capacity, the "SYNDICATION AGENT"), and

               (vi)   The Bank of Nova Scotia, as documentation agent (in such
                      capacity, the "DOCUMENTATION Agent").

                             PRELIMINARY STATEMENTS

         The Borrower has requested the Banks to provide the credit facilities
hereinafter described in the amounts and on the terms and conditions set forth
herein. The Banks have so agreed on the terms and conditions set forth herein,
and the Administrative Agent has agreed to act as agent for the Lenders and the
Issuing Banks on such terms and conditions. In addition, each Issuing Bank has
agreed to issue Letters of Credit from time to time at the request of the
Borrower pursuant to such terms and conditions.

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

                                    ARTICLE I
                        DEFINITIONS AND ACCOUNTING TERMS

         SECTION 1.01. CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings:

<PAGE>   6
                                                                               2

                 "ABR", when used in reference to any Loan or Borrowing, refers
         to whether such Loan, or the Loans comprising such Borrowing, are
         bearing interest at a rate determined by reference to the Alternate
         Base Rate.

                  "ABR LOAN" means a Loan that bears interest as provided in
         Section 3.05(b)(i).

                  "AFFILIATE" means, with respect to any Person, any other
         Person directly or indirectly controlling (including but not limited to
         all directors and officers of such Person), controlled by, or under
         direct or indirect common control with such Person. A Person shall be
         deemed to control another entity if such Person possesses, directly or
         indirectly, the power to direct or cause the direction of the
         management and policies of such entity, whether through the ownership
         of voting securities, by contract, or otherwise.

                  "AGENT" means, as the context may require, the Administrative
         Agent, the Syndication Agent or the Documentation Agent; and "AGENTS"
         means either or both of the foregoing.

                  "ALTERNATE BASE RATE" means, for any day, a rate per annum
         equal to the greater of (a) the Base Rate in effect on such day and (b)
         the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%.
         Any change in the Alternate Base Rate due to a change in the Base Rate
         or the Federal Funds Effective Rate shall be effective from and
         including the effective date of such change in the Base Rate or the
         Federal Funds Effective Rate, respectively.

                  "APPLICABLE LENDING OFFICE" means, with respect to each
         Lender, (i) such Lender's Domestic Lending Office, in the case of an
         ABR Loan, and (ii) such Lender's Eurodollar Lending Office, in the case
         of a Eurodollar Rate Loan.

                  "APPLICABLE MARGIN" means, for any day, with respect to any
         Eurodollar Rate Loan or ABR Loan, as the case may be, the applicable
         percentage set forth below under the caption "Eurodollar Margin" or
         "ABR Margin", respectively, based upon the ratings by S&P and Moody's
         applicable on such date to the Index Debt:

<TABLE>
<CAPTION>
         =============================================== ==================== ====================
                                                         Eurodollar           ABR
                                                         Margin               Margin
         =============================================== ==================== ====================

<S>                                                      <C>                  <C>
         Category 1
         ----------

         BBB- or higher by S&P and
         Baa3 or higher by Moody's                              1.50%                0.00%
         ----------------------------------------------- -------------------- --------------------

         Category 2
         ----------

         BB+ or higher by S&P and
         Ba1 or higher by Moody's                               2.25%                0.75%
</TABLE>

<PAGE>   7
                                                                               3

<TABLE>
<S>                                                      <C>                  <C>
         ----------------------------------------------- -------------------- --------------------

         Category 3
         ----------

         BB or higher by S&P and
         Ba2 or higher by Moody's                               2.75%                1.25%
         ----------------------------------------------- -------------------- --------------------

         Category 4
         ----------

         BB- or higher by S&P and
         Ba3 or higher by Moody's                               3.25%                1.75%
         ----------------------------------------------- -------------------- --------------------

         Category 5
         ----------

         B+ or higher by S&P and
         B1 or higher by Moody's                                4.00%                2.50%
         ----------------------------------------------- -------------------- --------------------

         Category 6
         ----------

         B or below by S&P or
         B2 or below by Moody's                                 4.50%                3.00%
         ----------------------------------------------- -------------------- --------------------
</TABLE>

         Notwithstanding the foregoing, (i) in the event that the principal
         amount outstanding hereunder exceeds 662/3% of the Commitments for any
         continuous period in excess of six consecutive calendar months, then
         each of the foregoing Eurodollar Margins and ABR Margins shall be
         increased by 0.50% per annum, such increase (A) to be applied
         retroactively for the three-calendar-month period most recently ended
         (as if such increase had been in effect at all times during such
         three-calendar-month period) and (B) to remain in effect unless and
         until the principal amount outstanding hereunder is less than 662/3% of
         the Commitments for at least three consecutive calendar months, and
         (ii) if the restrictions on Distributions contained in the Orion Power
         New York Credit Facility and the Orion Power MidWest Credit Facility
         have not been irrevocably terminated (so that no such restrictions
         exist thereunder) prior to the earlier to occur of (A) December 31,
         2001 and (B) the date on which the amount of Permitted Distributions
         (as defined in the Orion Power New York Credit Facility as in effect on
         the date hereof) paid by or at the direction of Orion Power New York
         pursuant to the Orion Power New York Credit Facility first equals the
         Maximum Permitted Distribution Amount (as defined in the Orion Power
         New York Credit Facility as in effect on the date hereof), then at all
         times thereafter until such restrictions have been irrevocably
         terminated (so that no such restrictions exist under the Orion Power
         New York Credit Facility or the Orion Power MidWest Credit Facility)
         the Applicable Margin shall be based on Category 6; provided,

<PAGE>   8
                                                                               4

         however, that if, at any time after such restrictions have been
         terminated (so that no such restrictions exist thereunder), the Orion
         Power New York Credit Facility or the Orion Power MidWest Credit
         Facility is amended, supplemented or otherwise modified to provide for
         any restrictions on Distributions, then at all times during which such
         restrictions are in effect the Applicable Margin shall be based on
         Category 6.

         In addition, (1) from the Financial Closing Date until the first date
         (the "INITIAL COMPLIANCE DATE") on which the Borrower demonstrates to
         the reasonable satisfaction of the Administrative Agent (through the
         delivery of reasonably detailed schedules and supporting calculations,
         or otherwise) that the Borrower is in compliance with each of the
         financial covenants set forth in Section 8.01(n), (o), (p) and (q), and
         (2) after the Initial Compliance Date, in the event that, and at all
         times during which, the Borrower is not in compliance with any such
         financial covenant (notwithstanding that an Event of Default may not
         yet have occurred as a result of such noncompliance), each of the
         foregoing Eurodollar Margins and ABR Margins shall be increased by
         0.50% per annum; provided, however, that, solely for purposes of this
         paragraph (and the corresponding paragraphs contained in the
         definitions of "Commitment Fee Rate" and "Letter of Credit Commission
         Rate" in this Section 1.01), (A) the Borrower may demonstrate
         compliance with the Borrower Debt Service Coverage Ratio for the
         four-Fiscal Quarter period ending March 31, 2001 (as contemplated by
         Section 8.01(q)) or for any other four-Fiscal Quarter period ending
         prior thereto or thereafter, (B) in determining compliance with the
         Borrower Debt Service Coverage Ratio, the Borrower's (but not any of
         its Subsidiaries') cash on hand (including Permitted Investments) shall
         be included in calculating Cash Flow Available for Debt Service, and
         (C) the Borrower shall be deemed to be in compliance with the Borrower
         Debt Service Coverage Ratio during the period from the Financial
         Closing Date until the end of the Fiscal Quarter in which the Financial
         Closing Date occurs if the Borrower's (but not including any of its
         Subsidiaries') cash on hand (including Permitted Investments) is at
         least $30,000,000 at all times during such period; and provided
         further, however, that the Default Rate, and not the increases in the
         Eurodollar Margins and ABR Margins set forth in this paragraph, shall
         apply upon the occurrence and during the continuance of an Event of
         Default.

         For purposes of determining the Applicable Margin, (A) if Moody's or
         S&P shall not have in effect a rating for the Index Debt (other than by
         reason of the circumstances referred to in the last sentence of this
         definition), then such rating agency shall be deemed to have
         established a rating in Category 6, and (B) if more than one Category
         is applicable at any one time, the Applicable Margin shall be based on
         the applicable Category having the lowest number (i.e., Category 1 is
         lower than Category 2). The Applicable Margins shall be increased or
         decreased in accordance with this definition upon any change in the
         applicable ratings of the Index Debt, and such increased or decreased
         Applicable Margins shall be effective from the date of announcement of
         any such new ratings. The Borrower agrees to notify the Administrative
         Agent promptly after each change in any rating of the Index Debt. If
         the rating system of Moody's or S&P shall change, or if any such rating
         agency shall cease to be in the business of rating corporate debt
         obligations, the Borrower and the Lenders shall negotiate in good faith
         to amend this definition to reflect such changed rating system or the
         non-availability of ratings from such rating agency and,

<PAGE>   9
                                                                               5

         pending the effectiveness of any such amendment, the Applicable Margin
         shall be determined by reference to the rating most recently in effect
         prior to such change or cessation.

                  "APPLICABLE RATE" means:

                            (i) in the case of each ABR Loan, a rate per annum
                  equal at all times to the sum of the Alternate Base Rate in
                  effect from time to time plus the Applicable Margin in effect
                  from time to time; and

                            (ii) in the case of each Eurodollar Rate Loan
                  comprising part of the same Borrowing, a rate per annum during
                  each Interest Period equal at all times to the sum of the
                  Eurodollar Rate for such Interest Period plus the Applicable
                  Margin in effect from time to time during such Interest
                  Period.

                  "AVAILABLE COMMITMENT" means, for each Lender on any day, the
         unused portion of such Lender's Commitment, computed after giving
         effect to all Extensions of Credit or prepayments to be made on such
         day and the application of proceeds therefrom. "AVAILABLE COMMITMENTS"
         means the aggregate of the Lenders' Available Commitments.

                  "BASE RATE" means the rate of interest announced publicly by
         Union Bank in Los Angeles, California, from time to time, as the Union
         Bank Reference Rate (it being acknowledged that the Union Bank
         Reference Rate may not necessarily be the lowest rate of interest
         charged to any class of borrowers by Union Bank).

                  "BOARD" means the Board of Governors of the Federal Reserve
         System of the United States of America.

                  "BORROWER DEBT SERVICE COVERAGE RATIO" means, for any
         four-Fiscal Quarter period, the ratio of (i) Cash Flow Available for
         Debt Service for such period to (ii) Debt Service for such period.

                  "BORROWING" means a borrowing consisting of Loans of the same
         Type, having the same Interest Period and made or Converted on the same
         day by the Lenders, ratably in accordance with their respective
         Percentages. Any Borrowing consisting of Loans of a particular Type may
         be referred to as being a Borrowing of such "TYPE". All Loans of the
         same Type, having the same Interest Period and made or Converted on the
         same day shall be deemed a single Borrowing hereunder until repaid or
         next Converted.

                  "BUSINESS DAY" means a day of the year on which banks are not
         required or authorized to close in New York City and Los Angeles,
         California, and, if the applicable Business Day relates to any
         Eurodollar Rate Loan, a day of the year on which dealings are carried
         on in the London interbank market.

                  "CAPITAL EXPENDITURE" means any expenditure for fixed or
         capital assets or additions to plant, property or equipment (including
         replacements and capitalized repairs) that, in accordance with GAAP,
         would be classified as a capital expenditure.

<PAGE>   10
                                                                               6

                  "CAPITALIZED LEASE OBLIGATIONS" means obligations to pay rent
         or other amounts under any lease of (or other arrangement conveying the
         right to use) real and/or personal property, which obligation is
         required to be classified and accounted for as a capital lease on a
         balance sheet prepared in accordance with GAAP, and for purposes hereof
         the amount of such obligations shall be the capitalized amount
         determined in accordance with GAAP.

                  "CAPITAL STOCK" means, with respect to any Person, any and all
         shares, interests, rights to purchase, warrants, options,
         participations or other equivalents of or interest in (however
         designated) the common or preference share capital of such Person,
         including, without limitation, partnership interests and limited
         liability company interests.

                  "CASH FLOW AVAILABLE FOR DEBT SERVICE" means, for any period,
         the difference (but not less than zero) between (i) the sum of the
         following amounts (determined without duplication), but only to the
         extent received in cash by the Borrower from any other Person during
         such period:

                           (A) dividends or other Distributions paid to the
                  Borrower by its Subsidiaries during such period, less the
                  amount of any dividends or other Distributions received by the
                  Borrower prior to or during such period that it is required to
                  repay or otherwise return to any of its Subsidiaries for any
                  reason during such period;

                           (B) consulting, management and similar fees paid to
                  the Borrower for such period;

                           (C) tax sharing payments made to the Borrower during
                  such period;

                           (D) the proceeds of any business interruption
                  insurance paid to the Borrower during such period;

                           (E) interest and other distributions paid during such
                  period with respect to cash and other Permitted Investments of
                  the Borrower;

                           (F) other cash payments made to the Borrower by its
                  Subsidiaries during such period other than (i) returns of
                  invested capital, (ii) payments of the principal of Debt of
                  any such Subsidiary to the Borrower (other than payments
                  described in clause (G) below), and (iii) payments in an
                  amount equal to the aggregate amount released from debt
                  service reserve accounts upon the issuance of Letters of
                  Credit for the benefit of the beneficiaries of such accounts;
                  and

                           (G) each repayment made during such period of the
                  principal amount of any loans or advances made by the Borrower
                  to any of its Subsidiaries pursuant to Section 8.02(d)(iv) or
                  8.02(d)(v), less, with respect to each such repayment, the
                  outstanding principal amount of the Loans on the date of such
                  repayment (after

<PAGE>   11
                                                                               7

                  giving effect to all Loans made or deemed made on such date of
                  repayment, but without giving effect to any repayments or
                  prepayments of the Loans made on such date of repayment);
                  provided, however, that if any such difference is less than
                  zero, such amount shall be disregarded for purposes of
                  determining Cash Flow Available for Debt Service;

                                      minus

         (ii) the sum of the following expenses (determined without
         duplication), in each case to the extent paid by the Borrower during
         such period and regardless of whether any such amount was accrued
         during such period:

                           (A) expenses incurred by the Borrower or any of its
                  Subsidiaries for the development of any power project (other
                  than any such expenses that the Borrower accounts for as a
                  capital contribution to any of its Subsidiaries);

                           (B) income tax expenses of the Borrower and its
                  Subsidiaries;

                           (C) capital expenditures of the Borrower and its
                  Subsidiaries;

                           (D) dividends paid on the Borrower's capital stock
                  during such period; and

                           (E) corporate overhead expenses (other than any such
                  expenses that the Borrower accounts for as a capital
                  contribution to any of its Subsidiaries).

         For purposes of determining Cash Flow Available for Debt Service, if
         any Subsidiary of the Borrower is sold or otherwise disposed of (by way
         of merger, sale of capital stock, sale of assets or otherwise), (x) the
         net cash proceeds from such sale or other disposition shall not be
         included in Cash Flow Available for Debt Service for any period and (y)
         the contributions of such Subsidiary to Cash Flow Available for Debt
         Service for any period shall be eliminated and Cash Flow Available for
         Debt Service shall be calculated after giving effect to such
         elimination.

                  "CEI" means Constellation Enterprises, Inc., a Delaware
         corporation.

                  "CHANGE OF CONTROL" has the meaning assigned to that term in
         the Senior Note Indenture.

                  "COMMITMENT" means, for each Lender, the obligation of such
         Lender to make Loans to the Borrower and to participate in Extensions
         of Credit resulting from the issuance (or extension, modification or
         amendment) of any Letter of Credit in an aggregate amount no greater
         than the amount set forth opposite such Lender's name on the signature
         pages hereof or, if such Lender has entered into one or more Lender
         Assignments, set forth for such Lender in the Register maintained by
         the Administrative Agent pursuant to Section 11.07(c), in each such
         case as such amount may be reduced from time to time pursuant to
         Section 2.03. "COMMITMENTS" means the total of the

<PAGE>   12
                                                                               8

         Lenders' Commitments hereunder. The Commitments shall in no event
         exceed $75,000,000.

                  "COMMITMENT CLOSING DATE" means the date upon which each of
         the conditions precedent enumerated in Section 6.01 has been fulfilled
         to the satisfaction of the Lenders, the Administrative Agent and the
         Borrower. All transactions contemplated by the Commitment Closing Date
         shall take place on or before July 27, 2000, at the offices of Hughes
         Hubbard & Reed LLP, One Battery Park Plaza, New York, New York 10004,
         at 10:00 A.M., or such other time or place as the parties hereto may
         mutually agree.

                  "COMMITMENT FEE RATE" means, for any day, the applicable
         percentage set forth below under the caption "Commitment Fee Rate",
         based upon the ratings by S&P and Moody's applicable on such date to
         the Index Debt:

<TABLE>
<CAPTION>
         =============================================== =========================================

                                                                      Commitment Fee
                                                                           Rate
         =============================================== =========================================
         <S>                                              <C>
         Category 1
         ----------

         BBB- or higher by S&P and
         Baa3 or higher by Moody's                                        0.25%
         ----------------------------------------------- -----------------------------------------

         Category 2
         ----------

         BB+ or higher by S&P and
         Ba1 or higher by Moody's                                         0.50%
         ----------------------------------------------- -----------------------------------------

         Category 3
         ----------

         BB or higher by S&P and
         Ba2 or higher by Moody's                                         0.75%
         ----------------------------------------------- -----------------------------------------

         Category 4
         ----------

         BB- or higher by S&P and
         Ba3 or higher by Moody's                                         0.875%
         ----------------------------------------------- -----------------------------------------

         Category 5
         ----------

         B+ or higher by S&P and
         B1 or higher by Moody's                                          1.00%
         ----------------------------------------------- -----------------------------------------

         Category 6
         ----------

         B or below by S&P or B2 or below                                 1.25%
         ----------------------------------------------- -----------------------------------------
</TABLE>

<PAGE>   13
                                                                               9

<TABLE>
         <S>                                              <C>
         ----------------------------------------------- -----------------------------------------
         by Moody's
         ----------------------------------------------- -----------------------------------------
</TABLE>

         Notwithstanding the foregoing, if the restrictions on Distributions
         contained in the Orion Power New York Credit Facility and the Orion
         Power MidWest Credit Facility have not been irrevocably terminated (so
         that no such restrictions exist thereunder) prior to the earlier to
         occur of (A) December 31, 2001 and (B) the date on which the amount of
         Permitted Distributions (as defined in the Orion Power New York Credit
         Facility as in effect on the date hereof) paid by or at the direction
         of Orion Power New York pursuant to the Orion Power New York Credit
         Facility first equals the Maximum Permitted Distribution Amount (as
         defined in the Orion Power New York Credit Facility as in effect on the
         date hereof), then at all times thereafter until such restrictions have
         been irrevocably terminated (so that no such restrictions exist under
         the Orion Power New York Credit Facility or the Orion Power MidWest
         Credit Facility) the Commitment Fee Rate shall be based on Category 6;
         provided, however, that if, at any time after such restrictions have
         been terminated (so that no such restrictions exist thereunder), the
         Orion Power New York Credit Facility or the Orion Power MidWest Credit
         Facility is amended, supplemented or otherwise modified to provide for
         any restrictions on Distributions, then at all times during which such
         restrictions are in effect the Commitment Fee Rate shall be based on
         Category 6.

         In addition, (1) from the Financial Closing Date until the Initial
         Compliance Date, and (2) after the Initial Compliance Date, in the
         event that, and at all times during which, the Borrower is not in
         compliance with any of the financial covenants set forth in Section
         8.01(n), (o), (p) and (q) (notwithstanding that an Event of Default may
         not yet have occurred as a result of such noncompliance), each of the
         Commitment Fee Rate percentages set forth above shall be increased by
         0.25% per annum; provided, however, that, solely for purposes of this
         paragraph (and the corresponding paragraphs contained in the
         definitions of "Applicable Margin" and "Letter of Credit Commission
         Rate" in this Section 1.01), (A) the Borrower may demonstrate
         compliance with the Borrower Debt Service Coverage Ratio for the
         four-Fiscal Quarter period ending March 31, 2001 (as contemplated by
         Section 8.01(q)) or for any other four-Fiscal Quarter period ending
         prior thereto or thereafter, (B) in determining compliance with the
         Borrower Debt Service Coverage Ratio, the Borrower's (but not any of
         its Subsidiaries') cash on hand (including Permitted Investments) shall
         be included in calculating Cash Flow Available for Debt Service, and
         (C) the Borrower shall be deemed to be in compliance with the Borrower
         Debt Service Coverage Ratio during the period from the Financial
         Closing Date until the end of the Fiscal Quarter in which the Financial
         Closing Date occurs if the Borrower's (but not including any of its
         Subsidiaries') cash on hand (including Permitted Investments) is at
         least $30,000,000 at all times during such period.

         For purposes of determining the Commitment Fee Rate, (A) if Moody's or
         S&P shall not have in effect a rating for the Index Debt (other than by
         reason of the circumstances referred to in the last sentence of this
         definition), then such rating agency shall be deemed to have
         established a rating in Category 6, and (B) if more than one Category
         is applicable at any one time, the Commitment Fee Rate shall be based
         on the applicable Category

<PAGE>   14
                                                                              10

         having the lowest number (i.e., Category 1 is lower than Category 2).
         The Commitment Fee Rate shall be increased or decreased in accordance
         with this definition upon any change in the applicable ratings of the
         Index Debt, and such increased or decreased Commitment Fee Rate shall
         be effective from the date of announcement of any such new ratings. The
         Borrower agrees to notify the Administrative Agent promptly after each
         change in any rating of the Index Debt. If the rating system of Moody's
         or S&P shall change, or if any such rating agency shall cease to be in
         the business of rating corporate debt obligations, the Borrower and the
         Lenders shall negotiate in good faith to amend this definition to
         reflect such changed rating system or the non-availability of ratings
         from such rating agency and, pending the effectiveness of any such
         amendment, the Commitment Fee Rate shall be determined by reference to
         the rating most recently in effect prior to such change or cessation.

                  "CONFIDENTIAL INFORMATION" has the meaning assigned to that
         term in Section 11.08.

                  "CONSOLIDATED EBITDA" means, for any period, the sum, without
         duplication, of (i) consolidated net income of the Borrower and its
         Subsidiaries during such period, plus (ii) the amount deducted, in
         determining such consolidated net income, of all income taxes (whether
         paid or deferred) of the Borrower and its Subsidiaries during such
         period, plus (iii) Consolidated Interest Expense during such period,
         plus (iv) the amount deducted, in determining such consolidated net
         income, representing amortization and depreciation of assets of the
         Borrower and its Subsidiaries during such period, in each case
         determined on a consolidated basis in accordance with GAAP.

                  "CONSOLIDATED FUNDED DEBT" means the outstanding principal
         amount of all Debt of the Borrower and its Subsidiaries of the type
         referred to in clause (i), (iii), (iv) or (vii) of the definition of
         "Debt" contained in this Section 1.01 and, without duplication, any
         Support Obligation in respect of any of the foregoing (provided,
         however, that Consolidated Funded Debt shall not include any Support
         Obligation if such Support Obligation or the primary obligation so
         supported is not fixed or conclusively determined or is not otherwise
         reasonably quantifiable as of the date of determination); it being
         understood and agreed that Consolidated Funded Debt shall include the
         Loans, the Senior Notes and the outstanding principal amount of all
         loans under the Orion Power New York Credit Facility and the Orion
         Power MidWest Credit Facility.

                  "CONSOLIDATED INTEREST COVERAGE RATIO" means, for any
         four-Fiscal Quarter period, the ratio of (i) Consolidated EBITDA for
         such period to (ii) Consolidated Interest Expense for such period.

                  "CONSOLIDATED INTEREST EXPENSE" means, for any period, the
         aggregate consolidated interest expense of the Borrower and its
         Subsidiaries for such period, as determined in accordance with GAAP,
         including, without duplication, the portion of any Capitalized Lease
         Obligations of the Borrower and its Subsidiaries allocable to interest
         expense, all commissions, discounts and other fees charged with respect
         to letters of credit and bankers'

<PAGE>   15
                                                                              11

         acceptance financing, the amortization of debt discounts and the net
         costs under Hedging Agreements, in each case paid or payable during
         such period.

                  "CONSOLIDATED LEVERAGE RATIO" means, for any four-Fiscal
         Quarter period, the ratio of (i) the amount of Consolidated Funded Debt
         as of the last day of such period (after giving effect to all
         extensions of credit to the Borrower and its Subsidiaries, and all
         payments and prepayments in respect of Consolidated Funded Debt, on
         such day) to (ii) Consolidated EBITDA for such period.

                  "CONSOLIDATED SUBSIDIARY" means, with respect to any Person,
         any Subsidiary of such Person whose accounts are or are required to be
         consolidated with the accounts of such Person in accordance with GAAP.

                  "CONSOLIDATED TANGIBLE ASSETS" means, as applied to the
         Borrower, the total consolidated assets of the Borrower and its
         Restricted Subsidiaries (as defined in the Senior Note Indenture) less
         the total intangible assets of the Borrower and its Restricted
         Subsidiaries, all calculated on a consolidated basis in accordance with
         GAAP.

                  "CONSOLIDATED TANGIBLE NET WORTH" means, with respect to any
         Person, the excess of such Person's consolidated assets over its
         consolidated liabilities, consolidated assets and consolidated
         liabilities each to be determined in accordance with GAAP consistently
         applied, excluding, however, from the determination of consolidated
         assets (i) goodwill, organizational expenses, research and development
         expenses, trademarks, trade names, copyrights, patents, patent
         applications, licenses and rights in any thereof, and other similar
         intangibles, (ii) cash held in a sinking or other analogous fund
         established for the purpose of redemption, retirement or prepayment of
         capital stock or Debt, and (iii) any items not included in clauses (i)
         or (ii) above, that are treated as intangibles in conformity with GAAP
         (other than FERC licenses, emissions reduction credits and emissions
         allowances).

                  "CONVERSION", "CONVERT" or "CONVERTED" refers to a conversion
         of Loans of one Type into Loans of another Type, or to the selection of
         a new, or the renewal of the same, Interest Period for Loans, as the
         case may be, pursuant to Section 3.02.

                  "CPS STRATEGIC ALLIANCE AGREEMENT" means that certain
         Strategic Alliance Agreement, dated as of March 10, 1998, between the
         Borrower and CPS.

                  "CPS" means Constellation Power Source, Inc., a Delaware
         corporation.

                  "DEBT" means, for any Person, without duplication, any and all
         indebtedness, liabilities and other obligations of such Person (whether
         for principal, interest, fees, costs, expenses or otherwise, and
         whether contingent or otherwise) (i) for borrowed money or evidenced by
         bonds, debentures, notes or other similar instruments, (ii) to pay the
         deferred purchase price of property or services (except trade accounts
         payable arising in the ordinary course of business which are not more
         than 90 days overdue), (iii) in respect of Capitalized Lease
         Obligations, (iv) under reimbursement or similar agreements with

<PAGE>   16
                                                                              12

         respect to letters of credit, bankers' acceptances or similar
         extensions of credit issued thereunder, (v) under any Hedging
         Agreements (the amount of any such obligation to be the amount that is
         or would be payable upon settlement, liquidation, termination or
         acceleration thereof), (vi) 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), (vii) to pay rent or
         other amounts under leases entered into in connection with sale and
         leaseback transactions involving assets of such Person being sold in
         connection therewith, (viii) in respect of Unfunded Vested Liabilities,
         and (ix) arising from (A) direct or indirect guaranties in respect of,
         and obligations to purchase or otherwise acquire, or otherwise to
         warrant or hold harmless, in each case pursuant to a legally binding
         agreement, a creditor against loss in respect of, Debt of others
         referred to in clauses (i) through (viii) above (including Debt of
         others secured by any Lien existing on any property owned or held by
         such Person, whether or not such Person has assumed or become liable
         for the obligations secured thereby), and (B) other guaranty or similar
         financial obligations in respect of the performance of others,
         including Support Obligations.

                  "DEBT SERVICE" means, for any period, the difference between
         (a) the sum of (i) all interest payments paid, payable or accrued by
         the Borrower for such period, (ii) all payments under Hedging
         Agreements paid or due and payable by the Borrower during such period,
         and (iii) all fees (including without limitation, commitment fees and
         letter of credit commissions, but excluding consultants' and attorneys
         fees and expenses and similar expenses) paid, payable or accrued by the
         Borrower pursuant to any Loan Document, the Senior Note Indenture, or
         any other agreement or instrument evidencing Debt of the Borrower
         during such period, minus (b) amounts, if any, received by the Borrower
         (or receivable by the Borrower from any Lender) under Hedging
         Agreements during such period.

                  "DEFAULT RATE" means a rate per annum equal at all times to
         (i) in the case of any amount of principal of any Loan, 2% per annum
         above the Applicable Rate required to be paid on such Loan immediately
         prior to the date on which the Default Rate becomes effective with
         respect thereto, (ii) in the case of any outstanding Letters of Credit,
         2% per annum above the Letter of Credit Commission Rate required to be
         paid in respect thereof immediately prior to the date on which the
         Default Rate becomes effective with respect thereto, and (iii) in the
         case of any amount of interest, fees or other amounts payable hereunder
         that is not paid when due, 2% per annum above the Applicable Rate for
         an ABR Loan in effect from time to time; provided, that the Applicable
         Rate and the Letter of Credit Commission Rate used in determining the
         Default Rate shall in each case be computed after taking into account
         the final proviso contained in the penultimate paragraph of each of the
         definitions of "Applicable Margin" and "Letter of Credit Commission
         Rate", respectively, contained in this Section 1.01.

                  "DISTRIBUTION" means any payment or other distribution of
         assets, properties, cash, rights, obligations or securities to the
         Borrower in respect of the Borrower's direct or

<PAGE>   17
                                                                              13

         indirect equity ownership interest in Orion Power New York, Orion Power
         MidWest or any other Subsidiary of the Borrower.

                  "DOLLARS" and the sign "$" each means lawful money of the
         United States.

                  "DOMESTIC LENDING OFFICE" means, with respect to any Lender,
         the office of such Lender or its Affiliate specified as its "Domestic
         Lending Office" opposite its name on Schedule I hereto or in the Lender
         Assignment pursuant to which it became a Lender, or such other office
         or affiliate of such Lender as such Lender may from time to time
         specify in writing to the Borrower and the Administrative Agent.

                  "DUQUESNE ACQUISITION" means the acquisition by the Borrower
         of certain power generating assets pursuant to Asset Purchase
         Agreement, dated as of September 24, 1999, by and among Duquesne Light
         Company, the Borrower, The Cleveland Electric Illuminating Company,
         Ohio Edison Company and Pennsylvania Power Company, as the same may be
         amended, supplemented or otherwise modified from time to time.

                  "ELIGIBLE ASSIGNEE" means (a) a commercial bank or trust
         company organized under the laws of the United States, or any State
         thereof; (b) a commercial bank organized under the laws of any other
         country that is a member of the OECD, or a political subdivision of any
         such country, provided that such bank is acting through a branch or
         agency located in the United States; (c) the central bank of any
         country that is a member of the OECD; (d) any other commercial bank or
         other financial institution engaged generally in the business of
         extending credit or purchasing debt instruments; and (e) a Lender or an
         Affiliate of a Lender; provided, however, that (A) any such Person
         shall also (i) have outstanding unsecured indebtedness that is rated A-
         or better by S&P or A3 or better by Moody's (or an equivalent rating by
         another nationally-recognized credit rating agency of similar standing
         if neither of such corporations is then in the business of rating
         unsecured indebtedness of entities engaged in such businesses) or (ii)
         have combined capital and surplus (as established in its most recent
         report of condition to its primary regulator) of not less than
         $500,000,000 (or its equivalent in foreign currency), (B) any Person
         described in clause (b), (c), or (d) above, shall, on the date on which
         it is to become a Lender hereunder, (1) be entitled to receive payments
         hereunder without deduction or withholding of any United States Federal
         income taxes (as contemplated by Section 5.06) and (2) not be incurring
         any losses, costs or expenses of the type for which such Person could
         demand payment under Section 5.04(a) or (c) (except to the extent that,
         in the absence of the making of an assignment to such Person, the
         assigning Lender would have incurred an equal or greater amount of such
         losses, costs or expenses and such losses, costs or expenses would have
         been payable by the Borrower to such assigning Lender hereunder), and
         (C) any Person described in clause (a), (b), (c), (d) or (e) above that
         is not a Lender shall, in addition, be acceptable to each Issuing Bank
         based upon its then-existing credit criteria.

                  "ENVIRONMENTAL LAWS" means all laws, rules, regulations,
         codes, ordinances, orders, decrees, judgments, injunctions, notices or
         binding agreements issued, promulgated or entered into by any
         governmental agency or authority, relating in any way

<PAGE>   18
                                                                              14

         to the environment, preservation or reclamation of natural resources,
         the management, release or threatened release of any Hazardous
         Substance or to health and safety matters.

                  "ENVIRONMENTAL LIABILITY" means, with respect to any Person,
         any liability, contingent or otherwise (including any liability for
         damages, costs of environmental remediation, fines, penalties or
         indemnities), of such Person or any of its Subsidiaries directly or
         indirectly resulting from or based upon (a) violation of any
         Environmental Law, (b) the generation, use, handling, transportation,
         storage, treatment or disposal of any Hazardous Substances, (c)
         exposure to any Hazardous Substances, (d) the release or threatened
         release of any Hazardous Substances into the environment or (e) any
         contract, agreement or other consensual arrangement pursuant to which
         liability is assumed or imposed with respect to any of the foregoing.

                  "ERISA" means the Employee Retirement Income Security Act of
         1974, as amended from time to time, and the regulations promulgated and
         rulings issued thereunder.

                  "ERISA AFFILIATE" means, with respect to the Borrower, (i) any
         corporation that is a member of the same controlled group of
         corporations (within the meaning of Section 414(b) of the Internal
         Revenue Code) with the Borrower; (ii) a partnership or other trade or
         business (whether or not incorporated) that is under common control
         (within the meaning of Section 414(c) of the Internal Revenue Code or
         Section 4001(b) of ERISA) with the Borrower; and (iii) a member of the
         same affiliated service group (within the meaning of Section 414(m) or
         (o) of the Internal Revenue Code) with the Borrower.

                  "ERISA EVENT" means (i) the occurrence of a reportable event,
         within the meaning of Section 4043(c) of ERISA, with respect to any
         Plan unless the 30-day notice requirement with respect thereto has been
         waived by the PBGC; (ii) the provision by the administrator of any Plan
         of notice of intent to terminate such Plan, pursuant to Section
         4041(a)(2) of ERISA (including any such notice with respect to a plan
         amendment referred to in Section 4041(e) of ERISA); (iii) the cessation
         of operations at a facility of the Borrower or any of its ERISA
         Affiliates in the circumstances treated as a withdrawal under Section
         4062(e) of ERISA; (iv) the withdrawal by the Borrower or an ERISA
         Affiliate of the Borrower from a Multiple Employer Plan, subject to
         Section 4063 of ERISA, during a plan year for which it was a
         "substantial employer", as defined in Section 4001(a)(2) of ERISA; (v)
         the failure by the Borrower or an ERISA Affiliate of the Borrower to
         make a required payment to a Plan; (vi) the adoption of an amendment to
         a Plan requiring the provision of security to such Plan, pursuant to
         Section 307 of ERISA; (vii) the institution by the PBGC of proceedings
         to terminate a Plan, pursuant to Section 4042 of ERISA, or the
         occurrence of any event or condition which might reasonably be expected
         to constitute grounds under Section 4042 of ERISA for the termination
         of, or the appointment of a trustee to administer, a Plan; (viii) the
         complete or partial withdrawal of the Borrower or any ERISA Affiliate
         of the Borrower from any Multiemployer Plan or the insolvency of any
         Multiemployer Plan; (ix) the Borrower or any ERISA Affiliate of the
         Borrower shall request a minimum funding waiver from the Internal
         Revenue Service with respect to any Plan; or (x) the imposition of any
         liability

<PAGE>   19
                                                                              15

         under Title IV of ERISA, other than for PBGC premiums due but not
         delinquent under Section 4007 of ERISA.

                  "EUROCURRENCY LIABILITIES" has the meaning assigned to that
         term in Regulation D of the Board, as in effect from time to time.

                  "EURODOLLAR LENDING OFFICE" means, with respect to any Lender,
         the office of such Lender or its Affiliate specified as its "Eurodollar
         Lending Office" opposite its name on Schedule I hereto or in the Lender
         Assignment pursuant to which it became a Lender (or, if no such office
         or affiliate is specified, its Domestic Lending Office), or such other
         office or affiliate of such Lender as such Lender may from time to time
         specify in writing to the Borrower and the Administrative Agent.

                  "EURODOLLAR RATE" means, for each Interest Period for each
         Eurodollar Rate Loan made as part of the same Borrowing, an interest
         rate per annum equal to the rate per annum (rounded upwards, if
         necessary, to the nearest whole multiple of 1/16 of 1%) at which
         deposits in Dollars are offered to the Administrative Agent in the
         London interbank market at 11:00 A.M. (London time) two Business Days
         before the first day of such Interest Period in an amount substantially
         equal to Union Bank's Eurodollar Rate Loan made as part of such
         Borrowing and for a period equal to such Interest Period.

                  "EURODOLLAR RATE LOAN" means a Loan that bears interest as
         provided in Section 3.05(b)(ii).

                  "EURODOLLAR RESERVE PERCENTAGE" of any Lender for each
         Interest Period for each Eurodollar Rate Loan means the reserve
         percentage applicable to such Lender during such Interest Period (or if
         more than one such percentage shall be so applicable, the daily average
         of such percentages for those days in such Interest Period during which
         any such percentage shall be so applicable) under Regulation D or other
         regulations issued from time to time by the Board for determining the
         maximum reserve requirement (including any emergency, supplemental or
         other marginal reserve requirement) then applicable to such Lender with
         respect to liabilities or assets consisting of or including
         Eurocurrency Liabilities having a term equal to such Interest Period.

                  "EVENT OF DEFAULT" has the meaning specified in Section 9.01.

                  "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
         amended.

                  "EXTENSION OF CREDIT" means (i) the making of a Borrowing
         (including any Conversion), (ii) the issuance of a Letter of Credit, or
         (iii) the amendment of any Letter of Credit having the effect of
         extending the stated termination date thereof, increasing the LC
         Outstandings thereunder, or otherwise altering any of the material
         terms or conditions thereof.

                  "FEDERAL FUNDS EFFECTIVE RATE" means, for any period, a
         fluctuating interest rate per annum equal for each day during such
         period to the weighted average (rounded upwards, if necessary, to the
         next 1/100 of 1%) of the rates on overnight Federal funds

<PAGE>   20
                                                                              16

         transactions with members of the Federal Reserve System arranged by
         Federal funds brokers, as published on the next succeeding Business Day
         by the Federal Reserve Bank of New York, or, if such rate is not so
         published for any day that is a Business Day, the average (rounded
         upwards, if necessary, to the next 1/100 of 1%) of the quotations for
         such day for such transactions received by the Administrative Agent
         from three Federal funds brokers of recognized standing selected by the
         Administrative Agent.

                  "FEE LETTER" has the meaning assigned to that term in Section
         2.02(c).

                  "FINANCIAL CLOSING DATE" means the date upon which each of the
         conditions precedent enumerated in Section 6.02 has been fulfilled to
         the satisfaction of the Lenders, the Administrative Agent and the
         Borrower. All transactions contemplated to occur in connection with the
         Financial Closing Date shall take place on or before July 27, 2000, at
         the offices of Hughes Hubbard & Reed LLP, One Battery Park Plaza, New
         York, New York 10004, at 10:00 A.M., or such other time or place as the
         parties hereto may mutually agree.

                  "FISCAL QUARTER" means each period of three consecutive
         calendar months ending on March 31, June 30, September 30 and December
         31 in each year.

                  "FISCAL YEAR" means each period of twelve consecutive calendar
         months ending on December 31.

                  "FOREIGN LENDER" means any Lender that is organized under the
         laws of a jurisdiction other than that in which the Borrower is
         located. For purposes of this definition, the United States of America,
         each State thereof and the District of Columbia shall be deemed to
         constitute a single jurisdiction.

                  "GAAP" has the meaning assigned to that term in Section 1.03.

                  "GOLDMAN ENTITIES" means the collective reference to GS
         Capital Partners II, L.P., GS Capital Partners III, L.P., Stone Street
         Fund 1998, L.P., Bridge Street Fund 1998, L.P., GS Capital Partners II
         Offshore, L.P., GS Capital Partners III Offshore, L.P., Goldman, Sachs
         & Co. Verwaltungs GmbH (for GS Capital Partners II Germany C.L.P. and
         GS Capital Partners III Germany C.L.P.) and any other investment fund
         that is an Affiliate of The Goldman Sachs Group, Inc.

                  "GOVERNMENTAL APPROVAL" means any authorization, consent,
         approval, license, franchise, lease, ruling, tariff, rate, permit,
         certificate, exemption of, or filing or registration with, any
         governmental authority or other legal or regulatory body, required to
         be obtained, made or filed by the Borrower in connection with its
         execution, delivery or performance of any Loan Document (excluding any
         such consent, approval, license, franchise, lease, ruling, tariff,
         rate, permit, certificate, exemption or filing or registration of or
         relating to any Subsidiary of the Borrower or any property, asset,
         operations or services of such Subsidiary or any representation,
         warranty, covenant or agreement of the

<PAGE>   21
                                                                              17

         Borrower to the extent relating to any Subsidiary of the Borrower or
         any such Subsidiary's properties, assets, operations or services).

                  "HAZARDOUS SUBSTANCE" means any waste, substance, or material
         identified as hazardous, dangerous or toxic by any office, agency,
         department, commission, board, bureau, or instrumentality of the United
         States or of the State or locality in which the same is located having
         or exercising jurisdiction over such waste, substance or material.

                  "HEDGING AGREEMENTS" means interest rate swap, cap or collar
         agreements, interest rate future or option contracts, currency swap
         agreements, currency future or option contracts and other similar
         agreements designed to protect against fluctuations in currency
         exchange or interest rates.

                  "INDEMNIFIED PERSON" has the meaning assigned to that term in
         Section 11.04(b).

                  "INDEX DEBT" means the long-term senior unsecured debt
         securities of the Borrower that are not guaranteed by any other Person
         or subject to any other credit enhancement.

                  "INITIAL COMPLIANCE DATE" has the meaning assigned to that
         term in the definition of "Applicable Margin" contained in this Section
         1.01.

                  "INTEREST PERIOD" has the meaning assigned to that term in
         Section 3.03.

                  "INTERNAL REVENUE CODE" means the Internal Revenue Code of
         1986, as amended from time to time.

                  "INVESTMENT COMPANY ACT" means the Investment Company Act of
         1940, as amended from time to time, and the rules and regulations
         promulgated thereunder.

                  "INVESTMENT" means any investment in or acquisition of assets
         from any Person, whether by means of share purchase, asset purchase or
         acquisition, capital contribution, loan, guarantee or other Support
         Obligation, time deposit or otherwise (but not including any demand
         deposit).

                  "INVESTMENT COMMITMENTS" means all commitments (contingent or
         otherwise) by the Borrower or any of its Subsidiaries to make
         Investments, including asset sale or purchase agreements relating
         thereto and guarantee or other Support Obligations in respect of
         obligations of any of its Affiliates thereunder.

                  "ISSUING BANK" has the meaning assigned to such term in the
         preamble hereto and includes (i) any Lender designated by the Borrower
         that accepts such designation and (ii) any other financial institution
         designated by the Borrower and acceptable to the Administrative Agent
         that accepts such designation, in each case in accordance with Section
         4.01, as the issuer of a Letter of Credit pursuant to an Issuing Bank
         Agreement. As of the date hereof, the Borrower has designated Union
         Bank and Canadian Imperial Bank of

<PAGE>   22
                                                                              18

         Commerce as Issuing Banks, and the Administrative Agent has accepted
         such designees pursuant to Section 4.01.

                  "ISSUING BANK AGREEMENT" means an agreement between an Issuing
         Bank and the Borrower, substantially in the form of Exhibit G or
         otherwise in form and substance satisfactory to the Administrative
         Agent, providing for the issuance of one or more Letters of Credit.

                  "LC PAYMENT NOTICE" has the meaning assigned to that term in
         Section 4.04(b).

                  "LC OUTSTANDINGS" means, for any Letter of Credit on any date
         of determination, the maximum amount available to be drawn under such
         Letter of Credit at any time on or after such date (assuming the
         satisfaction of all conditions for drawing enumerated therein).

                  "LENDER ASSIGNMENT" means an assignment and agreement entered
         into by a Lender and an Eligible Assignee, and accepted by the
         Administrative Agent, in substantially the form of Exhibit F.

                  "LENDERS" means the Banks listed on the signature pages
         hereof, each Eligible Assignee that shall become a party hereto
         pursuant to Section 11.07 and, if and to the extent so provided in
         Section 4.04(c), each Issuing Bank.

                  "LETTER OF CREDIT" means a letter of credit issued by an
         Issuing Bank pursuant to Section 4.02, as such letter of credit may
         from time to time be amended, modified or extended in accordance with
         the terms of this Agreement.

                  "LETTER OF CREDIT COMMISSION RATE" means, for any day, the
         applicable percentage set forth below under the caption "Financial
         Letter of Credit Commission Rate" or "Performance Letter of Credit
         Commission Rate", in each case in respect of financial Letters of
         Credit and performance Letters of Credit (as the case may be, as
         determined by the Administrative Agent), respectively, based upon the
         ratings by S&P and Moody's applicable on such date to the Index Debt:

<TABLE>
<CAPTION>
         =============================================== ======================== =======================
                                                         Financial Letter of      Performance Letter of
                                                         Credit Commission Rate   Credit Commission Rate
         =============================================== ======================== =======================

         <S>                                              <C>                      <C>
         Category 1
         ----------

         BBB- or higher by S&P and
         Baa3 or higher by Moody's                                1.50%                   1.00%
         ----------------------------------------------- ------------------------ -----------------------

         Category 2
         ----------
</TABLE>

<PAGE>   23
                                                                              19

<TABLE>
         <S>                                              <C>                      <C>
         BB+ or higher by S&P and
         Ba1 or higher by Moody's                                 2.25%                   1.25%
         ----------------------------------------------- ------------------------ -----------------------

         Category 3
         ----------

         BB or higher by S&P and
         Ba2 or higher by Moody's                                 2.75%                   1.50%
         ----------------------------------------------- ------------------------ -----------------------

         Category 4
         ----------

         BB- or higher by S&P and
         Ba3 or higher by Moody's                                 3.25%                   1.75%
         ----------------------------------------------- ------------------------ -----------------------

         Category 5
         ----------

         B+ or higher by S&P and
         B1 or higher by Moody's                                  4.00%                   2.50%
         ----------------------------------------------- ------------------------ -----------------------

         Category 6
         ----------

         B or below by S&P or
         B2 or below by Moody's                                   4.50%                   3.00%
         ----------------------------------------------- ------------------------ -----------------------
</TABLE>

         Notwithstanding the foregoing, (i) in the event that the principal
         amount outstanding hereunder exceeds 66 2/3% of the Commitments for any
         continuous period in excess of six consecutive calendar months, then
         each of the Financial Letter of Credit Commission Rate percentages
         shall be increased by 0.50% per annum and each of the Performance
         Letter of Credit Commission Rate percentages shall be increased by
         0.25% per annum, such increase (A) to be applied retroactively for the
         three-calendar-month period most recently ended (as if such increase
         had been in effect at all times during such three-calendar-month
         period) and (B) to remain in effect unless and until the principal
         amount outstanding hereunder is less than 66 2/3% of the Commitments
         for at least three consecutive calendar months, and (ii) if the
         restrictions on Distributions contained in the Orion Power New York
         Credit Facility and the Orion Power MidWest Credit Facility have not
         been irrevocably terminated (so that no such restrictions exist
         thereunder) prior to the earlier to occur of (A) December 31, 2001 and
         (B) the date on which the amount of Permitted Distributions (as defined
         in the Orion Power New York Credit Facility as in effect on the date
         hereof) paid by or at the direction of Orion Power New York pursuant to
         the Orion Power New York Credit Facility first equals the Maximum
         Permitted

<PAGE>   24
                                                                              20

         Distribution Amount (as defined in the Orion Power New York Credit
         Facility as in effect on the date hereof), then at all times thereafter
         until such restrictions have been irrevocably terminated (so that no
         such restrictions exist under the Orion Power New York Credit Facility
         or the Orion Power MidWest Credit Facility) the Letter of Credit
         Commission Rate shall be based on Category 6; provided, however, that
         if, at any time after such restrictions have been terminated (so that
         no such restrictions exist thereunder), the Orion Power New York Credit
         Facility or the Orion Power MidWest Credit Facility is amended,
         supplemented or otherwise modified to provide for any restrictions on
         Distributions, then at all times during which such restrictions are in
         effect the Letter of Credit Commission Rate shall be based on Category
         6.

         In addition, (1) from the Financial Closing Date until the Initial
         Compliance Date, and (2) after the Initial Compliance Date, in the
         event that, and at all times during which, the Borrower is not in
         compliance with any of the financial covenants set forth in Section
         8.01(n), (o), (p) and (q) (notwithstanding that an Event of Default may
         not yet have occurred as a result of such noncompliance), each of the
         foregoing Financial Letter of Credit Commission Rate percentages shall
         be increased by 0.50% per annum and each of the foregoing Performance
         Letter of Credit Commission Rate percentages shall be increased by
         0.25% per annum; provided, however, that, solely for purposes of this
         paragraph (and the corresponding paragraphs contained in the
         definitions of "Applicable Margin" and "Commitment Fee Rate" in this
         Section 1.01), (A) the Borrower may demonstrate compliance with the
         Borrower Debt Service Coverage Ratio for the four-Fiscal Quarter period
         ending March 31, 2001 (as contemplated by Section 8.01(q)) or for any
         other four-Fiscal Quarter period ending prior thereto or thereafter,
         (B) in determining compliance with the Borrower Debt Service Coverage
         Ratio, the Borrower's (but not any of its Subsidiaries') cash on hand
         (including Permitted Investments) shall be included in calculating Cash
         Flow Available for Debt Service, and (C) the Borrower shall be deemed
         to be in compliance with the Borrower Debt Service Coverage Ratio
         during the period from the Financial Closing Date until the end of the
         Fiscal Quarter in which the Financial Closing Date occurs if the
         Borrower's (but not including any of its Subsidiaries') cash on hand
         (including Permitted Investments) is at least $30,000,000 at all times
         during such period; and provided further, however, that the Default
         Rate, and not the increases in the Letter of Credit Commission Rate set
         forth in this paragraph, shall apply upon the occurrence and during the
         continuance of an Event of Default.

         For purposes of determining the Letter of Credit Commission Rate, (A)
         if Moody's or S&P shall not have in effect a rating for the Index Debt
         (other than by reason of the circumstances referred to in the last
         sentence of this definition), then such rating agency shall be deemed
         to have established a rating in Category 6, and (B) if more than one
         Category is applicable at any one time, the Letter of Credit Commission
         Rate shall be based on the applicable Category having the lowest number
         (i.e., Category 1 is lower than Category 2). The Letter of Credit
         Commission Rate shall be increased or decreased in accordance with this
         definition upon any change in the applicable ratings of the Index Debt,
         and such increased or decreased Letter of Credit Commission Rate shall
         be effective from the date of announcement of any such new ratings. The
         Borrower agrees to notify the Administrative Agent promptly after each
         change in any rating of the Index

<PAGE>   25
                                                                              21

         Debt. If the rating system of Moody's or S&P shall change, or if any
         such rating agency shall cease to be in the business of rating
         corporate debt obligations, the Borrower and the Lenders shall
         negotiate in good faith to amend this definition to reflect such
         changed rating system or the non-availability of ratings from such
         rating agency and, pending the effectiveness of any such amendment, the
         Letter of Credit Commission Rate shall be determined by reference to
         the rating most recently in effect prior to such change or cessation.

                  "LETTER OF CREDIT SUBLIMIT" means, on any date of
         determination, the lesser of (i) $40,000,000 and (ii) the aggregate
         amount of the Commitments on such date. In no event shall the aggregate
         LC Outstandings of all Letters of Credit outstanding on any date of
         determination (after giving effect to all Extensions of Credit on such
         date) exceed the sum of (A) the Letter of Credit Sublimit and (B) the
         amount of cash collateral securing LC Outstandings pursuant to the
         operation of Section 5.03(b).

                  "LIEN" has the meaning assigned to that term in Section
         8.02(a).

                  "LOAN" means a loan by a Lender to the Borrower pursuant to
         Section 3.01 (or deemed made pursuant to Section 4.04(c) or (d)), and
         refers to a ABR Loan or a Eurodollar Rate Loan (each of which shall be
         a "TYPE" of Loan). All Loans by a Lender of the same Type, having the
         same Interest Period and made or Converted on the same day shall be
         deemed to be a single Loan by such Lender until repaid or next
         Converted.

                  "LOAN DOCUMENTS" means this Agreement, any Promissory Notes,
         the Fee Letter, each Issuing Bank Agreement and all other agreements,
         instruments and documents now or hereafter executed and/or delivered
         pursuant hereto or thereto.

                  "MAJORITY LENDERS" means, on any date of determination, any
         two or more Lenders that, collectively, on such date (i) hold at least
         51% of the then aggregate outstanding principal amount of the Loans
         owing to Lenders and (ii) if no Loans are then outstanding, have
         Percentages in the aggregate of at least 51%. Any determination of
         those Lenders constituting the Majority Lenders shall be made by the
         Administrative Agent and shall be conclusive and binding on all parties
         absent manifest error.

                  "MATERIAL ADVERSE CHANGE" means any event, development or
         circumstance that has had or could reasonably be expected to have a
         Material Adverse Effect.

                  "MATERIAL ADVERSE EFFECT" means a material adverse effect on
         (a) the business, assets, condition (financial or otherwise),
         operations, results of operations or prospects of (i) the Borrower,
         (ii) any Material Subsidiary, or (iii) the Borrower and its
         Subsidiaries, considered as a whole, (b) the ability of the Borrower to
         perform its obligations under this Agreement or any other Loan Document
         to which it is or will be a party, or (c) the legality, validity or
         enforceability of any Loan Document or the rights and remedies of the
         Administrative Agent, the Issuing Banks or the Lenders thereunder;
         provided, however, that a Material Adverse Effect pursuant to clause
         (a)(ii) above shall be deemed not to have occurred (or not to be
         reasonably expected to occur) in connection with a breach of

<PAGE>   26
                                                                              22

         any covenant, representation or warranty contained herein with respect
         to any Material Subsidiary (which covenant, representation or warranty
         requires a Material Adverse Effect to have occurred or to be reasonably
         expected to occur in order to constitute a breach thereof) unless and
         until the lenders under any credit facility (including the Orion Power
         New York Credit Facility, the Orion Power MidWest Credit Facility, and
         any other agreement or instrument evidencing Permitted Subsidiary Debt)
         to which such Material Subsidiary is a party have determined that the
         breach by such Material Subsidiary of any corresponding covenant,
         representation or warranty contained in such credit facility (which
         corresponding covenant, representation or warranty has a similar
         material adverse effect qualification as contained herein) has had,
         could have, is reasonably likely to have or could reasonably be
         expected to have (or any similar standard, as applicable) a "Material
         Adverse Effect" (as such term is defined in such credit facility as in
         effect on the date of such credit facility, or, if such term is not
         defined in such credit facility, the applicable material adverse effect
         qualification contained in such corresponding covenant, representation
         or warranty); provided further, however, that the foregoing proviso
         shall not apply if such credit facility does not have any such
         corresponding covenant, representation or warranty.

                  "MATERIAL SUBSIDIARY" means Orion Power New York, Orion Power
         MidWest and any other Subsidiary of the Borrower that, on a
         consolidated basis with any of its Subsidiaries as of any date of
         determination, accounts for more than 15% of the consolidated assets of
         the Borrower and its Subsidiaries.

                  "MATERIAL SUBSIDIARY EVENT OF DEFAULT" means any "Event of
         Default" under the Orion MidWest Credit Facility, the Orion Power New
         York Credit Facility or any other material credit facility to which any
         Material Subsidiary is a party resulting from any (i) payment default,
         (ii) failure to obtain, revocation or cancellation of, or material
         adverse modification to any material governmental approval, (iii)
         bankruptcy or insolvency event, (iv) substantial loss, destruction or
         condemnation of all or substantially all assets, (v) loss of "exempt
         wholesale generator" status or (vi) abandonment of the ownership or
         operation of any material portion of assets (including the "Events of
         Default" under Sections 7.01, 7.07, 7.08, 7.11, 7.13 and 7.16 of the
         Orion Power New York Credit Facility and corresponding "Events of
         Default" under the Orion Power MidWest Credit Facility).

                  "MATERIAL PLAN" means, collectively, a Plan or Plans having
         aggregate Unfunded Vested Liabilities in excess of $5,000,000.

                  "MOODY'S" means Moody's Investors Service, Inc. or any
         successor thereto.

                  "MULTIEMPLOYER PLAN" means a multiemployer plan, as defined in
         Section 4001(a)(3) of ERISA, that is subject to Title IV of ERISA and
         to which the Borrower or any ERISA Affiliate of the Borrower is making
         or accruing an obligation to make contributions, or has within any of
         the preceding six plan years made or accrued an obligation to make
         contributions, such plan being maintained pursuant to one or more
         collective bargaining agreements.

<PAGE>   27
                                                                              23

                  "MULTIPLE EMPLOYER PLAN" means a single employer plan, as
         defined in Section 4001(a)(15) of ERISA, that is subject to Title IV of
         ERISA and that (a) is sponsored or maintained for employees or former
         employees of the Borrower or an ERISA Affiliate of the Borrower and at
         least one Person other than the Borrower and its ERISA Affiliates, or
         (b) was so sponsored or maintained and in respect of which the Borrower
         or an ERISA Affiliate of the Borrower could have liability under
         Section 4064 or 4069 of ERISA in the event such plan has been or were
         to be terminated.

                  "NET DISPOSITION PROCEEDS" means the sum of:

                           (a) the gross cash proceeds received by any
                  Subsidiary of the Borrower (i) from any sale, lease, transfer
                  or other disposition of material assets (including Capital
                  Stock and receivables) (other than proceeds from the sale of
                  inventory of such Subsidiary in the ordinary course of its
                  business) or (ii) as a result of the taking of all or any
                  material portion of the assets of such Subsidiary under the
                  power of eminent domain, condemnation or similar proceeding,
                  in each case including any cash payments received by way of a
                  deferred payment of principal pursuant to a permitted note or
                  installment receivable or otherwise, but only when and as
                  received;

                  minus

                           (b) in the case of clause (i) of subsection (a) above
                  only, (i) all reasonable and customary fees and expenses with
                  respect to legal, investment banking, brokerage, accounting
                  and other professional fees actually incurred by such
                  Subsidiary in connection with such sale, lease, transfer or
                  other disposition which have not been paid to such Subsidiary
                  or any of its Affiliates, (ii) all taxes actually paid or
                  reasonably estimated by such Subsidiary (determined in good
                  faith by the chief financial officer of such Subsidiary or of
                  such Subsidiary's general partner or other managing entity, as
                  applicable) to be payable in cash in connection with such
                  sale, lease, transfer or other disposition in the same year or
                  the next following year after the occurrence thereof, (iii)
                  all other reasonable costs and expenses incurred by such
                  Subsidiary in connection with such sale, lease, transfer or
                  other disposition which have not been paid to such Subsidiary
                  or any of its Affiliates, and (iv) any such proceeds from the
                  sale, transfer or other disposition of material assets that
                  are used within the period specified therefor in the Orion
                  Power New York Credit Facility, the Orion Power MidWest Credit
                  Facility and/or any other agreement or instrument evidencing
                  Permitted Subsidiary Debt, as applicable, to purchase or
                  acquire replacement assets of like utility in such
                  Subsidiary's business; provided, however, that if, after the
                  payment of all taxes with respect to such sale, lease,
                  transfer or other disposition, the amount of estimated taxes,
                  if any, pursuant to clause (ii) above exceeded the amount of
                  taxes actually paid in cash in respect of such sale, lease,
                  transfer or other disposition, the aggregate amount of such
                  excess shall be immediately payable, pursuant to Section
                  5.03(b), as Net Disposition Proceeds;

<PAGE>   28
                                                                              24

                  minus

                           (c) the amount of any mandatory prepayment made or
                  required to be made by such Subsidiary pursuant to any credit
                  facility (including the Orion Power MidWest Credit Facility,
                  the Orion Power New York Credit Facility and any other
                  agreement or instrument evidencing Permitted Subsidiary Debt)
                  to which it is a party from the proceeds of such sale, lease,
                  transfer, other disposition or taking.

                  "NET INSURANCE PROCEEDS" means (i) the gross cash proceeds of
         casualty insurance received by any Subsidiary of the Borrower in
         respect of any loss, damage or destruction to any material asset of
         such Subsidiary, minus (ii) the portion of such proceeds applied or to
         be applied by such Subsidiary to repair, restore or replace such asset,
         minus (iii) the amount of any mandatory prepayment made or required to
         be made by such Subsidiary pursuant to any credit facility (including
         the Orion Power MidWest Credit Facility and the Orion Power New York
         Credit Facility) to which it is a party from such insurance proceeds;
         provided, however, that if any such insurance proceeds intended to be
         applied by such Subsidiary to repair, restore or replace such asset
         pursuant to clause (ii) above exceeded the amount actually paid in cash
         in respect of repair, restoration or replacement, the aggregate amount
         of such excess shall be immediately payable, pursuant to Section
         5.03(b), as Net Insurance Proceeds (less any portion of such excess
         required to be paid by such Subsidiary pursuant to clause (iii) above).
         The Borrower shall cause each of its Subsidiaries to distribute to the
         Borrower, on the first date that such Subsidiary is permitted to do so
         pursuant to (x) any credit facility or other contractual obligation to
         which such Subsidiary is a party and (y) applicable law, the maximum
         amount of Net Insurance Proceeds permitted to be distributed by such
         Subsidiary pursuant to such credit facility or other contractual
         obligation and applicable law.

                  "NET SECURITIES PROCEEDS" means, in the case of the issuance,
         placement or sale of equity securities of the Borrower or any
         obligations convertible into or exchangeable for such equity
         securities, or giving any Person a right, option or warrant to acquire
         such equity securities or such convertible or exchangeable obligations
         (in each case whether pursuant to a public or private offering), the
         sum of:

                           (a) the gross cash proceeds received by the Borrower
                  from such issuance, placement or sale of equity securities
                  (including any cash payments received by way of deferred
                  payment of principal pursuant to a permitted promissory note
                  or installment receivable or otherwise, but only as and when
                  such cash payments are received), other than any such proceeds
                  that the Borrower certifies to the Administrative Agent and
                  the Lenders are intended to be contributed (as an equity
                  contribution) to one or more of its Subsidiaries (i) to
                  finance the acquisition, construction, development, expansion,
                  improvement or re-powering of power generating assets
                  (including the acquisition of any Person that owns such
                  assets) or (ii) to be used by such Subsidiary for other
                  general corporate purposes;

                  minus

<PAGE>   29
                                                                              25

                           (b) in connection with such issuance, placement or
                  sale of such equity securities, all reasonable and customary
                  fees and expenses and underwriters' discounts and commissions
                  actually paid by the Borrower to Persons other than the
                  Borrower or any of its Affiliates.

                  "NOTICE OF BORROWING" has the meaning assigned to that term in
         Section 3.01(a).

                  "OECD" means the Organization for Economic Cooperation and
         Development.

                  "OFFERING CIRCULAR" means the Offering Circular, dated April
         20, 2000, in respect of the Senior Notes.

                  "ORION POWER MIDWEST" means Orion Power MidWest, L.P., a
         Delaware limited partnership.

                  "ORION POWER MIDWEST CREDIT FACILITY" means that certain
         Credit Agreement, dated as of April 28, 2000, among Orion Power
         MidWest, Banc of America Securities LLC and Goldman Sachs Credit
         Partners, L.P., as "Co-Lead Arrangers" and "Joint Book Runners",
         Paribas and Deutsche Bank Securities Inc., as "Arrangers", Bank of
         America, N.A., as "Administrative Agent" and "Issuing Bank", Goldman
         Sachs Credit Partners, L.P., Paribas and Deutsche Bank AG New York
         Branch, as "Syndication Agents", Paribas and Deutsche Bank AG New York
         Branch, as "Documentation Agents", and the financial institutions party
         thereto, as "Lenders", including any related notes, guarantees,
         collateral documents, instruments and agreements executed in connection
         therewith, and in each case as amended, modified, renewed, refunded,
         restructured, supplemented, replaced or refinanced from time to time in
         accordance with the terms thereof and hereof.

                  "ORION POWER MIDWEST PARTNERS" means the general partner(s)
         and limited partner(s) of Orion Power MidWest.

                  "ORION POWER NEW YORK" means Orion Power New York, L.P., a
         Delaware limited partnership.

                  "ORION POWER NEW YORK CREDIT FACILITY" means that certain
         Credit Agreement, dated as of July 28, 1999, among Orion Power New
         York, Banc of America Securities LLC and Paribas, as "Lead Arrangers",
         the financial institutions party thereto, as "Lenders", and Bank of
         America, N.A., as "Issuing Bank" and "Administrative Agent", including
         any related notes, guarantees, collateral documents, instruments and
         agreements executed in connection therewith, and in each case as
         amended, modified, renewed, refunded, restructured, supplemented,
         replaced or refinanced from time to time in accordance with the terms
         thereof and hereof.

                  "ORION POWER NEW YORK PARTNERS" means the general partner(s)
         and limited partner(s) of Orion Power New York.

                  "PARTICIPANT" has the meaning assigned to that term in Section
         11.07(e).

<PAGE>   30
                                                                              26

                  "PBGC" means the Pension Benefit Guaranty Corporation (or any
         successor entity) established under ERISA.

                  "PERCENTAGE" means, for any Lender on any date of
         determination, the percentage obtained by dividing such Lender's
         Commitment on such date by the total of the Commitments on such date,
         and multiplying the quotient so obtained by 100%. In the event that the
         Commitments have been terminated, each Lender's Percentage shall be
         calculated on the basis of the Commitments in effect immediately prior
         to such termination.

                  "PERMITTED INVESTMENTS" means each of the following so long as
         no such Permitted Investment shall have a final maturity later than
         three months from the date of investment therein:

                            (i) direct obligations of the United States, or of
                  any agency thereof, or obligations guaranteed as to principal
                  and interest by the United States or any agency thereof;

                            (ii) certificates of deposit or bankers' acceptances
                  issued, or time deposits held, or investment contracts
                  guaranteed, by any Lender, any nationally-recognized
                  securities dealer or any other commercial bank, trust company,
                  savings and loan association or savings bank organized under
                  the laws of the United States, or any State thereof, or of any
                  other country which is a member of the OECD, or a political
                  subdivision of any such country, and in each case having
                  outstanding unsecured indebtedness that (on the date of
                  acquisition thereof) is rated A- or better by S&P or A3 or
                  better by Moody's (or an equivalent rating by another
                  nationally-recognized credit rating agency of similar standing
                  if neither of such corporations is then in the business of
                  rating unsecured bank indebtedness);

                            (iii) obligations with any Lender, any other bank or
                  trust company described in clause (ii), above, or any
                  nationally-recognized securities dealer, in respect of the
                  repurchase of obligations of the type described in clause (i),
                  above, provided that such repurchase obligations shall be
                  fully secured by obligations of the type described in said
                  clause (i) and the possession of such obligations shall be
                  transferred to, and segregated from other obligations owned
                  by, such Lender, such other bank or trust company or such
                  securities dealer;

                            (iv) commercial paper rated (on the date of
                  acquisition thereof) A-1 or P-1 or better by S&P or Moody's,
                  respectively (or an equivalent rating by another
                  nationally-recognized credit rating agency of similar standing
                  if neither of such corporations is then in the business of
                  rating commercial paper); and

                            (v) any eurodollar certificate of deposit issued by
                  any Lender or any other commercial bank, trust company,
                  savings and loan association or savings bank organized under
                  the laws of the United States, or any State thereof, or of any
                  country which is a member of the OECD, or a political
                  subdivision of any such

<PAGE>   31
                                                                              27

                  country, and in each case having outstanding unsecured
                  indebtedness that (on the date of acquisition thereof) is
                  rated A- or better by S&P or A3 or better by Moody's (or an
                  equivalent rating by another nationally-recognized credit
                  rating agency of similar standing if neither of such
                  corporations is then in the business of rating unsecured bank
                  indebtedness); and

                            (vi) investments in money market funds or money
                  market mutual funds sponsored by any securities broker/dealer
                  of recognized national standing (or an Affiliate thereof),
                  having an investment policy that requires substantially all
                  the invested assets of such fund to be invested in investments
                  described in any one or more of the foregoing clauses having a
                  rating of "A" or better by S&P or "A2" or better by Moody's
                  (including money market funds for which the Administrative
                  Agent in its individual capacity or any of its Affiliates is
                  investment manager or adviser).

                  "PERMITTED LIENS" has the meaning assigned to that term in
         Section 8.02(a).

                  "PERMITTED SUBSIDIARY DEBT" has the meaning assigned to that
         term in Section 8.02(c).

                  "PERMITTED SUBSIDIARY INVESTMENT" has the meaning assigned to
         that term in Section 8.02(c).

                  "PERSON" means an individual, partnership, corporation
         (including a business trust), joint stock company, limited liability
         company, limited liability partnership, trust, unincorporated
         association, joint venture or other entity, or a government or any
         political subdivision or agency thereof.

                  "PLAN" means, with respect to the Borrower, an employee
         benefit plan as defined in Section 3(3) of ERISA (other than a
         Multiemployer Plan) sponsored or maintained for employees or former
         employees of the Borrower or any of its ERISA Affiliates and covered by
         Title IV of ERISA or Section 412 of the Internal Revenue Code,
         including a Single Employer Plan and a Multiple Employer Plan.

                  "PROMISSORY NOTE" means any promissory note of the Borrower
         payable to the order of a Lender (and, if requested, its registered
         assigns), issued pursuant to Section 3.01(d); and "PROMISSORY NOTES"
         means any or all of the foregoing.

                  "PUHCA" means the Public Utility Holding Company Act of 1935,
         as amended from time to time.

                  "RECIPIENT" has the meaning assigned to that term in Section
         11.08.

                  "REFINANCING PLAN" has the meaning assigned to that term in
         Section 6.01(a).

                  "REGISTER" has the meaning assigned to that term in Section
         11.07(c).

<PAGE>   32
                                                                              28

                  "RELATED PARTIES" means, with respect to any specified Person,
         such Person's Affiliates and the respective directors, officers,
         employees, agents and advisors of such Person and such Person's
         Affiliates.

                  "REQUEST FOR ISSUANCE" has the meaning assigned to that term
         in Section 4.02(a).

                  "RESPONSIBLE OFFICER" means the Chief Executive Officer, any
         Director, the President, any Vice President, the Secretary, any
         Assistant Secretary, the Treasurer, any Assistant Treasurer, the Chief
         Financial Officer or the Chief Operating Officer of the Borrower.

                  "S&P" means Standard & Poor's Ratings Services, a division of
         The McGraw-Hill Companies, Inc., or any successor thereto.

                  "SENIOR FINANCIAL OFFICER" means the President, any Vice
         President, the Chief Financial Officer or the Treasurer of the
         Borrower.

                  "SENIOR NOTE INDENTURE" means the Indenture, dated as of April
         27, 2000, between the Borrower and Wilmington Trust Company, as
         Trustee.

                  "SENIOR NOTES" means the 12% Senior Notes due May 1, 2010
         issued pursuant to the Senior Note Indenture in the aggregate principal
         amount of up to $425,000,000.

                  "SINGLE EMPLOYER PLAN" means a single employer plan, as
         defined in Section 4001(a)(15) of ERISA, which is subject to Title IV
         of ERISA and which (a) is sponsored or maintained for employees or
         former employees of the Borrower or an ERISA Affiliate of the Borrower
         and no Person other than the Borrower and its ERISA Affiliates, or (b)
         was so sponsored or maintained and in respect of which the Borrower or
         an ERISA Affiliate of the Borrower could have liability under Section
         4069 of ERISA in the event such plan has been or were to be terminated.

                  "SUBSIDIARY" means, with respect to any Person, any
         corporation or unincorporated entity (including, without limitation,
         any partnership or limited liability company) of which more than 50% of
         the outstanding Capital Stock (or comparable ownership interests)
         having ordinary voting power (irrespective of whether at the time
         Capital Stock (or comparable ownership interests) of any other class or
         classes of such corporation or entity shall or might have voting power
         upon the occurrence of any contingency) is at the time directly or
         indirectly owned by said Person (whether directly or through one or
         more other Subsidiaries). In the case of an unincorporated entity, a
         Person shall be deemed to have more than 50% of interests having
         ordinary voting power only if such Person's vote in respect of such
         interests comprises more than 50% of the total voting power of all such
         interests in the unincorporated entity.

                  "SUBSIDIARY COVENANT EVENT OF DEFAULT" has the meaning
         assigned to that term in Section 9.01(e).

<PAGE>   33
                                                                              29

                  "SUBSIDIARY REPRESENTATION EVENT OF DEFAULT" has the meaning
         assigned to that term in Section 9.01(b).

                  "SUPPORT OBLIGATIONS" means, for any Person, without
         duplication, any financial obligation, contingent or otherwise, of such
         Person guaranteeing or otherwise supporting any Debt or other
         obligation of any other Person in any manner, whether directly or
         indirectly, and including any obligation of such Person, direct or
         indirect, (i) to purchase or pay (or advance or supply funds for the
         purchase or payment of) such Debt or to purchase (or to advance or
         supply funds for the purchase of) any security for the payment of such
         Debt, (ii) to purchase property, securities or services for the purpose
         of assuring the owner of such Debt of the payment of such Debt, (iii)
         to maintain working capital, equity capital, available cash or other
         financial statement condition of the primary obligor so as to enable
         the primary obligor to pay such Debt, (iv) to provide equity capital
         under or in respect of equity subscription arrangements (to the extent
         that such obligation to provide equity capital does not otherwise
         constitute Debt), or (v) to perform, or arrange for the performance of,
         any non-monetary obligations or non-funded debt payment obligations of
         the primary obligor.

                  "TERMINATION DATE" means the earliest to occur of (i) July 27,
         2003, (ii) the maturity date of the Orion Power New York Credit
         Facility and (iii) the date of termination or reduction in whole of the
         Commitments pursuant to Section 2.03 or 9.02.

                  "TOTAL VOTING POWER" means, with respect to any Person on any
         date, the total number of votes which may be cast in the election of
         directors of such Person at any meeting of stockholders of such Person
         if all securities entitled to vote in the election of directors of such
         Person (on a fully diluted basis, assuming the exercise, conversion or
         exchange of all rights, warrants, options and securities outstanding on
         such date which are or may thereafter become exercisable for,
         exchangeable for or convertible into, such voting securities) were
         present and voted at such meeting (other than votes that may be cast
         only upon the happening of a contingency).

                   "TYPE" has the meaning assigned to such term (i) in the
         definition of "Loan" when used in such context and (ii) in the
         definition of "Borrowing" when used in such context.

                  "UNFUNDED VESTED LIABILITIES" means, with respect to any Plan
         at any time, the amount (if any) by which (i) the present value of all
         nonforfeitable accrued benefits under such Plan exceeds (ii) the fair
         market value of all Plan assets allocable to such benefits, 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 of
         the Borrower or any of its ERISA Affiliates to the PBGC or such Plan
         under Title IV of ERISA.

                  "UNMATURED DEFAULT" means an event that, with the giving of
         notice or lapse of time or both, would constitute an Event of Default.

<PAGE>   34
                                                                              30

                  "YEAR 2000 ISSUES" means actual and anticipated costs,
         problems and uncertainties associated with the inability of certain
         computer applications to effectively handle data including dates on and
         after January 1, 2000.

         SECTION 1.02. COMPUTATION OF TIME PERIODS; CONSTRUCTION. (a) Unless
otherwise indicated, each reference in this Agreement to a specific time of day
is a reference to New York City time. In the computation of periods of time
under this Agreement, any period of a specified number of days or months shall
be computed by including the first day or month occurring during such period and
excluding the last such day or month. In the case of a period of time "from" a
specified date "to" or "until" a later specified date, the word "from" means
"from and including" and the words "to" and "until" each means "to but
excluding".

         (b)      The definitions of terms herein shall apply equally to the
singular and plural forms of the terms defined. Whenever the context may
require, any pronoun shall include the corresponding masculine, feminine and
neuter forms. The words "include", "includes", and "including" shall be deemed
to be followed by the phrase "without limitation". The word "will" shall be
construed to have the same meaning and effect as the word "shall". Unless the
context requires otherwise (i) any definition of or reference to any agreement,
instrument or other document herein shall be construed as referring to such
agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (ii) any reference
herein to any Person shall be construed to include such Person's successors and
assigns, (iii) the words "herein", "hereof" and "hereunder", and words of
similar import, shall be construed to refer to this Agreement in its entirety
and not to any particular provision hereof, (iv) all references herein to
Articles, Sections, Exhibits and Schedules shall be construed to refer to
Articles and Sections of, and Exhibits and Schedules to, this Agreement and (v)
the words "asset" and "property" shall be construed to have the same meaning and
effect and to refer to any and all tangible and intangible assets and
properties, including cash, securities, accounts and contract rights.

         SECTION 1.03. ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles consistent with those applied in the preparation of the
financial statements referred to in Section 7.01(f) ("GAAP").

                                   ARTICLE II
                                   COMMITMENTS

         SECTION 2.01. THE COMMITMENTS. (a) Each Lender severally agrees, on the
terms and conditions hereinafter set forth, to make Loans to the Borrower and to
participate in the issuance of Letters of Credit (and the LC Outstandings
thereunder) during the period from the Financial Closing Date until the
Termination Date, in an aggregate outstanding amount not to exceed on any day
such Lender's Available Commitment (after giving effect to all Extensions of
Credit to be made on such day and the application of the proceeds thereof).
Within the limits hereinafter set forth, the Borrower may request Extensions of
Credit hereunder, prepay Loans, or reduce or cancel Letters of Credit, and use
the resulting increase in the Available Commitments for further Extensions of
Credit in accordance with the terms hereof.

<PAGE>   35
                                                                              31

         (b)      In no event shall the Borrower be entitled to request or
receive any Extensions of Credit that would cause the principal amount
outstanding hereunder to exceed the Commitments.

         SECTION 2.02. FEES. (a) The Borrower agrees to pay to the
Administrative Agent for the account of each Lender a commitment fee on the
average daily amount of such Lender's Available Commitment at a rate per annum
equal to the Commitment Fee Rate in effect from time to time, from the date
hereof, in the case of each Bank, and from the effective date specified in the
Lender Assignment pursuant to which it became a Lender, in the case of each
other Lender, until the Termination Date, payable quarterly in arrears on the
last day of each March, June, September and December, commencing on the first
such date to occur following the date hereof, and on the Termination Date.

         (b)      The Borrower agrees to pay to the Administrative Agent for the
account of each Lender a commission (the "LETTER OF CREDIT COMMISSION") on the
average daily aggregate amount of the LC Outstandings from the date hereof until
the Termination Date, at a rate per annum equal to the Letter of Credit
Commission Rate in effect from time to time, payable quarterly in arrears on the
last day of each March, June, September and December, commencing on the first
such date to occur following the date hereof, and on the Termination Date;
provided, however, that upon the occurrence and during the continuance of an
Event of Default, the Letter of Credit Commission shall be based on the Default
Rate applicable to outstanding Letters of Credit.

         (c)      In addition to the fees provided for in subsections (a) and
(b) above, the Borrower shall pay to the Administrative Agent, for its own
account, such other fees as are provided for in that certain letter agreement,
dated as of the date hereof, between the Borrower and the Administrative Agent
(the "FEE LETTER"), in the amounts and at the times specified therein.

         SECTION 2.03. REDUCTION OF THE COMMITMENTS. (a) Optional. The Borrower
may, upon at least five Business Days' notice to the Administrative Agent (which
shall promptly distribute copies thereof to the Lenders), terminate in whole or
reduce ratably in part the unused portions of the Commitments; provided that any
such partial reduction shall be in the aggregate amount of $5,000,000 or an
integral multiple of $1,000,000 in excess thereof; and provided, further, that
the Commitments shall in no event be reduced to an amount which is less that the
aggregate LC Outstandings of all Letters of Credit then outstanding.

         (b)      Mandatory. The Commitments shall be automatically and
permanently reduced ratably by the aggregate amount the Loans are prepaid or the
LC Outstandings are cash collateralized pursuant to the operation of Section
5.03(b).

         SECTION 2.04. COMPUTATIONS OF OUTSTANDINGS. Whenever reference is made
in this Agreement to the principal amount outstanding on any date under this
Agreement, such reference shall refer to the sum of (i) the aggregate principal
amount of all Loans outstanding on such date plus (ii) the aggregate LC
Outstandings of all Letters of Credit outstanding on such date, in each case
after giving effect to all Extensions of Credit to be made on such date and the
application of the proceeds thereof. At no time shall the principal amount
outstanding under this Agreement exceed the aggregate amount of the Commitments.
References to the unused portion of the

<PAGE>   36
                                                                              32

Commitments shall refer to the excess, if any, of the Commitments over the
principal amount outstanding hereunder; and references to the unused portion of
any Lender's Commitment shall refer to such Lender's Percentage of the unused
Commitments.

                                   ARTICLE III
                                      LOANS

         SECTION 3.01. LOANS. (a) The Borrower may request a Borrowing (other
than a Conversion) by delivering a notice (a "NOTICE OF BORROWING") to the
Administrative Agent no later than 12:00 noon on the third Business Day or, in
the case of ABR Loans, on the first Business Day, prior to the date of the
proposed Borrowing. The Administrative Agent shall give each Lender prompt
notice of each Notice of Borrowing. Each Notice of Borrowing shall be in
substantially the form of Exhibit A and shall specify the requested (i) date of
such Borrowing (which shall be a Business Day, but in no event later than the
Business Day immediately preceding the Termination Date), (ii) Type of Loans to
be made in connection with such Borrowing, (iii) Interest Period, if any, for
such Loans and (iv) amount of such Borrowing. Each proposed Borrowing shall
conform to the requirements of Sections 3.03 and 3.04.

         (b)      Each Lender shall, before 12:00 noon on the date of such
Borrowing, make available for the account of its Applicable Lending Office to
the Administrative Agent at the Administrative Agent's address referred to in
Section 11.02, in same day funds, such Lender's Percentage of such Borrowing.
After the Administrative Agent's receipt of such funds and upon fulfillment of
the applicable conditions set forth in Article VI, the Administrative Agent will
make such funds available to the Borrower at the Administrative Agent's
aforesaid address or will transfer such funds into such account(s) as the
Borrower may designate in the corresponding Notice of Borrowing. Notwithstanding
the foregoing, unless the Administrative Agent shall have received notice from a
Lender prior to the date of any Borrowing that such Lender will not make
available to the Administrative Agent such Lender's Percentage of such
Borrowing, the Administrative Agent may assume that such Lender has made such
Percentage available to the Administrative Agent on the date of such Borrowing
in accordance with the first sentence of this subsection (b), and the
Administrative Agent may, in reliance upon such assumption, make available to
the Borrower on such date a corresponding amount.

         (c)      If and to the extent that any Lender (a "NON-PERFORMING
LENDER") shall not have made available to the Administrative Agent, in
accordance with subsection (b) above, such Lender's Percentage of any Borrowing,
the non-performing Lender and the Borrower severally agree to repay to the
Administrative Agent forthwith on demand corresponding amounts, together with
interest thereon for each day from the date such amount is made available to the
Borrower until the date such amount is repaid to the Administrative Agent, at
(i) in the case of the Borrower, the interest rate applicable at the time to
Loans made in connection with such Borrowing and (ii) in the case of such
Lender, the Federal Funds Effective Rate. Within the limits of each Lender's
Available Commitment and subject to the other terms and conditions set forth in
this Agreement for the making of Loans (including Section 8.01(h)), the Borrower
may request (and the Lenders shall honor) one or more additional Borrowings from
the performing Lenders to fund such repayment to the Administrative Agent. If a
non-performing Lender shall repay to the Administrative Agent such corresponding
amount in full (with interest as above

<PAGE>   37
                                                                              33

provided), (x) the Administrative Agent shall apply such corresponding amount
and interest to the repayment to the Administrative Agent (or repayment of Loans
made to fund such repayment to the Administrative Agent), and shall make any
remainder available to the Borrower and (y) such amount so repaid shall be
deemed to constitute such Lender's Loan, made as part of such Borrowing for
purposes of this Agreement as if funded concurrently with the other Loans made
as part of such Borrowing, and such Lender shall forthwith cease to be deemed a
non-performing Lender; if and so long as such non-performing Lender shall not
repay such amount, and unless and until an Eligible Assignee shall have assumed
and performed the obligations of such non-performing Lender, all computations by
the Administrative Agent of Percentages, Commitments and payments hereunder
shall be made without regard to the Commitments, or outstanding Loans, of such
non-performing Lender, and any amounts paid to the Administrative Agent for the
account of such non-performing Lender shall be held by the Administrative Agent
in trust for such non-performing Lender in a non-interest-bearing special
purpose account. Nothing herein shall in any way limit, waive or otherwise
reduce any claims that any party hereto may have against any non-performing
Lender. The failure of any Lender to make the Loan to be made by it as part of
any Borrowing shall not relieve any other Lender of its obligation, if any,
hereunder to make its Loan on the date of such Borrowing, but no Lender shall be
responsible for the failure of any other Lender to make the Loan to be made by
such other Lender on the date of any Borrowing.

         (d)      Any Lender may request that Loans made by it hereunder be
evidenced by a Promissory Note. In such event, the Borrower shall prepare,
execute and deliver to such Lender a Promissory Note payable to the order of
such Lender (or, if requested by such Lender, to such Lender and its registered
assigns) and in a form approved by the Administrative Agent. Thereafter, the
Loans evidenced by such Promissory Note and interest thereon shall at all times
(including after assignment pursuant to Section 11.07) be represented by one or
more Promissory Notes in such form payable to the order of the payee named
therein (or, if such Promissory Note is a registered note, to such payee and its
registered assigns).

         (e)      Upon receipt of an affidavit of an officer of the
Administrative Agent or of any Lender as to the loss, theft, destruction or
mutilation of any Promissory Note or any other Loan Document which is not of
public record, and, in the case of any such loss, theft, destruction or
mutilation, upon cancellation of such Promissory Note or other Loan Document,
the Borrower will issue, in lieu thereof, a replacement Promissory Note or other
Loan Document in the same principal amount thereof and otherwise of like tenor.

         SECTION 3.02. CONVERSION OF LOANS. The Borrower may from time to time
Convert any Loan (or portion thereof) of any Type to one or more Loans of the
same or any other Type by delivering a notice of such Conversion (a "NOTICE OF
CONVERSION") to the Administrative Agent no later than 12:00 noon on (x) the
third Business Day prior to the date of any proposed Conversion into a
Eurodollar Rate Loan and (y) the first Business Day prior to the date of any
proposed Conversion into an ABR Loan. The Administrative Agent shall give each
Lender prompt notice of each Notice of Conversion. Each Notice of Conversion
shall be in substantially the form of Exhibit B and shall specify (i) the
requested date of such Conversion, (ii) the Type of, and Interest Period, if
any, applicable to, the Loans (or portions thereof) proposed to be Converted,
(iii) the requested Type of Loans to which such Loans (or portions thereof) are

<PAGE>   38
                                                                              34

proposed to be Converted, (iv) the requested initial Interest Period, if any, to
be applicable to the Loans resulting from such Conversion and (v) the aggregate
principal amount of Loans (or portions thereof) proposed to be Converted. Each
proposed Conversion shall be subject to the provisions of Sections 3.03 and
3.04.

         SECTION 3.03. INTEREST PERIODS. The period between the date of each
Eurodollar Rate Loan and the date of payment in full of such Loan shall be
divided into successive periods of months ("INTEREST PERIODS") for purposes of
computing interest applicable thereto. The initial Interest Period for each such
Loan shall begin on the day such Loan is made, and each subsequent Interest
Period shall begin on the last day of the immediately preceding Interest Period
for such Loan. The duration of each Interest Period shall be 1, 2, 3, or 6
months, as the Borrower may, in accordance with Section 3.01 or 3.02, select;
provided, however, that:

                  (i)      the Borrower may not select any Interest Period that
         ends after the Termination Date;

                  (ii)     whenever the last day of any Interest Period would
         otherwise occur on a day other than a Business Day, the last day of
         such Interest Period shall occur on the next succeeding Business Day,
         provided that if such extension would cause the last day of such
         Interest Period to occur in the next following calendar month, the last
         day of such Interest Period shall occur on the next preceding Business
         Day; and

                  (iii)    any Interest Period that commences on the last
         Business Day of a calendar month (or on a day for which there is no
         numerically corresponding day in the last calendar month of such
         Interest Period) shall end on the last Business Day of the last
         calendar month of such Interest Period.

         SECTION 3.04. OTHER TERMS RELATING TO THE MAKING AND CONVERSION OF
LOANS. (a) Notwithstanding anything in Section 3.01 or 3.02 to the contrary:

                  (i)      each Borrowing (other than a Borrowing deemed made
         under Section 4.04(c) or (d)) shall be in an aggregate amount not less
         than (A) in the case of Eurodollar Loans, $5,000,000 or an integral
         multiple of $1,000,000 in excess thereof, or (B) in the case of ABR
         Loans, $1,000,000 or an integral multiple of $1,000,000 in excess
         thereof (or, in each case, such lesser amount as shall be equal to the
         total amount of the Available Commitments on such date, after giving
         effect to all other Extensions of Credit to be made on such date), and
         shall consist of Loans of the same Type, having the same Interest
         Period and made or Converted on the same day by the Lenders ratably
         according to their respective Percentages;

                  (ii)     the Borrower may request that more than one Borrowing
         be made on the same day;

                  (iii)    at no time shall more than six (6) different
         Borrowings comprising Eurodollar Rate Loans be outstanding hereunder;

<PAGE>   39
                                                                              35

                  (iv)     no Eurodollar Rate Loan may be Converted on a date
         other than the last day of the Interest Period applicable to such Loan
         unless the corresponding amounts, if any, payable to the Lenders
         pursuant to Section 5.04(b) are paid within two Business Days after the
         Administrative Agent provides written notice to the Borrower as to
         amounts owing under Section 5.04(b) in connection with such Conversion;

                  (v)      if the Borrower shall either fail to give a timely
         Notice of Conversion pursuant to Section 3.02 in respect of any Loans
         or fail, in any Notice of Conversion that has been timely given, to
         select the duration of any Interest Period for Loans to be Converted
         into Eurodollar Rate Loans in accordance with Section 3.03, such Loans
         shall, on the last day of the then existing Interest Period therefor,
         automatically Convert into, or remain as, as the case may be, ABR
         Loans; and

                  (vi)     if, on the date of any proposed Conversion, any Event
         of Default or Unmatured Default shall have occurred and be continuing,
         all Loans then outstanding shall, on such date, automatically Convert
         into, or remain as, as the case may be, ABR Loans.

         (b)      If any Lender shall notify the Administrative Agent that the
introduction of or any change in or in the interpretation of any law or
regulation makes it unlawful, or that any central bank or other governmental
authority asserts that it is unlawful, for such Lender or its Applicable Lending
Office to perform its obligations hereunder to make, or to fund or maintain,
Eurodollar Rate Loans hereunder, (i) the obligation of such Lender to make, or
to Convert Loans into, Eurodollar Rate Loans for such Borrowing or any
subsequent Borrowing from such Lender shall be forthwith suspended until the
earlier to occur of the date upon which (A) such Lender shall cease to be a
party hereto and (B) it is no longer unlawful for such Lender to make, fund or
maintain Eurodollar Rate Loans, and (ii) if the maintenance of Eurodollar Rate
Loans then outstanding through the last day of the Interest Period therefor
would cause such Lender to be in violation of such law, regulation or assertion,
such Lender may require the Borrower to Convert all Eurodollar Rate Loans from
such Lender within five Business Days after such notice, and if the Borrower
shall not have Converted such Eurodollar Rate Loans by such fifth Business Day,
then such Eurodollar Rate Loans shall be deemed automatically Converted to ABR
Loans on such fifth Business Day. Promptly upon becoming aware that the
circumstances that caused such Lender to deliver such notice no longer exist,
such Lender shall deliver notice thereof to the Administrative Agent (but the
failure to do so shall impose no liability upon such Lender). Promptly upon
receipt of such notice from such Lender (or upon such Lender's assigning all of
its Commitments, Loans, participation and other rights and obligations hereunder
to an Eligible Assignee), the Administrative Agent shall deliver notice thereof
to the Borrower and the Lenders and such suspension shall terminate. Prior to
any Lender giving notice to the Administrative Agent or the Borrower under this
subsection (b), such Lender shall use reasonable efforts to change the
jurisdiction of its Applicable Lending Office, if such change would avoid such
unlawfulness and would not, in the sole determination of such Lender, be
otherwise disadvantageous to such Lender.

         (c)      If the Majority Lenders shall, at least one Business Day
before the date of any requested Borrowing, notify the Administrative Agent that
the Eurodollar Rate for Eurodollar

<PAGE>   40
                                                                              36

Rate Loans to be made in connection with such Borrowing will not adequately
reflect the cost to such Majority Lenders of making, funding or maintaining
their respective Eurodollar Rate Loans for such Borrowing, the right of the
Borrower to select Eurodollar Rate Loans for such Borrowing and any subsequent
Borrowing shall be suspended until the Administrative Agent shall notify the
Borrower and the Lenders that the circumstances causing such suspension no
longer exist with respect to the Majority Lenders, and each Loan to be made or
Converted in connection with such Borrowing shall be an ABR Loan.

         (d)      If any Lender shall have delivered a notice to the Borrower or
the Administrative Agent described in Section 3.04(b) or Section 3.06, or shall
become a non-performing Lender under Section 3.01(c) or Section 4.04(c), and if
and so long as such Lender shall not have withdrawn such notice or corrected
such non-performance in accordance with said Section 3.04(b), Section 3.06,
Section 3.01(c) or Section 4.04(c), the Borrower or the Administrative Agent may
demand that such Lender assign in accordance with Section 11.07, to one or more
Eligible Assignees designated by the Borrower or the Administrative Agent, all
(but not less than all) of such Lender's Commitments, Loans, participation and
other rights and obligations hereunder; provided that any such demand by the
Borrower during the continuance of an Event of Default or an Unmatured Default
shall be ineffective without the consent of the Majority Lenders. If, within 30
days following any such demand by the Administrative Agent or the Borrower, any
such Eligible Assignee so designated shall fail to consummate such assignment on
terms reasonably satisfactory to such Lender, or the Borrower and the
Administrative Agent shall have failed to designate any such Eligible Assignee,
then such demand by the Borrower or the Administrative Agent shall become
ineffective, it being understood for purposes of this provision that such
assignment shall be conclusively deemed to be on terms reasonably satisfactory
to such Lender, and such Lender shall be compelled to consummate such assignment
forthwith, if such Eligible Assignee (i) shall agree to such assignment in
substantially the form of the Lender Assignment attached hereto as Exhibit F and
(ii) shall tender payment to such Lender in an amount equal to the full
outstanding dollar amount accrued in favor of such Lender hereunder (as computed
in accordance with the records of the Administrative Agent), including, without
limitation, all accrued interest and fees and, to the extent not paid by the
Borrower, any payments required pursuant to Section 5.04(b).

         (e)      Each Notice of Borrowing and Notice of Conversion shall be
irrevocable and binding on the Borrower. In the case of any Borrowing which the
related Notice of Borrowing or Notice of Conversion specifies is to be comprised
of Eurodollar Rate Loans, the Borrower shall indemnify each Lender against any
loss, cost or expense incurred by such Lender as a result of any failure by the
Borrower to fulfill, on or before the date specified in such Notice of Borrowing
or Notice of Conversion for such Borrowing, the applicable conditions (if any)
set forth in this Article III (other than failure pursuant to the provisions of
Section 3.04(c) hereof) or in Article VI, including any such loss (other than
loss of anticipated profits), cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by such Lender
to fund the Loan to be made by such Lender when such Loan, as a result of such
failure, is not made on such date.

         SECTION 3.05. REPAYMENT OF LOANS; INTEREST. (a) Principal. The Borrower
shall repay the outstanding principal amount of the Loans on the Termination
Date.

<PAGE>   41
                                                                              37

         (b)      Interest. The Borrower shall pay interest on the unpaid
principal amount of each Loan owing to each Lender from the date of such Loan
until such principal amount shall be paid in full, at the Applicable Rate for
such Loan (except as otherwise provided in this subsection (b)), payable as
follows:

                           (i)      ABR Loans. If such Loan is an ABR Loan,
                  interest thereon shall be payable quarterly in arrears on the
                  last day of each March, June, September and December, on the
                  date of any Conversion of such ABR Loan and on the date such
                  ABR Loan shall become due and payable or shall otherwise be
                  paid in full; provided, that upon the occurrence and during
                  the continuance of an Event of Default, the Borrower shall pay
                  interest on the unpaid principal amount of each ABR Loan at a
                  rate per annum equal to the Default Rate in effect from time
                  to time.

                           (ii)     Eurodollar Rate Loans. If such Loan is a
                  Eurodollar Rate Loan, interest thereon shall be payable on the
                  last day of each Interest Period for such Loan and, if the
                  Interest Period for such Loan has a duration of more than
                  three months, on that day of each third month during such
                  Interest Period that corresponds to the first day of such
                  Interest Period (or, if any such month does not have a
                  corresponding day, then on the last day of such month);
                  provided, that upon the occurrence and during the continuance
                  of an Event of Default, the Borrower shall pay interest on the
                  unpaid principal amount of each Eurodollar Rate Loan at a rate
                  per annum equal to the Default Rate in effect from time to
                  time.

         SECTION 3.06. ADDITIONAL INTEREST ON EURODOLLAR RATE LOANS. The
Borrower shall pay to the Administrative Agent for the account of each Lender
any costs actually incurred by such Lender with respect to Eurodollar Rate Loans
that are attributable to such Lender's compliance with regulations of the Board
requiring the maintenance of reserves with respect to liabilities or assets
consisting of or including Eurocurrency Liabilities. Such costs shall be paid to
the Administrative Agent for the account of such Lender in the form of
additional interest on the unpaid principal amount of each Eurodollar Rate Loan
of such Lender, from the date of such Eurodollar Rate Loan until such principal
amount is paid in full, at an interest rate per annum equal at all times to the
remainder obtained by subtracting (i) the Eurodollar Rate for the Interest
Period for such Eurodollar Rate Loan from (ii) the rate obtained by dividing
such Eurodollar Rate by a percentage equal to 100% minus the Eurodollar Reserve
Percentage of such Lender for such Interest Period, payable on each date on
which interest is payable on such Eurodollar Rate Loan (but in no event earlier
than ten Business Days after the Borrower's receipt of the certificate referred
to in the last sentence of this Section 3.06). Such additional interest shall be
determined by such Lender and notified to the Borrower through the
Administrative Agent. A certificate as to the amount of such additional interest
and giving a reasonable explanation and calculation thereof shall be submitted
to the Borrower and the Administrative Agent by such Lender and shall be
conclusive and binding for all purposes, absent manifest error, provided that
the determination thereof shall have been made by such Lender in good faith.

<PAGE>   42
                                                                              38

                                   ARTICLE IV
                                LETTERS OF CREDIT

         SECTION 4.01. ISSUING BANKS. Subject to the terms and conditions
hereof, the Borrower may from time to time identify and arrange for one or more
Lenders or other financial institutions to act as Issuing Banks hereunder. Any
such designation by the Borrower that is accepted by the proposed Issuing Bank
shall be notified to the Administrative Agent at least five Business Days prior
to the first date upon which the Borrower proposes that such Issuing Bank issue
its first Letter of Credit. Within three Business Days following the receipt of
any such designation of a financial institution (other than a Lender) as a
proposed Issuing Bank, the Administrative Agent shall notify the Borrower as to
whether such designee is acceptable to the Administrative Agent. The failure by
the Administrative Agent to provide such notice to the Borrower within such time
period shall be deemed to be an approval of such proposed Issuing Bank. Nothing
contained herein shall be deemed to require any Lender to agree to act as an
Issuing Bank, if it does not so desire.

         SECTION 4.02. LETTERS OF CREDIT. (a) Each Letter of Credit shall be
issued (or the stated maturity thereof extended or terms thereof modified or
amended) on not less than three Business Days' prior written notice thereof to
the Administrative Agent (which shall promptly distribute copies thereof to the
Lenders) and the relevant Issuing Bank. Each such notice (a "REQUEST FOR
ISSUANCE") shall specify (i) the date (which shall be a Business Day) of
issuance of such Letter of Credit (or the date of effectiveness of such
extension, modification or amendment) and the stated expiry date thereof (which
shall be no later than the earlier to occur of (A) the date one year after the
date of issuance of such Letter of Credit (or, in the case of any extension
thereof, one year after the effectiveness of such extension) and (B) the date
that is five Business Days prior to the Termination Date, provided that any
Letter of Credit with a stated expiry date of one year after its date of
issuance may provide for the renewal thereof for additional one-year periods
(but in no event later than the Termination Date) subject to the other terms and
conditions contained herein (including the satisfaction of the conditions
precedent set forth in Section 6.03)), (ii) the proposed stated amount of such
Letter of Credit (which shall not be less than $1,000,000) and (iii) such other
information as shall demonstrate compliance of such Letter of Credit with the
requirements specified therefor in this Agreement and the relevant Issuing Bank
Agreement. Each Request for Issuance shall be irrevocable unless modified or
rescinded by the Borrower not less than one Business Day prior to the proposed
date of issuance (or effectiveness) specified therein. Not later than 12:00 noon
on the proposed date of issuance (or effectiveness) specified in such Request
for Issuance, and upon fulfillment of the applicable conditions precedent and
the other requirements set forth herein and in the relevant Issuing Bank
Agreement, such Issuing Bank shall issue (or extend, amend or modify) such
Letter of Credit and provide notice and a copy thereof to the Administrative
Agent, which shall promptly furnish copies thereof to the Lenders.

         (b)      Each Lender severally agrees with such Issuing Bank to
participate in the Extension of Credit resulting from the issuance (or
extension, modification or amendment) of such Letter of Credit, in the manner
and the amount provided in Section 4.04(b), and the issuance of such Letter of
Credit shall be deemed to be a confirmation by such Issuing Bank and each Lender
of such participation in such amount.

<PAGE>   43
                                                                              39

         (c)      Notwithstanding anything herein to the contrary, the aggregate
LC Outstandings of all Letters of Credit outstanding at any one time shall not
exceed the Letter of Credit Sublimit.

         SECTION 4.03. ISSUING BANK FEES. The Borrower shall pay directly to
each Issuing Bank such fees and expenses, if any, specified to be paid to such
Issuing Bank pursuant to the Issuing Bank Agreement to which it is a party, at
the times, and in the manner, specified in such Issuing Bank Agreement.

         SECTION 4.04. REIMBURSEMENT TO ISSUING BANKS. (a) The Borrower hereby
agrees to pay to the Administrative Agent for the account of each Issuing Bank,
on demand made by such Issuing Bank to the Borrower and the Administrative
Agent, on and after each date on which such Issuing Bank shall pay any amount
under any Letter of Credit issued by such Issuing Bank, a sum equal to the
amount so paid plus interest on such amount from the date so paid by such
Issuing Bank until repayment to such Issuing Bank in full at a fluctuating
interest rate per annum equal at all times to the Applicable Rate for ABR Loans.

         (b)      If any Issuing Bank shall not have been reimbursed in full for
any payment made by such Issuing Bank under any Letter of Credit on the date of
such payment, such Issuing Bank shall give the Administrative Agent and each
Lender prompt notice thereof (an "LC PAYMENT NOTICE") no later than 12:00 noon
on the Business Day immediately succeeding the date of such payment by such
Issuing Bank. Each Lender severally agrees to purchase a participation in the
reimbursement obligation of the Borrower to such Issuing Bank under subsection
(a) above, by paying to the Administrative Agent for the account of such Issuing
Bank an amount equal to such Lender's Percentage of such unreimbursed amount
paid by such Issuing Bank, plus interest on such amount at a rate per annum
equal to the Federal Funds Effective Rate from the date of such payment by such
Issuing Bank to the date of payment to such Issuing Bank by such Lender. Each
such payment by a Lender shall be made not later than 3:00 P.M. on the later to
occur of (i) the Business Day immediately following the date of such payment by
such Issuing Bank and (ii) the Business Day on which such Lender shall have
received an LC Payment Notice from such Issuing Bank. Each Lender's obligation
to make each such payment to the Administrative Agent for the account of such
Issuing Bank shall be several and shall not be affected by the occurrence or
continuance of any Unmatured Default or Event of Default or the failure of any
other Lender to make any payment under this Section 4.04. Each Lender further
agrees that each such payment shall be made without any offset, abatement,
withholding or reduction whatsoever.

         (c)      The failure of any Lender to make any payment to the
Administrative Agent for the account of an Issuing Bank in accordance with
subsection (b) above, shall not relieve any other Lender of its obligation to
make payment, but no Lender shall be responsible for the failure of any other
Lender. If any Lender (a "NON-PERFORMING LENDER") shall fail to make any payment
to the Administrative Agent for the account of an Issuing Bank in accordance
with subsection (b) above within five Business Days after the LC Payment Notice
relating thereto, then, for so long as such failure shall continue, such Issuing
Bank shall be deemed, for purposes of Section 5.05 and Article IX hereof, to be
a Lender hereunder owed a Loan in an amount equal to the outstanding principal
amount due and payable by such non-performing Lender to the Administrative Agent
for the account of such Issuing Bank pursuant to subsection (b) above.

<PAGE>   44
                                                                              40

         (d)      Each participation purchased by a Lender under subsection (b)
above shall constitute an ABR Loan deemed made by such Lender to the Borrower on
the date of such payment by the relevant Issuing Bank under the applicable
Letter of Credit issued by such Issuing Bank (irrespective of the Borrower's
noncompliance, if any, with the conditions precedent for Loans hereunder); and
all such payments by the Lenders in respect of any one such payment by such
Issuing Bank shall constitute a single Borrowing hereunder.

         SECTION 4.05. OBLIGATIONS ABSOLUTE. The payment obligations of each
Lender under Section 4.04(b) and of the Borrower under this Agreement in respect
of any payment under any Letter of Credit and any Loan deemed made under Section
4.04(c) or (d) shall be unconditional and irrevocable, and shall be paid
strictly in accordance with the terms of this Agreement under all circumstances,
including the following circumstances:

                           (i)      any lack of validity or enforceability of
                  any Loan Document or any other agreement or instrument
                  relating thereto or to such Letter of Credit;

                           (ii)     any amendment or waiver of, or any consent
                  to departure from, all or any of the Loan Documents;

                           (iii)    the existence of any claim, set-off, defense
                  or other right which the Borrower may have at any time against
                  any beneficiary, or any transferee, of such Letter of Credit
                  (or any Persons for whom any such beneficiary or any such
                  transferee may be acting), any Issuing Bank, or any other
                  Person, whether in connection with this Agreement, the
                  transactions contemplated herein or by such Letter of Credit,
                  or any unrelated transaction;

                           (iv)     any statement or any other document
                  presented under such Letter of Credit proving to be forged,
                  fraudulent, invalid or insufficient in any respect or any
                  statement therein being untrue or inaccurate in any respect;

                           (v)      payment in good faith by the relevant
                  Issuing Bank under such Letter of Credit against presentation
                  of a draft or certificate which does not comply with the terms
                  of such Letter of Credit; or

                           (vi)     any other circumstance or happening
                  whatsoever, whether or not similar to any of the foregoing.

         SECTION 4.06. LIABILITY OF ISSUING BANKS AND THE LENDERS. The Borrower
assumes all risks of the acts and omissions of any beneficiary or transferee of
any Letter of Credit, and neither the Issuing Bank that has issued such Letter
of Credit, the Lenders nor any of their respective officers, directors,
employees, agents or Affiliates shall be liable or responsible for (a) the use
that may be made of such Letter of Credit or any acts or omissions of any
beneficiary or transferee thereof in connection therewith; (b) the validity,
sufficiency or genuineness of documents, or of any endorsement thereon, even if
such documents should prove to be in any or all respects invalid, insufficient,
fraudulent or forged; (c) payment by such Issuing Bank against presentation of
documents that do not comply with the terms of such Letter of Credit, including

<PAGE>   45
                                                                              41

failure of any documents to bear any reference or adequate reference to such
Letter of Credit; or (d) any other circumstances whatsoever in making or failing
to make payment under such Letter of Credit, except that the Borrower shall have
the right to bring suit against such Issuing Bank, and such Issuing Bank shall
be liable to the Borrower and any Lender, to the extent of any direct, as
opposed to consequential, damages suffered by the Borrower or such Lender which
the Borrower or such Lender proves were caused by such Issuing Bank's willful
misconduct or gross negligence, including such Issuing Bank's willful failure to
make timely payment under such Letter of Credit following the presentation to it
by the beneficiary thereof of a draft and accompanying certificate(s) which
strictly comply with the terms and conditions of such Letter of Credit. In
furtherance and not in limitation of the foregoing, any Issuing Bank may accept
sight drafts and accompanying certificates presented under any Letter of Credit
that appear on their face to be in order, without responsibility for further
investigation, regardless of any notice or information to the contrary.
Notwithstanding the foregoing, no Lender shall be obligated to indemnify the
Borrower for damages caused by any Issuing Bank's willful misconduct or gross
negligence, and the obligation of the Borrower to reimburse the Lenders
hereunder shall be absolute and unconditional, notwithstanding the gross
negligence or willful misconduct of any Issuing Bank.

                                    ARTICLE V
                           PAYMENTS, COMPUTATIONS AND
                                YIELD PROTECTION

         SECTION 5.01. PAYMENTS AND COMPUTATIONS. (a) The Borrower shall make
each payment hereunder and under the other Loan Documents not later than 1:00
P.M. on the day when due in Dollars to the Administrative Agent at its address
referred to in Section 11.02 in same day funds, except payments to be made
directly to any Issuing Bank as expressly provided herein; any payment received
after 1:00 P.M. shall be deemed to have been received at the start of business
on the next succeeding Business Day. The Administrative Agent will promptly
thereafter cause to be distributed like funds relating to the payment of
principal, interest, fees or other amounts payable to the Lenders, to the
respective Lenders to which the same are payable, for the account of their
respective Applicable Lending Offices, in each case to be applied in accordance
with the terms of this Agreement. If and to the extent that any distribution of
any payment from the Borrower required to be made to any Lender pursuant to the
preceding sentence shall not be made in full by the Administrative Agent on the
date such payment was received by the Administrative Agent, the Administrative
Agent shall pay to such Lender, upon demand, interest on the unpaid amount of
such distribution, at a rate per annum equal to the Federal Funds Effective
Rate, from the date of such payment by the Borrower to the Administrative Agent
to the date of payment in full by the Administrative Agent to such Lender of
such unpaid amount. Upon the Administrative Agent's acceptance of a Lender
Assignment and recording of the information contained therein in the Register
pursuant to Section 11.07, from and after the effective date specified in such
Lender Assignment, the Administrative Agent shall make all payments hereunder
and under any Promissory Notes in respect of the interest assigned thereby to
the Lender assignee thereunder, and the parties to such Lender Assignment shall
make all appropriate adjustments in such payments for periods prior to such
effective date directly between themselves.

<PAGE>   46
                                                                              42

         (b)      The Borrower hereby authorizes the Administrative Agent, each
Lender and each Issuing Bank, if and to the extent payment owed to the
Administrative Agent, such Lender or such Issuing Bank, as the case may be, is
not made by the Borrower when due hereunder (or, in the case of a Lender, under
any Promissory Note held by such Lender) and such nonpayment constitutes an
Event of Default, to charge from time to time against any or all of the
Borrower's accounts with the Administrative Agent, such Lender or such Issuing
Bank, as the case may be, any amount so due.

         (c)      All computations of interest based on the Alternate Base Rate
(when the Alternate Base Rate is based on the Base Rate) shall be made by the
Administrative Agent on the basis of a year of 365 or 366 days, as the case may
be. All other computations of interest and fees hereunder (including
computations of interest based on the Eurodollar Rate and the Federal Funds
Effective Rate) shall be made by the Administrative Agent on the basis of a year
of 360 days. In each such case, such computation shall be made for the actual
number of days (including the first day but excluding the last day) occurring in
the period for which such interest or fees are payable. Each such determination
by the Administrative Agent or a Lender shall be conclusive and binding for all
purposes, absent manifest error.

         (d)      Whenever any payment hereunder or under any other Loan
Document shall be stated to be due on a day other than a Business Day, such
payment shall be made on the next succeeding Business Day, and such extension of
time shall in such case be included in the computation of payment of interest
and fees hereunder; provided, however, that if such extension would cause
payment of interest on or principal of Eurodollar Rate Loans to be made in the
next following calendar month, such payment shall be made on the next preceding
Business Day.

         (e)      Unless the Administrative Agent shall have received notice
from the Borrower prior to the date on which any payment is due to the Lenders
hereunder that the Borrower will not make such payment in full, the
Administrative Agent may assume that the Borrower has made such payment in full
to the Administrative Agent on such date, and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to each Lender on such
due date an amount equal to the amount then due such Lender. If and to the
extent the Borrower shall not have so made such payment in full to the
Administrative Agent, such Lender shall repay to the Administrative Agent
forthwith on demand such amount distributed to such Lender, together with
interest thereon, for each day from the date such amount is distributed to such
Lender until the date such Lender repays such amount to the Administrative
Agent, at the Federal Funds Effective Rate.

         (f)      Any principal, interest, fees or other amounts payable by the
Borrower hereunder or under any of the Promissory Notes that is not paid when
due (whether at stated maturity, by acceleration or otherwise) shall (to the
fullest extent permitted by law) bear interest, from the date when due until
paid in full, at a rate per annum equal at all times to the Default Rate,
payable on demand.

         (g)      If at any time insufficient funds are received by and
available to the Administrative Agent to pay fully all amounts of principal,
interest and fees then due hereunder, such funds shall be applied (i) first,
towards payment of interest and fees then due hereunder,

<PAGE>   47
                                                                              43

ratably among the parties entitled thereto in accordance with the amounts of
interest and fees then due to such parties, and (ii) second, towards payment of
principal then due hereunder, ratably among the parties entitled thereto.

         SECTION 5.02. INTEREST RATE DETERMINATION. The Administrative Agent
shall give prompt notice to the Borrower and the Lenders of the applicable
interest rate determined by the Administrative Agent for purposes of Section
3.05(b)(i) or (ii).

         SECTION 5.03. PREPAYMENTS. The Borrower shall have no right to prepay
any principal amount of any Loans other than as provided in subsections (a), (b)
and (c) below.

         (a)      The Borrower may, upon at least three Business Days' notice to
the Administrative Agent stating the proposed date and the aggregate principal
amount of the prepayment, and if such notice is given, the Borrower shall,
prepay the outstanding principal amounts of Loans made as part of the same
Borrowing, in whole or ratably in part, together with (i) accrued interest to
the date of such prepayment on the principal amount prepaid and (ii) in the case
of Eurodollar Rate Loans, and subject to Section 5.04(d), any amount payable to
the Lenders pursuant to Section 5.04(b); provided, however, that each partial
prepayment shall be in an aggregate principal amount of not less than (A) in the
case of Eurodollar Loans, $5,000,000 or an integral multiple of $1,000,000 in
excess thereof or (B) in the case of ABR Loans, $1,000,000 or an integral
multiple of $1,000,000 in excess thereof.

         (b)      The Borrower shall, on the date of receipt by the Borrower of
any Net Disposition Proceeds, Net Insurance Proceeds or Net Securities Proceeds,
pay to the Administrative Agent 100% of all such Net Disposition Proceeds and
Net Insurance Proceeds and, if requested by the Majority Lenders (in their sole
and absolute discretion), 50% of all such Net Securities Proceeds, in each case
to be applied as a mandatory prepayment of the outstanding principal amount of
the Loans and, if all of the Loans have been paid in full, to cash collateralize
all LC Outstandings (pursuant to a cash collateral agreement in form, scope and
substance satisfactory to the Administrative Agent and the Borrower). In
connection with any such prepayment, the Borrower shall also pay (i) accrued
interest to the date of such prepayment on the principal amount prepaid and (ii)
in the case of prepayments of Eurodollar Rate Loans, and subject to Section
5.04(d), any amount payable to the Lenders pursuant to Section 5.04(b). Any
prepayments of the Loans required by this subsection (b) shall be applied to
outstanding ABR Loans up to the full amount thereof before they are applied to
outstanding Eurodollar Rate Loans. The Borrower shall deliver to the
Administrative Agent, at the time of each prepayment required under this
subsection (b), (A) a certificate signed by a Senior Financial Officer setting
forth in reasonable detail the calculation of the amount of such prepayment and
(B) to the extent practicable, at least one Business Day's prior written notice
of such prepayment.

         (c)      On the date of any termination or reduction of the Commitments
pursuant to Section 2.03(a), the Borrower shall pay or prepay so much of the
principal amount outstanding hereunder as shall be necessary in order that the
aggregate principal amount outstanding hereunder (after giving effect to all
Extensions of Credit to be made on such date and the application of the proceeds
thereof) will not exceed the Commitments following such termination or
reduction, together with (i) accrued interest to the date of such prepayment on
the

<PAGE>   48
                                                                              44

principal amount prepaid and (ii) in the case of prepayments of Eurodollar Rate
Loans, and subject to Section 5.04(d), any amount payable to the Lenders
pursuant to Section 5.04(b). Any prepayments required by this subsection (c)
shall be applied to outstanding ABR Loans up to the full amount thereof before
they are applied to outstanding Eurodollar Rate Loans.

         SECTION 5.04. YIELD PROTECTION. (a) Increased Costs. If, due to either
(i) the introduction of or any change in or in the interpretation of any law or
regulation after the date hereof, or (ii) the compliance with any guideline or
request from any central bank or other governmental authority (whether or not
having the force of law) issued or made after the date hereof, there shall be
reasonably incurred any increase in (A) the cost to any Lender of agreeing to
make or making, funding or maintaining Eurodollar Rate Loans, or of
participating in the issuance, maintenance or funding of any Letter of Credit,
or (B) the cost to any Issuing Bank of issuing or maintaining any Letter of
Credit, then the Borrower shall from time to time, promptly after demand by such
Lender or Issuing Bank, as the case may be (with a copy of such demand to the
Administrative Agent), pay to the Administrative Agent for the account of such
Lender or Issuing Bank, as the case may be, additional amounts sufficient to
compensate such Lender or Issuing Bank, as the case may be, for such increased
cost. A certificate as to the amount of such increased cost and giving a
reasonable explanation and calculation thereof shall be submitted to the
Borrower and the Administrative Agent by such Lender or such Issuing Bank, as
the case may be, shall constitute such demand and shall be conclusive and
binding for all purposes, absent manifest error.

         (b)      Breakage. If, due to any prepayment pursuant to Section 5.03,
an acceleration of maturity of the Loans pursuant to Section 9.02, or any other
reason, any Lender receives payments of principal of any Eurodollar Rate Loan
other than on the last day of the Interest Period relating to such Loan, or if
the Borrower shall Convert any Eurodollar Rate Loans on any day other than the
last day of the Interest Period therefor, the Borrower shall, promptly after
demand by such Lender (with a copy of such demand to the Administrative Agent),
pay to the Administrative Agent for the account of such Lender any amounts
required to compensate such Lender for additional losses, costs, or expenses
(including anticipated lost profits) that such Lender may reasonably incur as a
result of such payment or Conversion, including any loss, cost or expense
incurred by reason of the liquidation or reemployment of deposits or other funds
acquired by such Lender to fund or maintain such Loan. For purposes of this
subsection (b) and Section 3.04(e), a certificate setting forth the amount of
such additional losses, costs, or expenses and giving a reasonable explanation
and calculation thereof shall be submitted to the Borrower and the
Administrative Agent by such Lender, shall constitute such demand and shall be
conclusive and binding for all purposes, absent manifest error.

         (c)      Capital. If any Lender or Issuing Bank determines that (i)
compliance with any law or regulation or any guideline or request from any
central bank or other governmental authority (whether or not having the force of
law) affects or would affect the amount of capital required or expected to be
maintained by such Lender or Issuing Bank, whether directly, or indirectly as a
result of commitments of any corporation controlling such Lender or Issuing Bank
(but without duplication), and (ii) the amount of such capital is increased by
or based upon (A) the existence of such Lender's or Issuing Bank's commitment to
lend or issue or participate in any Letter of Credit hereunder, or (B) the
participation in or issuance or maintenance of any

<PAGE>   49
                                                                              45

Letter of Credit or Loan and (C) other similar such commitments, then, promptly
after demand by such Lender or Issuing Bank, the Borrower shall pay to the
Administrative Agent for the account of such Lender or Issuing Bank from time to
time as specified by such Lender or Issuing Bank additional amounts sufficient
to compensate such Lender or Issuing Bank in the light of such circumstances, to
the extent that such Lender or Issuing Bank reasonably determines such increase
in capital to be allocable to the transactions contemplated hereby. A
certificate as to such amounts and giving a reasonable explanation and
calculation thereof (to the extent permitted by law) shall be submitted to the
Borrower and the Administrative Agent by such Lender or Issuing Bank and shall
be conclusive and binding for all purposes, absent manifest error.

         (d)      Notices, Etc. Each Lender and Issuing Bank hereby agrees to
use all reasonable efforts to notify the Borrower of the occurrence of any event
referred to in subsection (a), (b) or (c) of this Section 5.04 promptly after
becoming aware of the occurrence thereof. The Borrower shall pay the
Administrative Agent, for the account of such Lender or Issuing Bank, as the
case may be, the amount shown as due on any certificate delivered pursuant to
this Section 5.04 within ten Business Days after its receipt of the same. The
failure of any Lender or Issuing Bank to provide such notice or to make demand
for payment under said subsection shall not constitute a waiver of such Lender's
or Issuing Bank's rights hereunder; provided that, notwithstanding any provision
to the contrary contained in this Agreement, the Borrower shall not be required
to reimburse any Lender or Issuing Bank for any amounts or costs incurred under
subsection (a), (b) or (c) above, more than 90 days prior to the date that such
Lender or Issuing Bank, as the case may be, notifies the Borrower in writing
thereof, in each case unless, and to the extent that, any such amounts or costs
so incurred shall relate to the retroactive application of any event notified to
the Borrower which entitles such Lender or Issuing Bank to such compensation.
Each Lender claiming any compensation under this Section 5.04 shall use
reasonable efforts to designate a different Applicable Lending Office if such
designation would not result in the incurrence by such Lender of additional
costs or expenses which it deems material or, in the sole judgment of such
Lender, be inadvisable for regulatory, competitive or internal management
reasons. If any Lender or Issuing Bank shall subsequently determine that any
amount demanded and collected under this Section 5.04 was done so in error, such
Lender or Issuing Bank, as the case may be, will promptly return such amount to
the Borrower.

         (e)      Survival of Obligations. Subject to subsection (d) above, the
Borrower's obligations under this Section 5.04 shall survive the repayment of
all other amounts owing to the Lenders, the Administrative Agent and the Issuing
Banks under the Loan Documents and the termination of the Commitments. If and to
the extent that the obligations of the Borrower under this Section 5.04 are
unenforceable for any reason, the Borrower agrees to make the maximum
contribution to the payment and satisfaction thereof which is permissible under
applicable law.

         SECTION 5.05. SHARING OF PAYMENTS, ETC. If any Lender shall obtain any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) on account of the Loans owing to it (other than pursuant
to Section 5.04) in excess of its ratable share of payments obtained by all the
Lenders on account of the Loans of such Lenders, such Lender shall forthwith
purchase from the other Lenders such participation in the Loans owing to them as
shall be necessary to cause such purchasing Lender to share the excess payment
ratably

<PAGE>   50
                                                                              46

with each of them; provided, however, that if all or any portion of such excess
payment is thereafter recovered from such purchasing Lender, such purchase from
each Lender shall be rescinded and such Lender shall repay to the purchasing
Lender the purchase price to the extent of such recovery together with an amount
equal to such Lender's ratable share (according to the proportion of (i) the
amount of such Lender's required repayment to (ii) the total amount so recovered
from the purchasing Lender) of any interest or other amount paid or payable by
the purchasing Lender in respect of the total amount so recovered. The Borrower
agrees that any Lender so purchasing a participation from another Lender
pursuant to this Section 5.05 may, to the fullest extent permitted by law,
exercise all its rights of payment (including the right of set-off) with respect
to such participation as fully as if such Lender were the direct creditor of the
Borrower in the amount of such participation. Notwithstanding the foregoing, if
any Lender shall obtain any such excess payment involuntarily, such Lender may,
in lieu of purchasing participations from the other Lenders in accordance with
this Section 5.05, on the date of receipt of such excess payment, return such
excess payment to the Administrative Agent for distribution in accordance with
Section 5.01(a).

         SECTION 5.06. TAXES. (a) All payments by the Borrower hereunder and
under the other Loan Documents shall be made in accordance with Section 5.01,
free and clear of and without deduction for all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with respect
thereto, excluding, in the case of each Lender, each Issuing Bank and each
Agent, taxes imposed on its overall net income, and franchise taxes imposed on
it by the jurisdiction under the laws of which such Lender, such Issuing Bank or
such Agent (as the case may be) is organized or any political subdivision
thereof and, in the case of each Lender, taxes imposed on its overall net
income, and franchise taxes imposed on it by the jurisdiction of such Lender's
Applicable Lending Office or any political subdivision thereof (all such
non-excluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "TAXES"). If the Borrower shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder or under any other Loan Document to any Lender, any Issuing Bank or
any Agent, (i) the sum payable shall be increased as may be necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this Section 5.06) such Lender, such Issuing Bank
or such Agent (as the case may be) receives an amount equal to the sum it would
have received had no such deductions been made, (ii) the Borrower shall make
such deductions, and (iii) the Borrower shall pay the full amount deducted to
the relevant taxation authority or other authority in accordance with applicable
law.

         (b)      In addition, the Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies that arise from any payment made hereunder or under any other
Loan Document or from the execution, delivery or registration of, or otherwise
with respect to, this Agreement or any other Loan Document (hereinafter referred
to as "OTHER TAXES").

         (c)      The Borrower will indemnify each Lender, each Issuing Bank and
each Agent for the full amount of Taxes and Other Taxes (including any Taxes and
any Other Taxes imposed by any jurisdiction on amounts payable under this
Section 5.06) paid by such Lender, such Issuing Bank or such Agent (as the case
may be) and any liability (including penalties, interest and

<PAGE>   51
                                                                              47

expenses) arising therefrom or with respect thereto, whether or not such Taxes
or Other Taxes were correctly or legally asserted. This indemnification shall be
made within 30 days from the date such Lender, such Issuing Bank or such Agent
(as the case may be) makes written demand therefor. Nothing herein shall
preclude the right of the Borrower to contest any such Taxes or Other Taxes so
paid, and each Lender, each Issuing Bank and each Agent in question (as the case
may be) will, following notice from, and at the expense of, the Borrower,
reasonably cooperate with the Borrower to preserve the Borrower's rights to
contest such Taxes or Other Taxes.

         (d)      Within 30 days after the date of any payment of Taxes, the
Borrower will furnish to the Administrative Agent, at its address referred to in
Section 11.02, the original or a certified copy of a receipt evidencing payment
thereof.

         (e)      Each Bank represents and warrants that either (i) it is
organized under the laws of a jurisdiction within the United States or (ii) it
has delivered to the Borrower or the Administrative Agent duly completed copies
of such form or forms prescribed by the United States Internal Revenue Service
indicating that such Bank is entitled to receive payments without deduction or
withholding of any United States federal income taxes, as permitted by the
Internal Revenue Code or any tax treaty to which the United States is a party.
Each other Lender agrees that, on or prior to the date upon which it shall
become a party hereto, and upon the reasonable request from time to time of the
Borrower or the Administrative Agent, such Lender will deliver to the Borrower
and the Administrative Agent (to the extent that it is not prohibited by law
from doing so) either (A) a statement that it is organized under the laws of a
jurisdiction within the United States or (B) duly completed copies of such form
or forms as may from time to time be prescribed by the United States Internal
Revenue Service, indicating that such Lender is entitled to receive payments
without deduction or withholding of any United States federal income taxes, as
permitted by the Internal Revenue Code. Each Bank that has delivered, and each
other Lender that hereafter delivers, to the Borrower and the Administrative
Agent the form or forms referred to in the two preceding sentences further
undertakes to deliver to the Borrower and the Administrative Agent, to the
extent that it is not prohibited by law from doing so, further copies of such
form or forms, or successor applicable form or forms, as the case may be, as and
when any previous form filed by it hereunder shall expire or shall become
incomplete or inaccurate in any respect. Each Lender represents and warrants
that each such form supplied by it to the Administrative Agent and the Borrower
pursuant to this subsection (e), and not superseded by another form supplied by
it, is or will be, as the case may be, complete and accurate, and such Lender
acknowledges and agrees that nothing contained herein shall in any way limit,
waive, or otherwise reduce any claim that the Administrative Agent or the
Borrower may have against such Lender in the event that any such form shall not
be complete and accurate. Notwithstanding anything in this Section 5.06 to the
contrary, the Borrower shall not be required to indemnify any Foreign Lender or
pay any additional amounts to any Foreign Lender under this Section 5.06 to the
extent that the obligation to indemnify such Foreign Lender or pay such
additional amounts would not have arisen but for the failure by such Foreign
Lender to comply with applicable certification, information or other
documentation requirements concerning the nationality, residency, identity or
connection with the United States of such Foreign Lender if such compliance is
required by statute or regulation of the United States as a precondition to
relief or exemption from such amounts payable under, or for which
indemnification is given pursuant to, this Section 5.06; provided, that the
Borrower shall be required to indemnify each Foreign

<PAGE>   52
                                                                              48

Lender to the extent that (1) any such payment or indemnification is
attributable to an enactment, promulgation or any change in or interpretation of
any applicable law occurring after the date hereof and (2) such deductions,
withholding, payments or liabilities accrue after the date on which such Foreign
Lender timely furnishes to the Borrower all forms required to be furnished by
this Section 5.06(e) with respect to such enactment, promulgation or any change
in or interpretation of any applicable law.

         (f)      Any Lender claiming any additional amounts payable pursuant to
this Section 5.06 shall use all reasonable efforts (consistent with its internal
policy and legal and regulatory restrictions) to change the jurisdiction of its
Applicable Lending Office if the making of such a change would avoid the need
for, or reduce the amount of, any such additional amounts that may thereafter
accrue and would not, in the reasonable judgment of such Lender, be otherwise
disadvantageous to such Lender.

         (g)      Without prejudice to the survival of any other agreement of
the Borrower expressly provided for hereunder, the agreements and obligations of
the Borrower and each Lender contained in this Section 5.06 shall survive the
repayment of all other amounts owing to the Lenders, the Administrative Agent
and the Issuing Banks under the Loan Documents and the termination of the
Commitments. If and to the extent that the obligations of the Borrower under
this Section 5.06 are unenforceable for any reason, the Borrower agrees to make
the maximum contribution to the payment and satisfaction thereof which is
permissible under applicable law.

                                   ARTICLE VI
                              CONDITIONS PRECEDENT

         SECTION 6.01. CONDITIONS PRECEDENT TO COMMITMENT CLOSING. The
Commitments of the Lenders to make, or to participate in, as the case may be,
Extensions of Credit under Articles III and IV shall not become effective until
the following conditions precedent shall have been fulfilled:

         (a)      The Administrative Agent shall have received, on or before the
Commitment Closing Date, the following, each dated such day, in form and
substance satisfactory to each Lender (except where otherwise specified below)
and (except for any Promissory Notes) in sufficient copies for each Lender:

                           (i)      This Agreement, duly executed by the
                  Borrower, each Bank and the Agents.

                           (ii)     The Fee Letter, duly executed by the
                  Borrower, in form and substance satisfactory to the
                  Administrative Agent.

                           (iii)    Certified copies of the resolutions of the
                  Board of Directors of the Borrower authorizing the Borrower to
                  enter into this Agreement and each of the other Loan Documents
                  to which it is, or is to be, a party, and of all documents
                  evidencing other necessary corporate action and Governmental
                  Approvals, if any, with respect to such Loan Documents.

<PAGE>   53
                                                                              49

                           (iv)     A certificate of the Secretary or an
                  Assistant Secretary of the Borrower certifying the names, true
                  signatures and incumbency of the officers of the Borrower
                  authorized to sign this Agreement and the other Loan Documents
                  to which it is, or is to be, a party, and the other documents
                  to be delivered hereunder and thereunder.

                           (v)      Copies of the Certificate of Incorporation
                  (or comparable charter document) and by-laws of the Borrower,
                  together with all amendments thereto, certified by the
                  Secretary or an Assistant Secretary of the Borrower.

                           (vi)     Certificate of the Secretary of State of the
                  State of Delaware certifying that the Borrower is a
                  corporation in good standing in such State.

                           (vii)    The Promissory Notes (if requested by any
                  Lender pursuant to Section 3.01(d)), duly executed by the
                  Borrower.

                           (viii)   Favorable opinions of:

                                    (A)      Thelen Reid & Priest LLP, special
                           New York counsel to the Borrower, in substantially
                           the form of Exhibit C;

                                    (B)      Kirkland & Ellis, special energy
                           regulatory counsel to the Borrower, in substantially
                           the form of Exhibit D; and

                                    (C)      Hughes Hubbard & Reed LLP, counsel
                           to the Administrative Agent, in substantially the
                           form of Exhibit E.

                           (ix)     A refinancing plan with respect to the Debt
                  of the Borrower's Subsidiaries (the "REFINANCING PLAN"), in
                  form and substance satisfactory to the Administrative Agent
                  and the Lenders.

                           (x)      A schedule of the Borrower's five-year
                  projected cash flows, in form and substance satisfactory to
                  the Administrative Agent and the Lenders.

                           (xi)     Certificate of a Senior Financial Officer of
                  the Borrower, certifying that (i) attached thereto is a true,
                  correct and complete copy of the Senior Note Indenture, (ii)
                  the sale of the Senior Notes has been consummated pursuant to
                  the terms of the Senior Note Indenture, (iii) the Senior Note
                  Indenture contains terms and conditions substantially similar
                  to those set forth in the draft dated 2/15/00 of the Offering
                  Circular, (iv) the Senior Notes have been rated at least B+ by
                  S&P and Ba3 by Moody's, and (v) the Applicable Margin for
                  Eurodollar Rate Loans that would have been in effect on the
                  date of issuance of the Senior Notes was not more than 100
                  basis points less than the excess of (A) the yield to maturity
                  of the Senior Notes over (B) the yield on 10-year U.S.
                  Treasury securities on such date. The statements contained in
                  the foregoing clauses (iii) and (v) shall, in the good faith
                  determination of the Administrative Agent, be true and
                  correct.

<PAGE>   54
                                                                              50

                           (xii)    Certificate of the Secretary or an Assistant
                  Secretary of the Borrower certifying that attached thereto are
                  true, correct and complete copies of the Orion Power New York
                  Credit Facility and the Orion Power MidWest Credit Facility.

                           (xiii)   Such other approvals, opinions and documents
                  as any Lender, through the Administrative Agent, may
                  reasonably request.

         (b)      The following statements shall be true and the Administrative
Agent shall have received a certificate of a Senior Financial Officer of the
Borrower, dated the Commitment Closing Date and in sufficient copies for each
Lender, stating that:

                           (i)      the representations and warranties set forth
                  in Section 7.01 of this Agreement are true and correct on and
                  as of the Commitment Closing Date as though made on and as of
                  such date, and

                           (ii)     no event has occurred and is continuing that
                  constitutes an Unmatured Default or an Event of Default.

         (c)      The Borrower shall have paid all fees under or referenced in
Section 2.02 and all expenses referenced in Section 11.04(a), in each case to
the extent then due and payable.

         (d)      Any Governmental Approvals shall have been obtained and be in
full force and effect. Any third party approvals necessary or, in the judgment
of the Administrative Agent, advisable in connection with the Loan Documents and
the transactions contemplated thereby shall have been obtained and be in full
force and effect (including the consent of the "Required Lenders" under the
Orion Power New York Credit Facility). All such Governmental Approvals and third
party approvals, if any, shall be in form and substance satisfactory to the
Administrative Agent and the Lenders.

         (e)      Since December 31, 1999, in the judgment of the Administrative
Agent, there shall have been no Material Adverse Change.

         SECTION 6.02. CONDITIONS PRECEDENT TO THE INITIAL EXTENSION OF CREDIT.
The obligation of each Lender to make its initial Extension of Credit is subject
to the fulfillment of the following conditions precedent:

         (a)      The conditions set forth in Section 6.01 shall have been
fulfilled as of the Commitment Closing Date to the satisfaction of the
Administrative Agent and the Lenders, and the conditions set forth in Section
6.01(c), (d) and (e) shall continue to be fulfilled as of the date of the
initial Extension of Credit.

         (b)      The following statements shall be true and the Administrative
Agent shall have received a certificate of a Senior Financial Officer of the
Borrower, dated the Financial Closing Date and in sufficient copies for each
Lender, stating that:

<PAGE>   55
                                                                              51

                  (i)      the representations and warranties set forth in
         Section 7.01 of this Agreement are true and correct on and as of the
         Financial Closing Date as though made on and as of such date, and

                  (ii)     no event has occurred and is continuing that
         constitutes an Unmatured Default or an Event of Default.

         (c)      The following statement shall be true and the Administrative
Agent shall have received a certificate of a Senior Financial Officer of the
Borrower, dated the Financial Closing Date and in sufficient copies for each
Lender, certifying that: the shareholders' equity of the Borrower as of such
date, as determined in accordance with GAAP, is at least $725,000,000.

         SECTION 6.03. CONDITIONS PRECEDENT TO EACH EXTENSION OF CREDIT. The
obligation of each Lender or any Issuing Bank, as the case may be, to make an
Extension of Credit (including the initial Extension of Credit) shall be subject
to the further conditions precedent that, on the date of such Extension of
Credit and after giving effect thereto:

         (a)      The following statements shall be true (and each of the giving
of the applicable notice or request with respect thereto and the making of such
Extension of Credit shall constitute a representation and warranty by the
Borrower that, on the date of such Extension of Credit, such statements are
true):

                           (i)      the representations and warranties contained
                  in Section 7.01 of this Agreement are true and correct in all
                  material respects on and as of the date of such Extension of
                  Credit, before and after giving effect to such Extension of
                  Credit and to the application of the proceeds thereof, as
                  though made on and as of such date;

                           (ii)     no Unmatured Default or Event of Default has
                  occurred and is continuing, or would result from such
                  Extension of Credit or the application of the proceeds
                  thereof; and

                           (iii)    no Material Subsidiary Event of Default has
                  occurred and is continuing.

         (b)      The Administrative Agent shall have received such other
approvals, opinions and documents as any Lender or Issuing Bank, through the
Administrative Agent, may reasonably request, and such approvals, opinions and
documents shall be in form and substance satisfactory to the Administrative
Agent.

         SECTION 6.04. DETERMINATIONS UNDER SECTIONS 6.01 AND 6.02. For purposes
of determining compliance with the conditions specified in Sections 6.01 and
6.02, each Lender shall be deemed to have consented to, approved or accepted or
to be satisfied with each document or other matter required thereunder to be
consented to or approved by or acceptable or satisfactory to the Lenders unless
an officer of the Administrative Agent responsible for the transactions
contemplated by this Agreement shall have received written notice from such
Lender

<PAGE>   56
                                                                              52

prior to the Commitment Closing Date (in the case of Section 6.01) or prior to
the date of the initial Extension of Credit (in the case of Section 6.02)
specifying its objection thereto.

         SECTION 6.05. RELIANCE ON CERTIFICATES. The Lenders, the Issuing Banks
and each Agent shall be entitled to rely conclusively upon the certificates
delivered from time to time by officers of the Borrower as to the names,
incumbency, authority and signatures of the respective individuals named therein
until such time as the Administrative Agent may receive a replacement
certificate, in form acceptable to the Administrative Agent, from an officer of
such Person identified to the Administrative Agent as having authority to
deliver such certificate, setting forth the names and true signatures of the
officers and other representatives of such Person thereafter authorized to act
on behalf of such Person.

                                   ARTICLE VII
                         REPRESENTATIONS AND WARRANTIES

         SECTION 7.01. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. The
Borrower represents and warrants as follows:

         (a)      The Borrower and each of its Subsidiaries is an entity duly
organized, validly existing and in good standing under the laws of the state of
its formation and is duly qualified to do business in, and is in good standing
in, all other jurisdictions where the nature of its business or the nature of
property owned or used by it makes such qualification necessary (except where
the failure to so qualify would not have a Material Adverse Effect).

         (b)      The execution, delivery and performance by the Borrower of
this Agreement and the other Loan Documents to which it is or will be a party
are within the Borrower's corporate powers, have been duly authorized by all
necessary corporate action, and do not and will not contravene (i) the
Borrower's certificate of incorporation or by-laws, (ii) any applicable law,
(iii) any legal or contractual restriction binding on or affecting the Borrower
(including the Senior Note Indenture) or (iv) any material legal restriction or
material contractual restriction binding on or affecting any Subsidiary of the
Borrower (including the Orion Power MidWest Credit Facility and the Orion Power
New York Credit Facility); and such execution, delivery and performance do not
and will not result in or require the creation of any Lien upon or with respect
to any of its properties. Each of the Loan Documents to which the Borrower is a
party has been duly executed and delivered by the Borrower.

         (c)      No Governmental Approval is required.

         (d)      This Agreement is, and each other Loan Document to which the
Borrower will be a party when executed and delivered hereunder will be, legal,
valid and binding obligations of the Borrower enforceable against the Borrower
in accordance with their respective terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or other laws
affecting the enforcement of creditors' rights generally and by general
equitable principles (regardless of whether such enforceability is considered in
a proceeding in equity or at law).

<PAGE>   57
                                                                              53

         (e)      None of the written financial or other information relating to
the Borrower or any of its Subsidiaries and provided by the Borrower to any
Agent and/or the Lenders (including the Offering Circular) contains any material
misstatement of fact or omits to state any material fact necessary to make the
statements contained therein not misleading in light of the circumstances under
which they were made; provided, that no representation or warranty is made with
respect to (i) any projections or forward-looking statements provided by the
Borrower (except as provided in Section 7.01(j)) and (ii) general financial
market information.

         (f)      (i) The audited consolidated balance sheet of the Borrower and
its Consolidated Subsidiaries as at December 31, 1999, and the related audited
consolidated statements of income, retained earnings and cash flows of the
Borrower and its Consolidated Subsidiaries for the fiscal year then ended,
certified by Arthur Andersen LLP, independent public accountants, copies of each
of which have been furnished to each Lender, fairly present the consolidated
financial condition of the Borrower and its Consolidated Subsidiaries as at such
date and the consolidated results of operations of the Borrower and its
Consolidated Subsidiaries for the Fiscal Year ended on such date, all in
accordance with generally accepted accounting principles consistently applied;
(ii) since December 31, 1999, there has been no Material Adverse Change; and
(iii) the Borrower has no material liabilities or obligations except as
reflected in the foregoing financial statements, as evidenced by the Loan
Documents, the Senior Notes, any Project Contract (as defined in the Orion Power
MidWest Credit Facility or the Orion Power New York Credit Facility) to which
the Borrower is a party, and any other liability or obligation as may be
incurred in accordance with this Agreement, the Senior Notes, the Orion Power
MidWest Credit Facility, the Orion Power New York Credit Facility and any other
agreement or instrument evidencing Permitted Subsidiary Debt or in the ordinary
course of the Borrower's business as of the relevant date of determination.

         (g)      There is no pending or, to the knowledge of the Borrower,
threatened action, suit, investigation, litigation or proceeding affecting the
Borrower or any of its Subsidiaries or any of their respective properties before
any court, governmental agency or arbitrator, that (i) could reasonably be
expected to have a Material Adverse Effect or (ii) purports to affect the
legality, validity or enforceability of this Agreement or any other Loan
Document to which the Borrower is or is to be a party.

         (h)      No ERISA Event has occurred or is reasonably expected to occur
with respect to any Plan of the Borrower or any of its ERISA Affiliates that
could reasonably be expected to have a Material Adverse Effect. Schedule B
(Actuarial Information) to the most recent annual report (Form 5500 Series) for
each Plan of the Borrower or any of its ERISA Affiliates, copies of which have
been filed with the Internal Revenue Service, is complete and accurate and
fairly presents the funding status of such Plan. Since the date of such Schedule
B there has been no material adverse change in such funding status and no
"prohibited transaction" (as defined in Section 4975 of the Internal Revenue
Code or Section 406 of ERISA) has occurred with respect thereto which is
reasonably expected to result in any liability to the Borrower that could
reasonably be expected to have a Material Adverse Effect. Neither the Borrower
nor any of its ERISA Affiliates has been notified by the sponsor of a
Multiemployer Plan that such Multiemployer Plan is in reorganization or has been
terminated, within the meaning of Title IV of ERISA, and no such Multiemployer
Plan is reasonably expected to be in reorganization or to

<PAGE>   58
                                                                              54

be terminated, within the meaning of Title IV of ERISA. The Borrower and its
Subsidiaries have no liability with respect to "expected post retirement benefit
obligations" within the meaning of Statement of Financial Accounting Standards
No. 106 that could reasonably be expected to have a Material Adverse Effect.
Each Plan and any related trust intended to qualify under Internal Revenue Code
Section 401 or 501 are so qualified (except where the failure to so qualify
would not have a Material Adverse Effect). There are no pending or, to the
Borrower's knowledge, threatened claims, actions or proceedings (other than
claims for benefits in the normal course) relating to any Plan other than those
that in the aggregate, if adversely determined, would not have a Material
Adverse Effect.

         (i)      The Borrower and its Subsidiaries have filed all tax returns
(Federal, state and local) required to be filed and paid all taxes shown thereon
to be due, including interest and penalties, or, to the extent the Borrower or
any of its Subsidiaries is contesting in good faith an assertion of liability
based on such returns, has provided adequate reserves for payment thereof in
accordance with GAAP.

         (j)      All financial projections of the Borrower and its Subsidiaries
previously furnished by or on behalf of the Borrower to the Administrative Agent
and the Banks are based upon assumptions that the Borrower believed were
reasonable at the time such projections were delivered and continues to believe
are reasonable, and such projections represent the Borrower's good faith
estimate of future performance by the Borrower and its Subsidiaries; provided,
that each of the Administrative Agent and the Banks acknowledge and agree that
such projections may or may not prove to be correct and that no representation
or warranty is made as to whether such projections will reflect actual
performance.

         (k)      Following application of the proceeds of each Extension of
Credit, not more than 25 percent of the value of the assets of the Borrower and
its Subsidiaries on a consolidated basis will be margin stock (within the
meaning of Regulation U issued by the Board).

         (l)      The Borrower is not engaged in the business of extending
credit for the purpose of buying or carrying margin stock (within the meaning of
Regulation U issued by the Board), and no proceeds of any Loan or any drawing
under any Letter of Credit will be used to buy or carry any margin stock or to
extend credit to others for the purpose of buying or carrying any margin stock.

         (m)      Neither the Borrower nor any of its Subsidiaries is, or after
the making of any Extension of Credit or the application of the proceeds or
repayment thereof, or the consummation of any of the other transactions
contemplated hereby, will be, an "investment company", or an "affiliated person"
of, or "promoter" or "principal underwriter" for, an "investment company"
(within the meaning of the Investment Company Act of 1940, as amended).

         (n)      No proceeds of any Extension of Credit or any drawing under
any Letter of Credit will be used to acquire any equity security of a class that
is registered pursuant to Section 12 of the Exchange Act.

<PAGE>   59
                                                                              55

         (o)      Neither the Borrower nor any of its Subsidiaries is (i) a
"holding company", (ii) a "public-utility company", (iii) a "subsidiary company"
of a "holding company", or (iv) an "affiliate" of any of the foregoing, in each
case as such terms are defined under PUHCA.

         (p)      The operations and properties of the Borrower and each of its
Subsidiaries comply in all material respects with all applicable laws (including
ERISA and Environmental Laws), all past non-compliance (if any) with
Environmental Laws has been resolved without ongoing obligations or costs that
could reasonably be expected to have a Material Adverse Effect, and no
circumstances exist that could reasonably be expected to (i) form the basis of
any Environmental Liability that could reasonably be expected to have a Material
Adverse Effect or (ii) cause any properties of the Borrower or any of its
Subsidiaries to be subject to any restrictions on ownership, occupancy, use or
transferability under any Environmental Law that could reasonably be expected to
have a Material Adverse Effect.

         (q)      (i) The fair saleable value of the Borrower's assets will
exceed the amount that will be required to be paid on or in respect of the
probable liability on its existing debts and other liabilities (including
contingent liabilities) as they mature; (ii) the Borrower's assets do not
constitute unreasonably small capital to carry out its business as now conducted
or as proposed to be conducted; (iii) the Borrower does not intend to incur
debts beyond its ability to pay such debts as they mature (taking into account
the timing and amounts of cash to be received by it and the amounts to be
payable on or in respect of its obligations); and (iv) the Borrower does not
believe that final judgments against it in actions for money damages presently
pending will be rendered at a time when, or in an amount such that, it will be
unable to satisfy any such judgments promptly in accordance with their terms
(taking into account the maximum reasonable amount of such judgments in any such
actions and the earliest reasonable time at which such judgments might be
rendered). The Borrower's cash flow, after taking into account all other
anticipated uses of its cash (including the payments on or in respect of debt
referred to in clause (iii) above), will at all times be sufficient to pay all
such judgments promptly in accordance with their terms.

         (r)      Neither the Borrower nor any of its Subsidiaries has
experienced or anticipates that it will experience any Year 2000 Issues that
could reasonably be expected to have a Material Adverse Effect.

         (s)      The Borrower is not in default in the payment of (or in the
performance of any obligation applicable to) any Debt, or in violation of any
law or governmental regulation or court decree or order in any respect, which,
in any such case, could reasonably be expected to have a Material Adverse
Effect, and no Material Subsidiary Event of Default has occurred and is
continuing.

         (t)      The Borrower and each of its Subsidiaries has good and
insurable title to all of its properties and assets, real and personal, tangible
and intangible, of any nature whatsoever (including patents, trademarks, trade
names, service marks and copyrights), free and clear of all Liens, charges or
claims (including infringement claims with respect to patents, trademarks,
copyrights and the like), other than Permitted Liens. The Borrower and each of
its Subsidiaries has complied in all respects with all obligations under all
leases to which it is a party and all such leases

<PAGE>   60
                                                                              56

are in full force and effect, except, respectively, where a failure to comply or
to be in full force and effect could not reasonably be expected to have a
Material Adverse Effect. Each of the Borrower and its Subsidiaries enjoys
peaceful and undisturbed possession under all leases to which it is a party,
except for such leases the failure of which to be in full force and effect could
not reasonably be expected to have a Material Adverse Effect.

         (u)      As of the date hereof, the authorized capital stock or the
other equity interests in the Borrower and its Subsidiaries, including the
holders thereof, is set forth in Schedule II.

                                  ARTICLE VIII
                            COVENANTS OF THE BORROWER

         SECTION 8.01. AFFIRMATIVE COVENANTS. So long as any Loan or any other
amount payable hereunder or under any Promissory Note shall remain unpaid, any
Letter of Credit shall remain outstanding or any Lender shall have any
Commitment, the Borrower will, unless the Majority Lenders shall otherwise
consent in writing:

         (a)      Payment of Taxes, Etc. Pay and discharge, and cause each of
its Subsidiaries to pay and discharge, before the same shall become delinquent,
all taxes, assessments and governmental charges, royalties or levies imposed
upon it or upon its property and all of its other material obligations and
liabilities, except, in the case of taxes, to the extent the Borrower or such
Subsidiary, as the case may be, is contesting the same in good faith and by
appropriate proceedings and has set aside (i) adequate reserves for the payment
thereof in accordance with GAAP or (ii) in the case of Orion Power New York,
Orion Power MidWest or any other Subsidiary of the Borrower, reserves required
under the Orion Power New York Credit Facility, the Orion Power MidWest Credit
Facility or any other agreement or instrument evidencing Permitted Subsidiary
Debt to which such other Subsidiary is a party, respectively.

         (b)      Maintenance of Insurance. Maintain, or cause to be maintained,
insurance covering the Borrower and each of its Subsidiaries and their
respective properties in effect at all times in such amounts and covering such
risks as is usually carried by companies of a similar size, engaged in similar
businesses and owning similar properties in the same general geographical area
in which the Borrower and each such Subsidiary operates, either with reputable
insurance companies or, in whole or in part, by establishing reserves of one or
more insurance funds, either alone or with other corporations or associations;
provided, that any Subsidiary of the Borrower shall be deemed to be in
compliance with this subsection (b) if such Subsidiary is in compliance with all
insurance covenants and requirements contained in any credit facility to which
it is a party (including, in the case of Orion Power MidWest and Orion Power New
York, the insurance covenants contained in the Orion Power MidWest Credit
Facility and the Orion Power New York Credit Facility, respectively).

         (c)      Preservation of Existence, Rights, Etc. Preserve and maintain,
and cause each of its Subsidiaries to preserve and maintain, its existence
(corporate, partnership or otherwise), material rights (statutory and otherwise)
and franchises, and take such other action as may be necessary or advisable to
preserve and maintain its right to conduct its business in the states where it
shall be conducting its business; provided, however, that neither the Borrower
nor any of

<PAGE>   61
                                                                              57

its Subsidiaries shall be required to preserve and maintain any such right or
franchise, and no such Subsidiary shall be required to preserve and maintain its
corporate existence or its right to conduct business in any such state, unless
the failure to do so could reasonably be expected to have a Material Adverse
Effect.

         (d)      Compliance with Laws, Etc. Comply, and cause each of its
Subsidiaries to comply, with the requirements of all applicable laws, rules,
regulations and orders of any governmental authority, including Environmental
Laws, ERISA, and any such laws, rules, regulations and orders relating to
zoning, land use, construction and building restrictions, and employee safety
and health matters relating to business operations, the non-compliance with
which, in any of such cases or in the aggregate, could reasonably be expected to
have a Material Adverse Effect, except when any such law, rule, regulation or
order is being contested pursuant to settlement negotiations or other
proceedings pursuant to the applicable provisions of the Orion Power MidWest
Credit Facility, the Orion Power New York Credit Facility or any other credit
facility to which any Subsidiary is a party.

         (e)      Inspection Rights. At any reasonable time and from time to
time upon reasonable notice, permit or arrange for the Administrative Agent,
each of the Issuing Banks, each of the Lenders, and their respective agents and
representatives to examine and make copies of and abstracts from the records and
books of account of, and the properties of, the Borrower and each of its
Subsidiaries, and to discuss the affairs, finances and accounts of the Borrower
and its Subsidiaries with the Borrower and its Subsidiaries and their respective
officers, directors and accountants, subject to the Borrower's and such
Subsidiaries' reasonable rules and procedures regarding operation, safety and
confidentiality.

         (f)      Keeping of Books. Keep, and cause each of its Subsidiaries to
keep, proper records and books of account, in which full and correct entries
shall be made of all financial transactions of the Borrower and its Subsidiaries
and the assets and business of the Borrower and its Subsidiaries, in accordance
with GAAP.

         (g)      Maintenance of Properties, Etc. Maintain, and cause each of
its Subsidiaries to maintain, good and insurable title to all of its properties
which are used or useful in the conduct of its business, and preserve, maintain,
develop, and operate in substantial conformity with all laws and material
contractual obligations, all of its properties which are used or useful in the
conduct of its business in good working order and condition, ordinary wear and
tear excepted, except where the failure to do so could not reasonably be
expected to have a Material Adverse Effect.

         (h)      Further Assurances. At the expense of the Borrower, promptly
execute and deliver, or cause to be promptly executed and delivered, all further
instruments and documents, and take and cause to be taken all further actions,
that may be necessary or that the Majority Lenders or any Issuing Bank through
the Administrative Agent may reasonably request to enable the Lenders, the
Issuing Banks and the Administrative Agent to enforce the terms and provisions
of this Agreement and to exercise their rights and remedies hereunder or under
any other Loan Document. In addition, the Borrower will use all reasonable
efforts to duly obtain Governmental

<PAGE>   62

                                                                              58
Approvals required from time to time on or prior to such date as the same may
become legally required, and thereafter to maintain all such Governmental
Approvals in full force and effect.

         (i)      Use of Proceeds. Use all Extensions of Credit only for working
capital and other general corporate purposes of the Borrower.

         (j)      Refinancing Plan. Use all reasonable efforts to pursue and
consummate the Refinancing Plan.

         (k)      Maintain Ownership of Subsidiaries. Maintain record and
beneficial ownership, directly or indirectly, of all of the Capital Stock of
Orion Power MidWest, Orion Power New York and each of its other Material
Subsidiaries, subject only to any pledges of equity interests in connection with
the Orion Power MidWest Credit Facility, the Orion Power New York Credit
Facility, and/or any other agreement or instrument evidencing Permitted
Subsidiary Debt and the rights of the pledgees under such pledges.

         (l)      Annual Reduction of Loans. For at least 10 consecutive days in
each Fiscal Year, reduce the outstanding principal amount of all Loans to $0.00
so that no Loans are outstanding at any time during such period.

         (m)      Payment of Dividends. Subject to Section 11.14, cause each of
its Subsidiaries to distribute to the Borrower the maximum amount of cash
dividends available to be distributed by such Subsidiary pursuant to applicable
law and any credit facility to which such Subsidiary is a party (taking into
account, without duplication, any cash reserves required to be established by
such Subsidiary pursuant to applicable law or GAAP), such dividends to be
distributed at the earliest possible date pursuant thereto.

         (n)      Consolidated Leverage Ratio. Maintain, as of the last day of
each Fiscal Quarter ending after the date hereof, for the immediately preceding
four-consecutive-Fiscal Quarter period ending on such day, a Consolidated
Leverage Ratio of not greater than (i) from the date hereof to and including
March 31, 2001, 6.0 to 1.0, (ii) from April 1, 2001 to and including March 31,
2002, 5.5 to 1.0, and (iii) from April 1, 2002 to the Termination Date, 5.0 to
1.0.

         (o)      Consolidated Interest Coverage Ratio. Maintain, as of the last
day of each Fiscal Quarter ending after the date hereof, for the immediately
preceding four-consecutive-Fiscal Quarter period ending on such day, a
Consolidated Interest Coverage Ratio of at least 1.75 to 1.0.

         (p)      Consolidated Tangible Net Worth. Maintain at all times a
Consolidated Tangible Net Worth of at least $700,000,000.

         (q)      Borrower Debt Service Coverage Ratio. Maintain, as of the last
day of each Fiscal Quarter (commencing with the Fiscal Quarter ending March 31,
2001), for the immediately preceding four-Fiscal Quarter period ending on such
day, a Borrower Debt Service Coverage Ratio of at least 1.40 to 1.0.

         (r)      Net Disposition Proceeds. Cause each of its Subsidiaries to
distribute to the Borrower, on the first date that such Subsidiary is permitted
to do so pursuant to (i) any credit

<PAGE>   63
                                                                              59

facility to which it is a party and (ii) applicable law, the maximum amount of
Net Disposition Proceeds permitted to be distributed by such Subsidiary pursuant
to such credit facility and applicable law (less any portion of such Net
Disposition Proceeds that are utilized by such Subsidiary for cash reserves
required to be established by such Subsidiary pursuant to applicable law or
GAAP).

         SECTION 8.02. NEGATIVE COVENANTS. So long as any Loan or any other
amount payable hereunder or under any Promissory Note shall remain unpaid, any
Letter of Credit shall remain outstanding or any Lender shall have any
Commitment, the Borrower shall not, without the written consent of the Majority
Lenders:

         (a)      Liens, Etc. Create, incur, assume or suffer to exist, or
permit any of its Subsidiaries to create, incur, assume or suffer to exist, any
lien, security interest, or other charge or encumbrance (including the lien or
retained security title of a conditional vendor) of any kind, or any other type
of arrangement intended to confer or having the effect of conferring upon a
creditor a preferential interest (any of the foregoing being referred to herein
as a "LIEN"), upon or with respect to any of its properties of any character
(including capital stock of any of the Borrower's Subsidiaries, and accounts),
whether now owned or hereafter acquired, or sign or file, or permit any of its
Subsidiaries to sign or file, under the Uniform Commercial Code of any
jurisdiction a financing statement which names the Borrower or any such
Subsidiary as debtor, sign, or permit any of its Subsidiaries to sign, any
security agreement authorizing any secured party thereunder to file such
financing statement, or assign, or permit any of its Subsidiaries to assign,
accounts, excluding, however, from the operation of the foregoing restrictions
any Liens created under the Loan Documents and the following (collectively,
"PERMITTED LIENS"):

                  (i)      Liens for taxes, assessments or governmental charges
         or levies to the extent not delinquent or that are diligently being
         contested in good faith by appropriate proceedings and for which the
         Borrower or such Subsidiary (as the case may be) has set aside adequate
         reserves in accordance with GAAP;

                  (ii)     cash pledges or deposits to secure (A) obligations
         under workmen's compensation laws or similar legislation, or (B) public
         or statutory obligations of the Borrower or any of its Subsidiaries;

                  (iii)    Liens imposed by law, such as materialmen's,
         mechanics', carriers', workmen's, and repairmen's, warehousemen's and
         carriers' Liens, Liens or privileges of any employees for salary or
         wages earned, and other similar Liens arising in the ordinary course of
         business securing obligations that are not delinquent or that have been
         fully bonded or are being diligently contested in good faith by
         appropriate proceedings and for which adequate reserves have been set
         aside in accordance with GAAP;

                  (iv)     Liens in respect of judgments or awards with respect
         to which the Borrower or any of its Subsidiaries shall (A) in good
         faith be prosecuting an appeal or other proceeding for review and with
         respect to which the Borrower or such Subsidiary (as the case may be)
         shall have secured a stay of execution pending such appeal or other
         proceeding and for which the Borrower or such Subsidiary (as the case
         may be) has set

<PAGE>   64
                                                                              60

         aside adequate reserves in accordance with GAAP, or (B) have the right
         to prosecute an appeal or other proceeding for review and for which the
         Borrower or such Subsidiary (as the case may be) has set aside adequate
         reserves in accordance with GAAP;

                  (v)      (A) purchase money Liens or purchase money security
         interests upon or in property acquired or held by the Borrower or any
         of its Subsidiaries in the ordinary course of business to secure the
         purchase price of such property or to secure indebtedness incurred
         solely for the purpose of financing the acquisition of any such
         property to be subject to such Liens or security interests (whether or
         not such financing is provided by the seller of such property), or
         Liens or security interests existing on any such property at the time
         of acquisition, or extensions, renewals or replacements of any of the
         foregoing for the same or a lesser amount, provided that no such Lien
         or security interest shall extend to or cover any property other than
         the property being acquired and no such extension, renewal or
         replacement shall extend to or cover property not theretofore subject
         to the Lien or security interest being extended, renewed or replaced;
         and (B) any Liens created by leases of personal or real property,
         conditional sale or other title retention agreements or arrangements,
         or similar financing arrangements, provided that no such Lien created
         by any such lease, agreement or arrangement shall extend to or cover
         any property other than the property subject to such lease, agreement
         or arrangement, respectively; and provided, further, that (1) the
         aggregate principal amount of obligations of the Borrower at any one
         time outstanding secured by Liens permitted by this clause (v) shall
         not exceed $5,000,000, and the aggregate principal amount of
         obligations of any Subsidiary of the Borrower at any one time
         outstanding secured by Liens permitted by this clause (v) shall not
         exceed the aggregate principal amount of purchase money Debt permitted
         to be incurred by such Subsidiary pursuant to (x) in the case of Orion
         Power New York, the Orion Power New York Credit Facility (as in effect
         on the date hereof), (y) in the case of Orion Power MidWest, the Orion
         Power MidWest Credit Facility (as in effect on the date hereof) and (z)
         in the case of any other Subsidiary of the Borrower, the agreement or
         instrument evidencing Permitted Subsidiary Debt to which such
         Subsidiary is a party (as in effect on the date of such agreement or
         instrument), and (2) for the avoidance of doubt, this clause (v) shall
         not be deemed to apply to Debt described in Section 8.02(c)(iv).

                  (vi)     Liens upon the assets and/or Capital Stock of any
         Subsidiary of the Borrower securing Debt permitted under Section
         8.02(c), and other Liens upon the assets of any such Subsidiary
         permitted from time to time pursuant to the Orion Power MidWest Credit
         Facility, the Orion Power New York Credit Facility or any other credit
         facility to which such Subsidiary is a party (provided, that such other
         credit facility constitutes Debt permitted under Section 8.02(c)); and

                  (vii)    zoning restrictions, easements, licenses, covenants,
         reservations, utility company rights, restrictions on the use of real
         property or minor irregularities of title incident thereto which do not
         in the aggregate materially detract from the value of the property or
         assets of the Borrower and its Subsidiaries, taken as a whole, or
         materially impair the operation of their business, taken as a whole.

<PAGE>   65
                                                                              61

         (b)      Debt of the Borrower. Create, incur, assume or suffer to exist
any Debt other than:

                  (i)      Debt hereunder and under the other Loan Documents;

                  (ii)     Debt arising by reason of the endorsement of
         negotiable instruments for deposit or collection or similar
         transactions in the ordinary course of business;

                  (iii)    the Senior Notes;

                  (iv)     Support Obligations in existence on the date hereof
         and set forth on Schedule III;

                  (v)      Support Obligations entered into by the Borrower
         after the date hereof in the ordinary course of business in connection
         with (A) the ownership, operation (including, without limitation, sales
         and marketing of energy products), development, expansion and/or
         maintenance of Portfolio Assets (as such term is defined in the Orion
         Power MidWest Credit Facility and the Orion Power New York Credit
         Facility) or (B) subject to Section 8.02(e), the acquisition,
         ownership, operation and/or maintenance of other power generating
         facilities and related assets owned by any Subsidiary of the Borrower;

                  (vi)     Investment Commitments of the Borrower permitted
         under Section 8.02(e);

                  (vii)    Debt secured by any Lien permitted under Section
         8.02(a)(v) in an aggregate principal amount at any one time outstanding
         not to exceed $5,000,000; and

                  (viii)   other unsecured Debt in an aggregate principal amount
         at any one time outstanding not to exceed $5,000,000; provided, that
         (A) the Debt of the Borrower hereunder and under the other Loan
         Documents shall, at all times, rank pari passu or senior, in right of
         payment and security (including the benefit of any guarantees), with
         such other Debt and (B) none of the covenants, events of default,
         representations and warranties, or other terms and conditions contained
         in the agreements and/or instruments evidencing such other Debt shall
         be more restrictive to the Borrower than the covenants, events of
         default, representations and warranties, and other terms and conditions
         contained herein.

         (c)      Subsidiary Debt. Permit any of its Subsidiaries to create,
incur, assume or suffer to exist any Debt other than:

                  (i)      in the case of Orion Power New York, Debt under the
         Orion Power New York Credit Facility in an aggregate principal amount
         at any one time outstanding not to exceed $803,000,000;

<PAGE>   66
                                                                              62

                  (ii)     in the case of Orion Power MidWest, Debt under the
         Orion Power MidWest Credit Facility in an aggregate principal amount at
         any one time outstanding not to exceed $1,320,000,000;

                  (iii)    Debt to be used solely to finance Capitalized Lease
         Obligations, the acquisition or development of real property, plant or
         equipment (or the acquisition of the Capital Stock of a Person that
         owns such real property, plant or equipment), and other Capital
         Expenditures, in an aggregate principal amount at any one time
         outstanding not to exceed 7.50% of the Borrower's Consolidated Tangible
         Assets;

                  (iv)     additional Debt to be used solely to finance the
         acquisition, construction, development, expansion, improvement or
         re-powering of power generating assets (including the acquisition of
         any Person that owns such assets) (any such acquisition, construction,
         expansion, improvement or re-powering being referred to herein as a
         "PERMITTED SUBSIDIARY INVESTMENT"), provided, that (A) after giving
         effect to such additional Debt and the application of the proceeds
         thereof and such Permitted Subsidiary Investment, the Borrower will be
         in compliance, on a pro forma basis through the Termination Date, with
         the financial covenants set forth in Section 8.01(n), (o), (p) and (q),
         and (B) the Borrower provides a reasonably detailed schedule to the
         Administrative Agent (x) in the case of any such Debt that constitutes
         an Investment Commitment (including any Investment Commitment in
         respect of a Permitted Subsidiary Investment), within 15 days after the
         date of such Investment Commitment, or (y) in the case of any other
         such Debt (including any indebtedness for borrowed money), prior to
         such Permitted Subsidiary Investment, in each case demonstrating such
         compliance (which schedule shall be prepared in good faith based on
         reasonable assumptions);

                  (v)      Debt of any Subsidiary of the Borrower representing a
         refinancing, replacement or refunding of any Debt incurred by such
         Subsidiary pursuant to clause (iv) above; provided that the aggregate
         principal amount of such Debt outstanding or available will not be
         increased at the time of such refinancing, replacement or refunding to
         an amount in excess of 110% of the original principal amount of such
         Debt (including both amounts outstanding and available) being
         refinanced, replaced or refunded;

                  (vi)     Debt of any Subsidiary of the Borrower representing a
         refinancing, replacement or refunding in a single transaction of the
         Debt permitted by clauses (i), (ii) and/or (iv) above; provided that
         the aggregate principal amount of such Debt outstanding or available
         will not be increased at the time of such refinancing, replacement or
         refunding to an amount in excess of 110% of the original principal
         amount of such Debt (including both amounts outstanding and available)
         being refinanced, replaced or refunded (which original principal
         amount, in the case of clause (i) above, is $730,000,000 and, in the
         case of clause (ii) above, is $1,200,000,000); and

                  (vii)    any other Debt permitted to be incurred by such
         Subsidiary pursuant to (A) in the case of Orion Power New York, the
         Orion Power New York Credit Facility (as in effect on the date hereof),
         (B) in the case of Orion Power MidWest, the Orion Power MidWest Credit
         Facility (as in effect on the date hereof), and (C) in the case of any
         other

<PAGE>   67
                                                                              63

         Subsidiary of the Borrower, the agreement or instrument evidencing any
         Permitted Subsidiary Debt to which it is a party (as in effect on the
         date of such agreement or instrument);

provided, however, that in connection with (1) any refinancing, refunding or
replacement of the Orion Power MidWest Credit Facility and/or the Orion Power
New York Credit Facility and (2) the incurrence of any Debt referred to in
clause (iii), (iv), (v) or (vi) above (the Debt described in the foregoing
clauses (1) and (2) being referred to herein as "PERMITTED SUBSIDIARY DEBT"),
the Borrower shall certify to the Administrative Agent and the Lenders on or
prior to (or, with respect to any Investment Commitment permitted under clause
(iv) above, within 15 days after) the date thereof that (A) the financial
maintenance covenants and the covenants restricting the payment of dividends and
other distributions to the Borrower or any of its Subsidiaries contained in the
documents evidencing such Permitted Subsidiary Debt are not more restrictive in
any material respect to the borrower thereunder than the corresponding covenants
contained in the Orion Power MidWest Credit Facility (as in effect on the date
hereof) and the Orion Power New York Credit Facility (as in effect on the date
hereof) are to Orion Power MidWest and Orion Power New York, respectively
(except to the extent that any such covenants restricting the payment of
dividends and other distributions are more restrictive solely as the result of
any amendments to such covenants permitted by the proviso contained in Section
8.02(g)), and (B) any encumbrances or restrictions on the ability of any
Subsidiary of the Borrower to (w) pay dividends or make any other Distributions
to the Borrower or any of its Subsidiaries, (x) pay any indebtedness owed to the
Borrower or any of its Subsidiaries, (y) make loans or advances to the Borrower
or any of its Subsidiaries, or (z) transfer any of its properties or assets to
the Borrower or any of its Subsidiaries, in each case contained in the documents
evidencing such Permitted Subsidiary Debt, are permitted pursuant to Section
4.08 of the Senior Note Indenture (as in effect on the date hereof).

         (d)      Investments in Other Persons. Make, or permit any of its
Subsidiaries to make, any loan or advance to any Person or purchase or otherwise
acquire any Capital Stock, obligations or other securities of, make any capital
contribution to, or otherwise invest in, any Person, other than (i) Permitted
Subsidiary Investments, (ii) Permitted Investments, (iii) in the case of Orion
Power MidWest, Orion Power New York and any other Subsidiary of the Borrower,
any such loans, advances, purchases, capital contributions and other investments
expressly permitted under, or not otherwise prohibited by, the Orion Power
MidWest Credit Facility, the Orion Power New York Credit Facility, or any other
agreement or instrument evidencing Permitted Subsidiary Debt to which such other
Subsidiary is a party, respectively, (iv) loans, advances and capital
contributions by the Borrower to any of its Subsidiaries funded solely with the
proceeds of (A) Net Securities Proceeds (but only to the extent that such Net
Securities Proceeds are not required to be applied as a mandatory prepayment of
the Loans pursuant to Section 5.03(b)) and/or (B) capital contributions received
by the Borrower from any of its shareholders, and (v) other loans, advances and
capital contributions by the Borrower to any of its Subsidiaries, provided,
however, that the Borrower may make any such loans, advances and capital
contributions to any of its Subsidiaries pursuant to this clause (v) only if (A)
on the date of such loan, advance or capital contribution (as the case may be),
no Unmatured Default or Event of Default has occurred or is continuing (other
than any Unmatured Default or Event of Default that the Borrower reasonably
believes would be cured by, among other actions, making

<PAGE>   68
                                                                              64

such loans, advances or capital contributions (as the case may be) to such
Subsidiary and by application of the proceeds thereof by such Subsidiary) or
would result from such loan, advance or capital contribution (as the case may
be) or the application of the proceeds thereof, (B) on the date of such loan,
advance or capital contribution (as the case may be), such Subsidiary is not
permitted to borrow funds under any revolving credit or working capital facility
to which it is a party (whether because a default exists thereunder, no
borrowing capacity exists thereunder, or otherwise), and (C) the Borrower (1)
certifies to the Administrative Agent on or prior to the date of such loan,
advance or capital contribution (as the case may be) that, after giving effect
thereto and the application of the proceeds thereof, the Borrower will be in
compliance, on a pro forma basis through the Termination Date, with the
financial covenants set forth in Section 8.01(n), (o), (p) and (q), and (2)
provides a reasonably detailed schedule to the Administrative Agent on or prior
to the date of such loan, advance or capital contribution (as the case may be)
supporting such certification (which schedule shall be prepared in good faith
based on reasonable assumptions).

         (e)      Investment Commitments. Make, or permit any of its
Subsidiaries to make, any Investment Commitments, other than Investment
Commitments in respect of any Permitted Subsidiary Investment, provided, that
(i) the Borrower certifies to the Administrative Agent within 15 days after the
date of such Investment Commitment that, after giving effect to such Permitted
Subsidiary Investment and any Debt to be incurred by any Subsidiaries of the
Borrower in connection therewith and the application of the proceeds thereof,
the Borrower will be in compliance, on a pro forma basis through the Termination
Date, with the financial covenants set forth in Section 8.01(n), (o), (p) and
(q), and (ii) the Borrower provides a reasonably detailed schedule to the
Administrative Agent within 15 days after the date of such Investment Commitment
supporting such certification (which schedule shall be prepared in good faith
based on reasonable assumptions).

         (f)      Restricted Payments. Declare or pay, directly or indirectly,
any dividend, payment or other distribution of assets, properties, cash, rights,
obligations or securities on account of any share of any class of Capital Stock
of the Borrower (other than stock splits and dividends payable solely in
nonconvertible equity securities of the Borrower), or purchase, redeem, retire,
or otherwise acquire for value any shares of any class of Capital Stock of the
Borrower or any warrants, rights, or options to acquire any such shares, now or
hereafter outstanding, or make any distribution of assets to any of its
shareholders (any such dividend, payment, distribution, purchase, redemption,
retirement or acquisition being hereinafter referred to as a "RESTRICTED
PAYMENT"), in each case unless (i) no Unmatured Default or Event of Default has
occurred and is continuing or would occur as a result of such Restricted Payment
and (ii) the restrictions on Distributions contained in the Orion Power New York
Credit Facility and the Orion Power MidWest Credit Facility have been
irrevocably terminated (so that no such restrictions exist thereunder).

         (g)      Negative Pledges, Restrictive Agreements, Etc. Enter into, or
permit any of its Subsidiaries to enter into, any agreement prohibiting (i) the
creation or assumption of any Lien upon its properties, revenues or assets,
whether now owned or hereafter acquired, (ii) the ability of the Borrower to
amend, supplement or otherwise modify this Agreement or any other Loan Document,
or (iii) the ability of any Subsidiary of the Borrower to make any payments,
directly

<PAGE>   69
                                                                              65

or indirectly, to the Borrower by way of dividends, advances, repayments of
loans or advances, reimbursements of management and other intercompany charges,
expenses and accruals or other returns on investments, or any other agreement or
arrangement which restricts the ability of any such Subsidiary to make any
payment, directly or indirectly, to the Borrower, in each case other than (A)
this Agreement and the other Loan Documents, (B) the Senior Note Indenture, and
(C) the Orion Power MidWest Credit Facility (as in effect on the date hereof),
the Orion Power New York Credit Facility (as in effect on the date hereof) and
any other agreement or instrument evidencing Permitted Subsidiary Debt (as in
effect on the date of such agreement or instrument); provided, however, that the
Borrower shall not permit any of its Subsidiaries to amend or otherwise modify,
directly or indirectly, the restrictions on the payment of dividends and other
distributions to the Borrower contained in the Orion Power MidWest Credit
Facility, the Orion Power New York Credit Facility or any other agreement or
instrument evidencing Permitted Subsidiary Debt, in any manner that would
further limit the ability of Orion Power MidWest, Orion Power New York or any
other Subsidiary of the Borrower to pay dividends or make other distributions to
the Borrower (except, with respect to Orion Power MidWest, Orion Power New York,
or any other such Subsidiary of the Borrower, upon the occurrence and during the
continuance of a payment default or a financial maintenance covenant default
under the Orion Power MidWest Credit Facility, the Orion Power New York Credit
Facility, or the credit facility to which such other Subsidiary is a party,
respectively).

         (h)      Lease Obligations. Create, incur, assume or suffer to exist
any obligations as lessee for the rental or hire of real or personal property of
any kind under leases or agreements to lease (other than leases that constitute
Debt) having an original term of one year or more which would cause the
aggregate scheduled liabilities of the Borrower in respect of all such
obligations payable in any period of 12 consecutive calendar months to exceed
$5,000,000.

         (i)      Sale/Leaseback Transactions. Enter into, or permit any of its
Subsidiaries to enter into, any arrangement with any Person whereby in a
substantially contemporaneous transaction the Borrower or any of its
Subsidiaries sells or transfers all or substantially all of its right, title and
interest in an asset and, in connection therewith, acquires or leases back the
right to use such asset, except in connection with (i) any refinancing permitted
under Section 8.02(c)(vi) or (ii) any financing of a Permitted Subsidiary
Investment permitted under Section 8.02(c)(iv).

         (j)      Management Fees. Pay, or permit any of its Subsidiaries to
pay, management, advisory, consulting or other similar fees, other than (i) fees
payable to the Lenders or any of their Affiliates, (ii) fees payable to
non-Affiliate consultants engaged on an arm's-length basis as approved by the
Board of Directors of the Borrower or such Subsidiary, as the case may be, and
(iii) pursuant to agreements in effect on the date hereof (or similar agreements
entered into after the date hereof, whether in respect of existing power
generating facilities of any such Subsidiary or power generating facilities
acquired by the Borrower or any such Subsidiary after the date hereof) that
relate to (A) the operations and maintenance of the assets of the Borrower
and/or its Subsidiaries, (B) power marketing activities of the Borrower and/or
its Subsidiaries, or (C) the management of fuel supply, transportation or
procurement of the Borrower and/or its Subsidiaries.

<PAGE>   70
                                                                              66

         (k)      Compliance with ERISA. (i) Permit to exist any "accumulated
funding deficiency" (as defined in Section 412(a) of the Internal Revenue Code)
(unless such deficiency exists with respect to a Multiple Employer Plan or
Multiemployer Plan and the Borrower has no control over the reduction or
elimination of such deficiency) that may result in any material liability to, or
any Lien against the properties of, the Borrower, (ii) terminate, or permit any
ERISA Affiliate of the Borrower to terminate, any Material Plan of the Borrower
or such ERISA Affiliate so as to result in any material (in the reasonable
opinion of the Majority Lenders) liability of the Borrower to the PBGC, or (iii)
permit to exist any occurrence of any Reportable Event (as defined in Title IV
of ERISA), or any other event or condition, which could reasonably be expected
to present a material risk of such a termination by the PBGC of any Plan of the
Borrower or such ERISA Affiliate and such a material liability to the Borrower.

         (l)      Transactions with Affiliates. Except in connection with the
operations and maintenance of the assets of the Borrower and/or its Subsidiaries
or in connection with power marketing activities of the Borrower and/or its
Subsidiaries, enter into, or cause, suffer or permit to exist, any arrangement
or contract with any of its Affiliates, or permit any of its Subsidiaries to do
any of the foregoing, in each case unless such arrangement or contract (i) is
otherwise permitted by this Agreement, the Orion Power MidWest Credit Facility,
the Orion Power New York Credit Facility, or any other agreement or instrument
evidencing Permitted Subsidiary Debt, (ii) is in the ordinary course of business
of the Borrower or such Subsidiary, as the case may be, and (iii) is on terms no
less favorable to the Borrower or such Subsidiary than if such arrangement or
contract had been negotiated in good faith on an arm's-length basis with a
Person that is not one of its Affiliates.

         (m)      Mergers, Etc. (i) Merge with or into or consolidate with or
into any other Person, or (ii) permit any of its Subsidiaries to merge with or
into or consolidate with or into any other Person, except that any such
Subsidiary may merge with or into any other Person, provided that immediately
after giving effect thereto, (A) the surviving corporation is a Subsidiary of
the Borrower, (B) no event shall occur and be continuing which constitutes an
Unmatured Default or an Event of Default and (C) the Borrower or any of its
Subsidiaries shall not be liable with respect to any Debt which it could not
become liable with respect to under this Agreement or any other Loan Document on
the date of such transaction.

         (n)      Sales, Etc., of Assets. Sell, lease, transfer, assign or
otherwise dispose of all or substantially all of its assets, or permit any of
its Subsidiaries to sell, lease, transfer, assign or otherwise dispose of all or
substantially all of its assets, except (i) sales, leases, transfers and
assignments from one Subsidiary of the Borrower to another such Subsidiary,
provided in each case that no Unmatured Default or Event of Default shall have
occurred and be continuing after giving effect thereto and (ii) sales, leases,
transfers and assignments by any Subsidiary of the Borrower expressly permitted
under, or not otherwise prohibited by, the terms of the Orion Power MidWest
Credit Facility, the Orion Power New York Credit Facility, or any other
agreement or instrument evidencing Permitted Subsidiary Debt.

         (o)      Change in Nature of Business. Make, or permit any of its
Subsidiaries in existence on the date hereof to make, any material change in the
nature of its business as carried on at the date hereof.

<PAGE>   71
                                                                              67

         (p)      Capital Expenditures. Make or commit to make, or permit any of
its Subsidiaries to make or commit to make, any Capital Expenditures, except (i)
Capital Expenditures of any Subsidiary of the Borrower financed or to be
financed with Debt permitted by Section 8.02(c)(iii) and (ii) other Capital
Expenditures of any Subsidiary of the Borrower permitted under, or not otherwise
prohibited by, any credit facility to which such Subsidiary is a party
(provided, that such credit facility constitutes Debt permitted under Section
8.02(c)).

         (q)      Prepayments and Redemption of Debt. Purchase, redeem, retire
or otherwise acquire for value, or set apart any money for a sinking, defeasance
or other analogous fund for the purchase, redemption, retirement or other
acquisition of, or make any voluntary payment or prepayment of the principal of
or interest on, or any other amount owing in respect of, any of its Debt (other
than Debt hereunder and under the other Loan Documents), or permit any of its
Subsidiaries to do any of the foregoing with respect to any Debt of such
Subsidiary, except that (i) each of the Borrower and its Subsidiaries may make
payments on the regularly-scheduled payment dates with respect to the principal
of and interest on its Debt, (ii) Debt under the Orion Power MidWest Credit
Facility and the Orion Power New York Credit Facility may be refinanced to the
extent permitted under Section 8.02(c)(i), (ii) and (vi), (iii) any Subsidiary
of the Borrower may make any such payment or prepayment to the extent required
in order to avoid any imminent default or event of default, or to cure any
default or event of default, in each case under any agreement or instrument
evidencing Permitted Subsidiary Debt to which such Subsidiary is a party, (iv)
any Subsidiary of the Borrower may make any such payment or prepayment of
revolving credit loans under any revolving credit facility to which such
Subsidiary is a party (including the revolving credit facilities under the Orion
Power New York Credit Facility and the Orion Power MidWest Credit Facility), and
(v) any Subsidiary of the Borrower may make any such payment or prepayment to
the extent that such payment or prepayment is funded solely with the proceeds of
(A) any loan, advance or capital contribution received by such Subsidiary from
the Borrower pursuant to Section 8.02(d)(iv) or 8.02(d)(v) or (B) any initial
public offering or sale of equity securities of such Subsidiary to any other
Person (other than the Borrower or any of its Affiliates).

         SECTION 8.03. REPORTING OBLIGATIONS. So long as any Loan or any other
amount payable hereunder or under any Promissory Note shall remain unpaid, any
Letter of Credit shall remain outstanding or any Lender shall have any
Commitment, the Borrower will, unless the Majority Lenders shall otherwise
consent in writing, furnish to the Administrative Agent in sufficient number of
copies for each Lender, the following:

         (a)      as soon as possible and in any event within five Business Days
after the Borrower obtains actual knowledge of the occurrence of each Unmatured
Default or Event of Default continuing on the date of such statement, a
statement of a Senior Financial Officer of the Borrower setting forth details of
such Unmatured Default or Event of Default and the action that the Borrower
proposes to take with respect thereto;

         (b)      as soon as available and in any event within 45 days after the
end of each of the first three Fiscal Quarters of each Fiscal Year, (i) a
consolidated and consolidating balance sheet of the Borrower and its
Subsidiaries as at the end of such Fiscal Quarter and statements (presented on
both a consolidated and consolidating basis) of consolidated income,
consolidated

<PAGE>   72
                                                                              68

retained earnings and consolidated cash flows of the Borrower and its
Subsidiaries for the period commencing at the end of the previous Fiscal Year
and ending with the end of such Fiscal Quarter, and (ii) a balance sheet of the
Borrower (on a stand-alone basis) as at the end of such Fiscal Quarter and
statements of income, retained earnings and cash flows of the Borrower (on a
stand-alone basis) for the period commencing at the end of the previous Fiscal
Year and ending with the end of such Fiscal Quarter, all in reasonable detail
and duly certified (subject to year-end audit adjustments) by a Senior Financial
Officer of the Borrower as having been prepared in accordance with GAAP,
together with (A) a schedule in form satisfactory to the Administrative Agent of
the computations used by the Borrower in determining, as of the end of such
Fiscal Quarter, compliance with the financial covenants contained in Sections
8.01(n), (o), (p) and (q), (B) a list of all Support Obligations of the Borrower
then in effect, and (C) a certificate of the Borrower signed one of its Senior
Financial Officers stating that no Unmatured Default or Event of Default has
occurred and is continuing or, if an Unmatured Default or Event of Default has
occurred and is continuing, a statement as to the nature thereof and the action
that the Borrower proposes to take with respect thereto;

         (c)      as soon as available and in any event within 90 days after the
end of each Fiscal Year, (i) a consolidated and consolidating balance sheet of
the Borrower and its Subsidiaries as at the end of such Fiscal Year and
statements (presented on both a consolidated and consolidating basis) of
consolidated income, consolidated retained earnings and consolidated cash flows
of the Borrower and its Subsidiaries for such Fiscal Year, and (ii) a balance
sheet of the Borrower (on a stand-alone basis) as at the end of such Fiscal Year
and statements of income, retained earnings and cash flows of the Borrower (on a
stand-alone basis) for such Fiscal Year, in each case accompanied by the audit
report of a nationally-recognized independent public accounting firm, together
with (A) a schedule in form satisfactory to the Administrative Agent of the
computations used by the Borrower in determining, as of the end of such Fiscal
Year, compliance with the financial covenants contained in Sections 8.01(n),
(o), (p) and (q), (B) a list of all Support Obligations of the Borrower then in
effect, and (C) a certificate of the Borrower signed by one of its Senior
Financial Officers stating that no Unmatured Default or Event of Default has
occurred and is continuing or, if an Unmatured Default or Event of Default has
occurred and is continuing, a statement as to the nature thereof and the action
that the Borrower proposes to take with respect thereto;

         (d)      promptly after obtaining actual knowledge and in any event (A)
within 30 days after obtaining actual knowledge of any ERISA Event described in
clause (i) of the definition of ERISA Event with respect to any Material Plan of
the Borrower or any ERISA Affiliate of the Borrower has occurred and (B) within
ten days after any other ERISA Event with respect to any Material Plan of the
Borrower or any ERISA Affiliate of the Borrower has occurred, a statement of a
Senior Financial Officer of the Borrower describing such ERISA Event and the
action, if any, which the Borrower or such ERISA Affiliate proposes to take with
respect thereto;

         (e)      promptly after receipt thereof by the Borrower or any of its
ERISA Affiliates from the PBGC, copies of each notice received by the Borrower
or such ERISA Affiliate of the PBGC's intention to terminate any Material Plan
of the Borrower or such ERISA Affiliate or to have a trustee appointed to
administer any such Plan;

<PAGE>   73
                                                                              69

         (f)      promptly and in any event within 30 days after the filing
thereof with the Internal Revenue Service, copies of each Schedule B (Actuarial
Information) to the annual report (Form 5500 Series) with respect to each
Material Plan (if any) to which the Borrower or any ERISA Affiliate of the
Borrower is a contributing employer;

         (g)      promptly after receipt thereof by the Borrower or any of its
ERISA Affiliates from a Multiemployer Plan sponsor, a copy of each notice
received by the Borrower or such ERISA Affiliate concerning the imposition or
amount of withdrawal liability in an aggregate principal amount of at least
$5,000,000 pursuant to Section 4202 of ERISA in respect of which the Borrower or
such ERISA Affiliate is reasonably expected to be liable;

         (h)      promptly after the Borrower becomes aware of the occurrence
thereof, notice of all actions, suits, proceedings or other events (A) of the
type described in Section 7.01(g) or (B) for which the Agents, the Issuing Banks
and the Lenders will be entitled to indemnity under Section 11.04(b);

         (i)      promptly after the sending or filing thereof, copies of all
proxy statements, financial statements and reports which the Borrower or any of
its Subsidiaries sends to its public security holders (if any), copies of all
regular, periodic and special reports which the Borrower or any of its
Subsidiaries files with the Securities and Exchange Commission or any
governmental authority which may be substituted therefor, or with any national
securities exchange, pursuant to the Exchange Act, and copies of all final
prospectuses with respect to any securities issued or to be issued by the
Borrower or any of its Subsidiaries;

         (j)      promptly after the Borrower becomes aware of the occurrence
thereof, notice of any Year 2000 Issue that could reasonably be expected to have
a Material Adverse Effect; and

         (k)      within a reasonable time (but in no event more than 30 days)
after any request therefor, such other information respecting the business,
properties, results of operations, prospects, revenues, condition or operations,
financial or otherwise, of the Borrower or any of its Subsidiaries (including
annual financial projections and pro forma financial statements) as the
Administrative Agent, any Issuing Bank or the Majority Lenders may from time to
time reasonably request.

                                   ARTICLE IX
                                    DEFAULTS

         SECTION 9.01. EVENTS OF DEFAULT. If any of the following events (each
an "EVENT OF DEFAULT") shall occur and be continuing, the Administrative Agent
and the Lenders shall be entitled to exercise the remedies set forth in Section
9.02:

         (a)      The Borrower shall fail to pay (i) any principal of any Loan
when due or (ii) any interest thereon, fees or other amounts (other than any
principal of any Loan) payable hereunder or under any other Loan Document within
three Business Days after the same shall have become due; or

<PAGE>   74
                                                                              70

         (b)      Any representation or warranty made or deemed made by or on
behalf of the Borrower in any Loan Document or certificate or other writing
delivered pursuant thereto shall prove to have been incorrect or misleading in
any material respect when made or deemed made; provided, however, that no Event
of Default shall occur pursuant hereto if, within thirty (30) days after the
date on which a Responsible Officer of the Borrower receives notice or has or,
through the exercise of reasonable diligence under the circumstances, should
have had knowledge (from any source) of such incorrect or misleading
representation or warranty (other than any such representation or warranty (i)
that a Responsible Officer of the Borrower knew (or, through the exercise of
reasonable diligence under the circumstances, should have known) was incorrect
or misleading in any material respect at the time made or deemed made and (ii)
any representation or warranty made or deemed made on the Commitment Closing
Date or the Financial Closing Date), the Borrower eliminates or otherwise
addresses to the satisfaction of the Majority Lenders such incorrect or
misleading representation or warranty; and provided further, however, that
notwithstanding Section 9.02, with respect to any Event of Default under this
subsection (b) arising from an incorrect or misleading representation or
warranty related to a Subsidiary of the Borrower (a "SUBSIDIARY REPRESENTATION
EVENT OF DEFAULT"), the Lenders shall not be permitted to accelerate the
obligations of the Borrower hereunder and under the other Loan Documents based
solely on such Subsidiary Representation Event of Default (or based solely on
such Subsidiary Representation Event of Default and a contemporaneous Subsidiary
Covenant Event of Default) for a period of 180 days after the occurrence thereof
(it being understood and agreed that the Majority Lenders may accelerate the
Borrower's obligations hereunder and under the other Loan Documents at any time
after such 180-day period following the occurrence of any Subsidiary
Representation Event of Default (if such Subsidiary Representation Event of
Default is then continuing), whether or not a Subsidiary Covenant Event of
Default or another Subsidiary Representation Event of Default has occurred and
is continuing at such time); or

         (c)      The Borrower shall fail to perform or observe any term or
covenant on its part to be performed or observed contained in Section 8.01(n),
Section 8.01(o), Section 8.01(p) or Section 8.01(q) for two consecutive Fiscal
Quarters, and the Administrative Agent shall have given notice to the Borrower
not less than 30 days after the Administrative Agent's receipt of the Borrower's
financial statements (delivered pursuant to Section 8.03(b) or (c), as
applicable) for such second Fiscal Quarter that such failure constitutes an
Event of Default; or

         (d)      The Borrower shall fail to perform or observe any term or
covenant on its part to be performed or observed related to the Borrower itself
(and not any of its Subsidiaries) contained in any Loan Document (other than
Sections 8.01(n), 8.01(o), 8.01(p) and 8.01(q) hereof) and any such failure
shall remain unremedied for a period of 90 days after the occurrence thereof;
provided, however, that if such default described in this subsection (d) is of a
nature such that it cannot reasonably be remedied within such 90-day period, but
is susceptible to cure within a longer period (not to exceed an additional 90
days), an Event of Default shall not result therefrom so long as (x) the
Borrower has complied with Section 8.03(a) (except where the failure to comply
therewith, in the judgment of the Majority Lenders, has not disadvantaged, and
could not reasonably be expected to disadvantage, the Lenders in any material
respect), (y) the Borrower as promptly as practicable during such original
90-day period commences action reasonably designed to cure such default and
continues diligently to pursue such action until cured (but in no event longer
than an additional 90 days), and (z) in the judgment of the Majority Lenders,
neither such

<PAGE>   75
                                                                              71

default, the continuance thereof, nor the action of the Borrower in pursuing
such remedy has had or could reasonably be expected to have a Material Adverse
Effect; or

         (e)      The Borrower shall fail to perform or observe any term or
covenant on its part to be performed or observed related to any of its
Subsidiaries contained in any Loan Document (other than Sections 8.01(n),
8.01(o), 8.01(p) and 8.01(q) hereof) and, if capable of being cured, such
failure shall remain unremedied for (i) a period of time equal to the applicable
cure or grace period (if any) set forth for corresponding terms or covenants (as
the case may be) applicable to such Subsidiary contained in (A) with respect to
Orion Power New York, the Orion Power New York Credit Facility, (B) with respect
to Orion Power MidWest, the Orion Power MidWest Credit Facility, or (C) with
respect to any other Subsidiary of the Borrower, the agreement or instrument
evidencing Permitted Subsidiary Debt to which such Subsidiary is a party, or
(ii) if there are no such corresponding terms or covenants, 30 days after the
earlier of (A) the Borrower's obtaining actual knowledge thereof or (B) written
notice thereof shall have been given to the Borrower by any Lender or the
Administrative Agent (any Event of Default under this subsection (e) being
referred to herein as a "SUBSIDIARY COVENANT EVENT OF DEFAULT"); provided,
however, that notwithstanding Section 9.02, the Lenders shall not be permitted
to accelerate the obligations of the Borrower hereunder and under the other Loan
Documents based solely on any such Subsidiary Covenant Event of Default (or
based solely on such Subsidiary Covenant Event of Default and a contemporaneous
Subsidiary Representation Event of Default) for a period of 90 days after the
occurrence thereof (it being understood and agreed that the Majority Lenders may
accelerate the Borrower's obligations hereunder and under the other Loan
Documents at any time after such 90-day period following the occurrence of any
such Subsidiary Covenant Event of Default (if such Subsidiary Covenant Event of
Default is then continuing), whether or not a Subsidiary Representation Event of
Default or another Subsidiary Covenant Event of Default has occurred and is
continuing at such time); or

         (f)      (i) The Borrower shall fail to pay any of its Debt (including
any interest or premium thereon but excluding Debt incurred under this
Agreement) aggregating $25,000,000 or more when due (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise) and such
failure shall continue after the applicable grace period, if any, specified in
any agreement or instrument relating to such Debt; or (ii) any other default
under any agreement or instrument relating to any such Debt, or any other event,
shall occur and shall continue after the applicable grace period, if any,
specified in such agreement or instrument, if the effect of such default or
event is (A) to accelerate, or (B) to permit the acceleration of, the maturity
of such Debt; or (iii) any such Debt shall be declared to be due and payable, or
required to be prepaid (other than by a regularly scheduled required prepayment
or a refinancing thereof) in whole or in part prior to the stated maturity
thereof, as a result of a default or similar adverse event under any such
agreement or instrument; provided, however, that notwithstanding Section 9.02,
the Lenders shall not be permitted to accelerate the obligations of the Borrower
hereunder and under the other Loan Documents based solely on any Event of
Default under clause (i) or clause (ii)(B) of this subsection (f) until the
earlier to occur of (1) the acceleration of the maturity of such Debt or (2) the
end of the 180-day period following the occurrence of such Event of Default; or

         (g)      (i) Any Subsidiary of the Borrower shall fail to pay any of
its Debt (including any interest or premium thereon) aggregating $25,000,000 or
more when due (whether by scheduled

<PAGE>   76
                                                                              72

maturity, required prepayment, acceleration, demand or otherwise) and such
failure shall continue after the applicable grace period, if any, specified in
any agreement or instrument relating to such Debt, or any other default under
any agreement or instrument relating to any such Debt, or any other event, shall
occur and shall continue after the applicable grace period, if any, specified in
such agreement or instrument, if in any case the effect of such failure to pay
or such other default or event is to accelerate the maturity of such Debt or to
cause the holder of such Debt to take steps to accelerate such Debt; or (ii) any
such Debt shall be declared to be due and payable, or required to be prepaid
(other than by a regularly scheduled required prepayment or a refinancing
thereof) in whole or in part prior to the stated maturity thereof as a result of
a default or similar adverse event under any such agreement or instrument; or

         (h)      The Borrower or any of its Subsidiaries shall commence a
voluntary case or proceeding concerning itself under any existing or future law
of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors; or such an involuntary case or proceeding
is commenced against the Borrower or any of its Subsidiaries and the petition is
not dismissed within 60 days after commencement of the case; or a custodian,
receiver, trustee, conservator or other similar official is appointed for, or
takes charge of, all or any substantial part of the property of the Borrower or
any of its Subsidiaries and such official is not dismissed or removed within 60
days after such appointment; or the Borrower or any of its Subsidiaries
commences any other proceeding under any reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or liquidation or similar
law of any jurisdiction whether now or hereafter in effect relating to the
Borrower or any of its Subsidiaries, or there is commenced against the Borrower
or any of its Subsidiaries any such proceeding which remains undismissed for a
period of 60 days; or the Borrower or any of its Subsidiaries is adjudicated
insolvent or bankrupt; or any order of relief or other order approving any such
case or proceeding is entered and is undischarged and unstayed for a period of
60 days; or the Borrower or any of its Subsidiaries suffers any appointment of
any custodian or the like for it or any substantial part of its property to
continue undischarged and unstayed for a period of 60 days; the Borrower or any
of its Subsidiaries makes a general assignment for the benefit of creditors; or
the Borrower or any of its Subsidiaries shall fail to pay, or shall state that
it is unable to pay, or shall be unable to pay, its debts generally as they
become due; or the Borrower or any of its Subsidiaries shall call a meeting of
its creditors with a view to arranging a composition or adjustment of its debts;
the Borrower or any of its Subsidiaries shall by any act or failure to act
indicate its consent to, approval of or acquiescence in any of the foregoing; or
any corporate action is taken by the Borrower or any of its Subsidiaries for the
purpose of effecting any of the foregoing; or

         (i)      Any judgment or order for the payment of money equal to or in
excess of (i) $10,000,000 shall be rendered against the Borrower or its
properties, or (ii) $25,000,000 shall be rendered against any Subsidiary of the
Borrower or its properties, and in each case there shall be any period of 30
consecutive days during which (A) such judgment shall remain undischarged or (B)
a stay of enforcement of such judgment or order, by reason of a pending appeal
or otherwise, shall not be in effect; or

         (j)      Any material provision of any of the Loan Documents, after
delivery thereof pursuant to Article VI, shall for any reason, except to the
extent permitted by the express terms

<PAGE>   77
                                                                              73

hereof or thereof, cease to be valid and binding on or enforceable against the
Borrower or the Borrower shall so assert in writing; or

         (k)      At any time any Issuing Bank shall have been served with or
otherwise subjected to a court order, injunction, or other process or decree
issued or granted at the instance of the Borrower restraining or seeking to
restrain such Issuing Bank from paying any amount under any Letter of Credit
issued by it and either (i) there has been a drawing under such Letter of Credit
that complies with the terms for drawing thereunder and which such Issuing Bank
would otherwise be obligated to pay or (ii) the stated expiration date or any
reduction of the stated amount of such Letter of Credit has occurred but the
right of the beneficiary to draw thereunder has been extended in connection with
the pendency of the related court action or proceeding; or

         (l)      Any Governmental Approval shall be rescinded, revoked,
otherwise terminated, or amended or modified in any manner which is materially
adverse to the interests of the Lenders, the Issuing Banks and the
Administrative Agent; or

         (m)      The Borrower or any of its ERISA Affiliates shall fail to pay
when due an amount or amounts aggregating in excess of $10,000,000 which it
shall have become liable to pay to the PBGC or to a Plan under Title IV of
ERISA; or notice of intent to terminate a Material Plan, other than a
Multiemployer Plan, shall be filed under Title IV of ERISA by the Borrower or
any of its ERISA Affiliates, any plan administrator or any combination of the
foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to
terminate or to cause a trustee to be appointed to administer any Material Plan,
other than a Multiemployer Plan, or a proceeding shall be instituted by a
fiduciary of any Material Plan which is a Multiemployer Plan against the
Borrower or any of its ERISA Affiliates to enforce an obligation of the Borrower
or any of its ERISA Affiliates exceeding $10,000,000 under Section 4201 of ERISA
in connection with a withdrawal or alleged withdrawal from such Multiemployer
Plan or to take any action under Section 4219(c)(5) of ERISA and any such
proceeding shall not have been dismissed within 30 days thereafter; or 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 any other
ERISA Event shall occur that could reasonably be expected to have a Material
Adverse Effect; or

         (n)      A Change of Control shall occur; or

         (o)      (i) The failure of the Borrower to own, directly or
indirectly, 100% of the outstanding Capital Stock of the Orion Power New York
Partners, the Orion Power MidWest Partners, Orion Power New York, Orion Power
MidWest and all of the Subsidiaries of Orion Power New York, or (ii) (A) at any
time prior to an initial registered public offering pursuant to an effective
registration statement under the Securities Act of 1933 covering the offer and
sale of common stock of the Borrower to the public (a "BORROWER IPO"), (1) the
failure of CEI, or any direct or indirect parent of CEI, to own, directly or
indirectly, an amount of the outstanding Capital Stock of the Borrower entitled
to 20% or more of the Total Voting Power of the Borrower, (2) the failure of the
Goldman Entities to own, directly or indirectly, an amount of the outstanding
Capital Stock of the Borrower entitled to (i) 20% or more of the Total Voting
Power of the Borrower, (3) the occurrence of a Goldman Disposition (as defined
in the CPS Strategic Alliance Agreement), or (4) the failure of CEI (or any
direct or indirect parent of CEI) and the

<PAGE>   78
                                                                              74

Goldman Entities (jointly, the "PERMITTED HOLDERS") collectively to own an
amount of the outstanding Capital Stock of the Borrower entitled to 51% or more
of the Total Voting Power of the Borrower, or (B) at any time after successful
consummation of a Borrower IPO, (1) any person or "group" (within the meaning of
Rule 13d-5 under the Exchange Act), together with its Affiliates, other than the
Permitted Holders, shall beneficially own, directly or indirectly, an amount of
Capital Stock of the Borrower entitled to twenty percent (20%) or more of the
Total Voting Power of the Borrower; (2) the failure of the Permitted Holders to
own shares of Capital Stock of the Borrower representing at least thirty-three
and one-third percent (33-1/3%) of the Total Voting Power of the Borrower; or
(3) the Continuing Directors in office at any time shall not constitute a
majority of the Board of Directors of the Borrower. For purposes of the
foregoing, the term "CONTINUING DIRECTORS" shall mean, at any date, an
individual (y) who is a member of the Board of Directors of the Borrower on the
Commitment Closing Date, or (z) who has been nominated to fill a vacancy on the
Board of Directors of the Borrower by a majority of the Continuing Directors
then in office.

         SECTION 9.02. REMEDIES. If any Event of Default has occurred and is
continuing, then the Administrative Agent shall at the request, or may with the
consent, of the Majority Lenders, upon notice to the Borrower (i) declare the
Commitments and the obligation of each Lender to make or Convert Loans (other
than Loans under Section 4.04(b)) and of any Issuing Bank to issue a Letter of
Credit to be terminated, whereupon the same shall forthwith terminate, (ii)
declare the principal amount outstanding hereunder, all interest thereon and all
other amounts payable under this Agreement and the other Loan Documents to be
forthwith due and payable, whereupon the principal amount outstanding hereunder,
all such interest and all such amounts shall become and be forthwith due and
payable, without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by the Borrower, and/or (iii) require the
Borrower to pay immediately to the Administrative Agent an amount equal to the
aggregate LC Outstandings of all Letters of Credit then outstanding, to be held
by the Administrative Agent (for its benefit and the benefit of the Issuing
Banks and the Lenders) as cash collateral securing LC Outstandings and the
Borrower's reimbursement obligations with respect thereto; provided, however,
that in the event of an actual or deemed entry of an order for relief with
respect to the Borrower under the Federal Bankruptcy Code, (A) the Commitments
and the obligation of each Lender to make Loans and of any Issuing Bank to issue
any Letter of Credit shall automatically be terminated and (B) the principal
amount outstanding hereunder, all such interest and all such amounts shall
automatically become and be due and payable, without presentment, demand,
protest or any notice of any kind, all of which are hereby expressly waived by
the Borrower. Notwithstanding anything to the contrary contained herein, no
notice given or declaration made by the Administrative Agent pursuant to this
Section 9.02 shall affect (1) the obligation of any Issuing Bank to make any
payment under any Letter of Credit issued by such Issuing Bank in accordance
with the terms of such Letter of Credit or (2) the participatory interest of
each Lender in each such payment.

<PAGE>   79
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                                    ARTICLE X
                            THE ADMINISTRATIVE AGENT

         SECTION 10.01.  AUTHORIZATION AND ACTION.

         (a)      Each of the Lenders and the Issuing Banks hereby irrevocably
appoints the Administrative Agent as its agent and authorizes the Administrative
Agent to take such actions on its behalf and to exercise such powers as are
delegated to the Administrative Agent by the terms of the Loan Documents,
together with such actions and powers as are reasonably incidental thereto.

         (b)      Any Lender serving as Administrative Agent hereunder shall
have the same rights and powers in its capacity as a Lender as any other Lender
and may exercise the same as though it were not the Administrative Agent, and
such Lender and its Affiliates may accept deposits from, lend money to and
generally engage in any kind of business with the Borrower or any of its
Subsidiaries or other Affiliate thereof as if it were not the Administrative
Agent hereunder.

         (c)      The Administrative Agent shall not have any duties or
obligations except those expressly set forth in the Loan Documents. Without
limiting the generality of the foregoing, (i) the Administrative Agent shall not
be subject to any fiduciary or other implied duties, regardless of whether an
Unmatured Default or an Event of Default has occurred and is continuing, (ii)
the Administrative Agent shall not have any duty to take any discretionary
action or exercise any discretionary powers, except discretionary rights and
powers expressly contemplated by the Loan Documents that the Administrative
Agent is required to exercise in writing by the Majority Lenders (or such other
number or percentage of the Lenders as shall be necessary under the
circumstances as provided in Section 11.01), and (iii) except as expressly set
forth in the Loan Documents, the Administrative Agent shall not have any duty to
disclose, and shall not be liable for the failure to disclose, any information
relating to the Borrower or any of its Subsidiaries or Affiliates that is
communicated to or obtained by the Lender serving as Administrative Agent or any
of its Affiliates in any capacity. The Administrative Agent shall not be liable
for any action taken or not taken by it with the consent or at the request of
the Majority Lenders (or such other number or percentage of the Lenders as shall
be necessary under the circumstances as provided in Section 11.01) or in the
absence of its own gross negligence or willful misconduct. The Administrative
Agent shall be deemed not to have knowledge of any Unmatured Default or Event of
Default unless and until written notice thereof is given to the Administrative
Agent by the Borrower or a Lender (in which case the Administrative Agent shall
promptly give a copy of such written notice to the Lenders and the Issuing
Banks). The Administrative Agent shall not be responsible for or have any duty
to ascertain or inquire into (A) any statement, warranty or representation made
in or in connection with any Loan Document, (B) the contents of any certificate,
report or other document delivered thereunder or in connection therewith, (C)
the performance or observance of any of the covenants, agreements or other terms
or conditions set forth in any Loan Document, (D) the validity, enforceability,
effectiveness or genuineness of any Loan Document or any other agreement,
instrument or document, or (E) the satisfaction of any condition set forth in
Article VI or elsewhere in any Loan Document, other than to confirm receipt of
items expressly required to be delivered to the Administrative Agent. Neither
the

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Syndication Agent nor the Documentation Agent shall have any duties or
obligations in such capacity under any of the Loan Documents.

         (d)      The Administrative Agent shall be entitled to rely upon, and
shall not incur any liability for relying upon, any notice, request,
certificate, consent, statement, instrument, document or other writing believed
by it to be genuine and to have been signed or sent by the proper Person. The
Administrative Agent also may rely upon any statement made to it orally or by
telephone and believed by it to be made by the proper Person, and shall not
incur any liability for relying thereon. The Administrative Agent may consult
with legal counsel (who may be counsel for the Borrower), independent
accountants and other experts selected by it, and shall not be liable for any
action taken or not taken by it in accordance with the advice of any such
counsel, accountants or experts.

         (e)      The Administrative Agent may perform any and all its duties
and exercise its rights and powers by or through one or more sub-agents
appointed by the Administrative Agent. The Administrative Agent and any such
sub-agent may perform any and all its duties and exercise its rights and powers
through their respective Related Parties. The exculpatory provisions of the
preceding subsections of this Section 10.01 shall apply to any such sub-agent
and to the Related Parties of the Administrative Agent and any such sub-agent,
and shall apply to their respective activities in connection with the
syndication of the credit facilities provided for herein as well as activities
as Administrative Agent.

         (f)      Subject to the appointment and acceptance of a successor
Administrative Agent as provided in this subsection (f), the Administrative
Agent may resign at any time by notifying the Lenders, the Issuing Banks and the
Borrower. Upon any such resignation, the Majority Lenders shall have the right,
with the consent of the Borrower (which consent shall not be unreasonably
withheld or delayed), to appoint a successor. If no successor shall have been so
appointed by the Majority Lenders and shall have accepted such appointment
within 30 days after the retiring Administrative Agent gives notice of its
resignation, then the retiring Administrative Agent may, on behalf of the
Lenders and the Issuing Banks, appoint a successor Administrative Agent which
shall be a Lender or an Affiliate of a Lender. Upon the acceptance of its
appointment as Administrative Agent hereunder by a successor, such successor
shall succeed to and become vested with all the rights, powers, privileges and
duties of the retiring Administrative Agent, and the retiring Administrative
Agent shall be discharged from its duties and obligations hereunder. The fees
payable by the Borrower to a successor Administrative Agent shall be no greater
than those payable to its predecessor unless otherwise agreed between the
Borrower and such successor. After the Administrative Agent's resignation
hereunder, the provisions of this Article and Section 11.04 shall continue in
effect for the benefit of such retiring Administrative Agent, its sub-agents and
their respective Related Parties in respect of any actions taken or omitted to
be taken by any of them while it was acting as Administrative Agent.

         (g)      Each Lender acknowledges that it has independently and without
reliance upon any Agent or any other Lender and based on such documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges that it
will, independently and without reliance upon any Agent or any other Lender and
based on such documents and information as it shall from time to time deem

<PAGE>   81
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appropriate, continue to make its own decisions in taking or not taking action
under or based upon this Agreement, any other Loan Document or any related
agreement or any document furnished hereunder or thereunder.

         SECTION 10.02. INDEMNIFICATION. The Lenders agree to indemnify the
Administrative Agent (to the extent not reimbursed by the Borrower), ratably
according to the respective Percentages of the Lenders, from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever which
may be imposed on, incurred by, or asserted against the Administrative Agent in
any way relating to or arising out of this Agreement or any other Loan Document
or any action taken or omitted by the Administrative Agent under this Agreement
or any other Loan Document, provided that no Lender shall be liable for any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from the
Administrative Agent's gross negligence or willful misconduct. Without
limitation of the foregoing, each Lender agrees to reimburse the Administrative
Agent promptly upon demand for its ratable share of any out-of-pocket expenses
(including counsel fees) incurred by the Administrative Agent in connection with
the preparation, execution, syndication, delivery, administration, modification,
amendment or enforcement (whether through negotiations, legal proceedings or
otherwise) of, or legal advice in respect of rights or responsibilities under,
this Agreement or any other Loan Document to the extent that the Administrative
Agent is entitled to reimbursement for such expenses pursuant to Section 11.04
but is not reimbursed for such expenses by the Borrower.

                                   ARTICLE XI
                                  MISCELLANEOUS

         SECTION 11.01. AMENDMENTS, ETC. No amendment or waiver of any provision
of any Loan Document, nor consent to any departure by the Borrower therefrom,
shall in any event be effective unless the same shall be in writing and signed
by the Majority Lenders (and, in the case of any such amendment, the Borrower),
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given; provided, however, that no
amendment, waiver or consent shall, unless in writing and signed by all the
Lenders, do any of the following: (i) waive, modify or eliminate any of the
conditions specified in Article VI, (ii) increase the Commitments of the Lenders
or subject the Lenders to any additional obligations, (iii) reduce the principal
of, or interest on, any Loan, any Applicable Margin, any Commitment Fee Rate,
any Letter of Credit Commission Rate or any fees or other amounts payable
hereunder (other than fees payable to the Administrative Agent pursuant to
Section 2.02(c)), (iv) extend the Termination Date or postpone any date fixed
for any payment of principal of, or interest on, any Loan or any fees or other
amounts payable hereunder (other than fees payable to the Administrative Agent
pursuant to Section 2.02(c)), (v) change the definition of "Majority Lenders"
contained in Section 1.01 or change any other provision that specifies the
percentage of the Commitments or of the aggregate unpaid principal amount of the
Loans or the number of Lenders which shall be required for the Lenders or any of
them to take any action hereunder, (vi) amend any Loan Document in a manner
intended to prefer one or more Lenders over any other Lenders, or (vii) amend,
waive or modify this Section 11.01; and provided, further, that no amendment,
waiver or consent shall, unless in writing and signed by the Administrative
Agent in

<PAGE>   82
                                                                              78

addition to the Lenders required above to take such action, affect the rights or
duties of the Administrative Agent under this Agreement or any other Loan
Document; and provided, further, that no amendment, waiver or consent shall,
unless in writing and signed by each Issuing Bank in addition to the Lenders
required above to take such action, affect the rights or duties of any Issuing
Bank under this Agreement or any other Loan Document. Any request from the
Borrower for any amendment, waiver or consent under this Section 11.01 shall be
addressed to the Administrative Agent.

         SECTION 11.02. NOTICES, ETC. All notices and other communications
provided for hereunder and under the other Loan Documents shall be in writing
(including telegraphic, facsimile, telex or cable communication) and mailed,
telegraphed, telecopied, telexed, cabled or delivered, (i) if to the Borrower,
at its address at 7 East Redwood Street, 10th Floor, Baltimore, Maryland 21202,
Attention: Chief Legal Officer (Telecopy no. 410.234.0994); (ii) if to any Bank,
at its Domestic Lending Office specified opposite its name on Schedule I; (iii)
if to the Administrative Agent, at its address at 445 South Figueroa Street, Los
Angeles, California 90071, Attention: David Musicant (Telecopy no.
213.236.4096); (iv) if to the Syndication Agent, at its address at CIBC World
Markets Corp., c/o Utilities Department, 425 Lexington Avenue, New York, New
York 10017, Attention: Joe Manger (Telecopy no. 212.885.4911); and (v) if to any
Lender other than a Bank, at its Domestic Lending Office specified in the Lender
Assignment pursuant to which it became a Lender; or, as to each party, at such
other address as shall be designated by such party in a written notice to the
other parties. All such notices and communications shall, when mailed,
telegraphed, telecopied, telexed or cabled, be effective five days after being
deposited in the mails, or when delivered to the telegraph company, telecopied,
confirmed by telex answerback or delivered to the cable company, respectively,
except that notices and communications to the Administrative Agent pursuant to
Article II, III, or X shall not be effective until received by the
Administrative Agent.

         SECTION 11.03. NO WAIVER OF REMEDIES. No failure on the part of the
Borrower, any Lender, any Issuing Bank or any Agent to exercise, and no delay in
exercising, any right hereunder or under any other Loan Document shall operate
as a waiver thereof; nor shall any single or partial exercise of any such right
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.

         SECTION 11.04. COSTS, EXPENSES AND INDEMNIFICATION. (a) The Borrower
agrees to pay on demand all reasonable costs and expenses of each Agent in
connection with the preparation, negotiation, syndication, execution, delivery
and administration of the Loan Documents and any proposed modification,
amendment, waiver or consent relating to any Loan Document, including the
reasonable fees and out-of-pocket expenses of counsel to the Administrative
Agent with respect thereto and with respect to the administration of, and
advising the Administrative Agent as to its rights and responsibilities under,
this Agreement and the other Loan Documents. The Borrower further agrees to pay
on demand all costs and expenses of the Administrative Agent and each Lender
(including reasonable fees and expenses of counsel to the Administrative Agent
and counsel for each Lender) in connection with any workout or restructuring of
the Borrower's obligations, and the enforcement (whether through negotiations,
legal proceedings or otherwise) and/or preservation of the Administrative
Agent's and the

<PAGE>   83
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Lenders' rights and interests, under this Agreement, the other Loan Documents
and the other documents to be delivered hereunder.

         (b)      The Borrower shall indemnify each Agent, each Issuing Bank,
each Lender, and each Related Party of any of the foregoing Persons (each such
Person being called an "INDEMNIFIED PERSON") against, and hold each Indemnified
Person harmless from, any and all losses, claims, damages, liabilities and
related expenses, including the reasonable fees, charges and disbursements of
any counsel for any Indemnified Person (whether or not such Indemnified Person
is named as a party to any proceeding or is otherwise subjected to judicial or
legal process arising from any such proceeding), incurred by or asserted against
any Indemnified Person arising out of, in connection with, or as a result of (i)
the execution or delivery of any Loan Document or any other agreement or
instrument contemplated hereby or thereby, the performance by the parties to the
Loan Documents of their respective obligations thereunder or the consummation of
the transactions contemplated hereby or thereby, (ii) any Loan, Letter of Credit
or other Extension of Credit or the use or proposed use of the proceeds
therefrom (including any refusal by an Issuing Bank to honor a demand for
payment under a Letter of Credit issued by such Issuing Bank if the documents
presented in connection with such demand do not strictly comply with the terms
of such Letter of Credit), (iii) any actual or alleged presence or release of
any Hazardous Substance on or from any property owned or operated by the
Borrower or any of its Affiliates, or any Environmental Liability related in any
way to the Borrower or any of its Affiliates, or (iv) any actual or prospective
claim, litigation, investigation or proceeding relating to any of the foregoing,
whether based on contract, tort or any other theory and regardless of whether
any Indemnified Person is a party thereto; provided that such indemnity shall
not, as to any Indemnified Person, be available to the extent that such losses,
claims, damages, liabilities or related expenses are determined by the final
judgment of a court of competent jurisdiction to have resulted from the gross
negligence or willful misconduct of such Indemnified Person. Without limitation
of the foregoing, in any such claim, litigation, investigation or proceeding, or
the preparation therefor, the Indemnified Persons shall be entitled to select
their own counsel and the Borrower shall promptly pay upon demand the reasonable
fees and expenses of such counsel (except to the extent that such claim,
litigation, investigation or proceeding is determined by the final judgment of a
court of competent jurisdiction to have resulted from the gross negligence or
willful misconduct of such Indemnified Person).

         (c)      The Borrower's obligations under this Section 11.04 shall
survive the repayment of all amounts owing to the Lenders, the Issuing Banks and
the Agents under the Loan Documents and the termination of the Commitments. If
and to the extent that the obligations of the Borrower under this Section 11.04
are unenforceable for any reason, the Borrower agrees to make the maximum
contribution to the payment and satisfaction thereof which is permissible under
applicable law.

         SECTION 11.05. RIGHT OF SET-OFF. (a) Upon (i) the occurrence and during
the continuance of any Event of Default and (ii) the making of the request or
the granting of the consent specified by Section 9.02 to authorize the
Administrative Agent to declare the principal amount outstanding hereunder to be
due and payable pursuant to the provisions of Section 9.02, each Lender and
Issuing Bank is hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time

<PAGE>   84
                                                                              80

or demand, provisional or final) at any time held and other indebtedness at any
time owing by such Lender or Issuing Bank to or for the credit or the account of
the Borrower, against any and all of the obligations of the Borrower now or
hereafter existing under any Loan Document and any Promissory Notes held by such
Lender, irrespective of whether or not such Lender or Issuing Bank shall have
made any demand under such Loan Document or Promissory Notes and although such
obligations may be unmatured. Each Lender and Issuing Bank agrees to notify
promptly the Borrower after any such set-off and application made by such Lender
or Issuing Bank, provided that the failure to give such notice shall not affect
the validity of such set-off and application. The rights of each Lender and
Issuing Bank under this Section 11.05 are in addition to other rights and
remedies (including other rights of set-off) which such Lender and Issuing Bank
may have.

         (b)      The Borrower agrees that it shall have no right of off-set,
deduction or counterclaim in respect of its obligations hereunder, and that the
obligations of the Lenders hereunder are several and not joint. Nothing
contained herein shall constitute a relinquishment or waiver of the Borrower's
rights to any independent claim that the Borrower may have against the
Administrative Agent or any Lender for the Administrative Agent's or such
Lender's, as the case may be, gross negligence or willful misconduct, but no
Lender shall be liable for any such conduct on the part of the Administrative
Agent or any other Lender, and the Administrative Agent shall be liable for any
such conduct on the part of any Lender.

         SECTION 11.06. BINDING EFFECT. This Agreement shall become effective
when it shall have been executed by the Borrower and the Agents and when the
Administrative Agent shall have been notified by each Bank that such Bank has
executed it and thereafter shall be binding upon and inure to the benefit of the
Borrower, the Agents and each Lender and their respective successors and
assigns, except that the Borrower shall not have the right to assign its rights
hereunder or any interest herein without the prior written consent of the
Lenders.

         SECTION 11.07. ASSIGNMENTS AND PARTICIPATION. (a) Each Lender may, with
the consent of the Borrower and the Administrative Agent (such consent not to be
unreasonably withheld or delayed and, in the case of the Borrower, shall not be
required if an Event of Default has occurred and is continuing), assign to one
or more banks or other financial institutions all or a portion of its rights and
obligations under this Agreement and the other Loan Documents (including all or
a portion of its Commitment, the Loans owing to it and any Promissory Notes held
by it); provided, however, that (i) each such assignment shall be of a constant,
and not a varying, percentage of all of the assigning Lender's rights and
obligations under this Agreement, (ii) the amount of the Commitment of the
assigning Lender being assigned pursuant to each such assignment (determined as
of the date of the Lender Assignment with respect to such assignment) shall in
no event be less than the lesser of the aggregate amount of such Lender's
Commitment and $5,000,000 and shall be an integral multiple of $1,000,000, (iii)
each such assignment shall be to an Eligible Assignee, and (iv) the parties to
each such assignment shall execute and deliver to the Administrative Agent, for
its acceptance and recording in the Register, a Lender Assignment, together with
any Promissory Notes subject to such assignment and a processing and recordation
fee of $3,500; and provided further, however, that the consent of the Borrower
and the Administrative Agent shall not be required for any assignments by a
Lender to any of its Affiliates or to any other Lender or any of its Affiliates.
Upon such execution, delivery,

<PAGE>   85
                                                                              81

acceptance and recording, from and after the effective date specified in each
Lender Assignment, which effective date shall be at least five Business Days
after the execution thereof, (A) the assignee thereunder shall be a party hereto
and, to the extent that rights and obligations hereunder have been assigned to
it pursuant to such Lender Assignment, have the rights and obligations of a
Lender hereunder and (B) the Lender assignor thereunder shall, to the extent
that rights and obligations hereunder have been assigned by it to an Eligible
Assignee pursuant to such Lender Assignment, relinquish its rights and be
released from its obligations under this Agreement (and, in the case of a Lender
Assignment covering all or the remaining portion of an assigning Lender's rights
and obligations under this Agreement, such Lender shall cease to be a party
hereto); provided, however, that the limitation set forth in clause (iii),
above, shall not apply if an Event of Default shall have occurred and be
continuing and the Administrative Agent shall have declared all Loans to be, or
all Loans shall have automatically become, immediately due and payable
hereunder. Notwithstanding anything to the contrary contained in this Agreement,
any Lender may at any time assign all or any portion of the Loans owing to it to
any Affiliate of such Lender. No such assignment, other than to an Eligible
Assignee in accordance with this Section 11.07, shall release the assigning
Lender from its obligations hereunder.

         (b)      By executing and delivering a Lender Assignment, the Lender
assignor thereunder and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than as provided in
such Lender Assignment, such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with any Loan Document or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of any Loan Document or any other instrument or document furnished
pursuant thereto; (ii) such assigning Lender makes no representation or warranty
and assumes no responsibility with respect to the financial condition of the
Borrower or any of its Subsidiaries or the performance or observance by the
Borrower of any of its obligations under any Loan Document or any other
instrument or document furnished pursuant thereto; (iii) such assignee confirms
that it has received a copy of each Loan Document, together with copies of the
financial statements referred to in Section 7.01(f) and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Lender Assignment; (iv) such assignee will,
independently and without reliance upon the Agents, such assigning Lender or any
other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Loan Documents; (v) such assignee confirms that it
is an Eligible Assignee (unless an Event of Default shall have occurred and be
continuing and the Administrative Agent shall have declared all Loans to be
immediately due and payable hereunder, in which case no such confirmation is
necessary); (vi) such assignee appoints and authorizes the Administrative Agent
to take such action as agent on its behalf and to exercise such powers under the
Loan Documents as are delegated to the Administrative Agent by the terms
thereof, together with such powers as are reasonably incidental thereto; and
(vii) such assignee agrees that it will perform in accordance with their terms
all of the obligations which by the terms of the Loan Documents are required to
be performed by it as a Lender.

         (c)      The Administrative Agent shall maintain at its address
referred to in Section 11.02 a copy of each Lender Assignment delivered to and
accepted by it and a register for the

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recordation of the names and addresses of the Lenders and the Commitment of, and
principal amount of the Loans owing to, each Lender from time to time (the
"Register"). The entries in the Register shall be conclusive and binding for all
purposes, absent manifest error, and the Borrower, the Agents, the Issuing Banks
and the Lenders may treat each Person whose name is recorded in the Register as
a Lender hereunder for all purposes of this Agreement. The Register shall be
available for inspection by the Borrower, any Issuing Bank or any Lender at any
reasonable time and from time to time upon reasonable prior notice.

         (d)      Upon its receipt of a Lender Assignment executed by an
assigning Lender and an assignee representing that it is an Eligible Assignee,
together with any Promissory Notes subject to such assignment, the processing
and recordation fee referred to in subsection (a) above and any written consent
to such assignment required by subsection (a) above, the Administrative Agent
shall, if such Lender Assignment has been completed and is in substantially the
form of Exhibit F, (i) accept such Lender Assignment, (ii) record the
information contained therein in the Register and (iii) give prompt notice
thereof to the Borrower. New and/or replacement Promissory Notes payable to the
assignee and the assigning Lender (if the assigning Lender assigned less than
all of its rights and obligations hereunder) shall be issued upon request
pursuant to Section 3.01(d), and shall be dated the effective date of such
Lender Assignment.

         (e)      Each Lender may sell participations to one or more banks or
other financial institutions (a "PARTICIPANT") in or to all or a portion of its
rights and obligations under the Loan Documents (including all or a portion of
its Commitment, the Loans owing to it and any Promissory Notes held by it);
provided, however, that (i) such Lender's obligations under this Agreement
(including its Commitment to the Borrower hereunder) shall remain unchanged,
(ii) such Lender shall remain solely responsible to the other parties hereto for
the performance of such obligations, (iii) such Lender shall remain the holder
of any such Promissory Notes for all purposes of this Agreement, and (iv) the
Borrower, the Agents, the Issuing Banks and the other Lenders shall continue to
deal solely and directly with such Lender in connection with such Lender's
rights and obligations under this Agreement. Any agreement or instrument
pursuant to which a Lender sells such a participation shall provide that such
Lender shall retain the sole right to enforce this Agreement and the other Loan
Documents and to approve any amendment, modification or waiver of any provision
of this Agreement or any other Loan Document; provided, that such agreement or
instrument may provide that such Lender will not, without the consent of the
Participant, agree to any amendment, modification or waiver described in the
first proviso to Section 11.01 that affects such Participant. Subject to
subsection (f) below, the Borrower agrees that each Participant shall be
entitled to the benefits of Sections 5.04 and 5.06 (and subject to the related
obligations under such Sections) to the same extent as if it were a Lender and
had acquired its interest by assignment pursuant to subsection (a) above. To the
extent permitted by law, each Participant shall also be entitled to the benefits
of Section 11.05(a) as though it were a Lender, provided such Participant agrees
to be subject to Section 5.05 as though it were a Lender.

         (f)      A Participant shall not be entitled to receive any greater
payment under Section 5.04 or 5.06 than the applicable Lender would have been
entitled to receive with respect to the participation sold to such Participant,
unless the sale of the participation to such Participant is made with the
Borrower's prior written consent. A Participant that would be a Foreign Lender
if

<PAGE>   87
                                                                              83

it were a Lender shall not be entitled to the benefits of Section 5.06 unless
the Borrower is notified of the participation sold to such Participant and such
Participant agrees, for the benefit of the Borrower, to comply with Section 5.06
as though it were a Lender.

         (g)      Any Lender may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
11.07, disclose to the assignee or Participant or proposed assignee or
Participant, any information relating to the Borrower and its Subsidiaries
furnished to such Lender by or on behalf of the Borrower; provided that prior to
any such disclosure, the assignee or Participant or proposed assignee or
Participant shall agree, in accordance with the terms of Section 11.08, to
preserve the confidentiality of any Confidential Information received by it from
such Lender.

         (h)      If any Lender (or any Participant to which such Lender has
sold a participation) shall make any demand for payment under Section 5.04(a) or
(c), then within 30 days after any such demand (if, but only if, such demanded
payment has been made by the Borrower), the Borrower may, with the approval of
the Administrative Agent (which approval shall not be unreasonably withheld) and
provided that no Event of Default or Unmatured Default shall then have occurred
and be continuing, demand that such Lender assign, at the sole cost and expense
of the Borrower, in accordance with this Section 11.07 to one or more Eligible
Assignees designated by the Borrower, all (but not less than all) of such
Lender's Commitment and the Loans owing to it within the period ending on the
later to occur of (x) the last day of the 30-day period described above and (y)
the last day of the longest of the then current Interest Periods for such Loans.
If any such Eligible Assignee designated by the Borrower shall fail to
consummate such assignment on terms acceptable to such Lender, or if the
Borrower shall fail to designate any such Eligible Assignees for all or part of
such Lender's Commitment or Loans, then such demand by the Borrower shall become
ineffective; it being understood for purposes of this subsection (h) that such
assignment shall be conclusively deemed to be on terms acceptable to such
Lender, and such Lender shall be compelled to consummate such assignment to an
Eligible Assignee designated by the Borrower, if such Eligible Assignee (1)
shall agree to such assignment by entering into a Lender Assignment with such
Lender and (2) shall offer compensation to such Lender in an amount equal to all
amounts then owing by the Borrower to such Lender hereunder and under any
Promissory Notes made by the Borrower to such Lender, whether for principal,
interest, fees, costs or expenses (other than the demanded payment referred to
above, and payable by the Borrower as a condition to the Borrower's right to
demand such assignment) or otherwise (including, without limitation, to the
extent not paid by the Borrower, any payments required pursuant to Section
5.04(b)). Notwithstanding anything set forth above in this subsection (h) to the
contrary, the Borrower shall not be entitled to compel the assignment by any
Lender demanding payment under Section 5.04(a) of its Commitment and Loans if,
prior to or promptly following any such demand by the Borrower, such Lender
shall have changed or shall change, as the case may be, its Applicable Lending
Office for its Eurodollar Rate Loans so as to eliminate the further incurrence
of such increased cost. In furtherance of the foregoing, any such Lender
demanding payment or giving notice as provided above agrees to use reasonable
efforts to so change its Applicable Lending Office if, to do so, would not
result in the incurrence by such Lender of additional costs or expenses which it
deems material or, in the sole judgment of such Lender, be inadvisable for
regulatory, competitive or internal management reasons.

<PAGE>   88
                                                                              84

         (i)      Anything in this Section 11.07 to the contrary
notwithstanding, any Lender may assign and pledge all or any portion of its
Commitment and the Loans owing to it to any Federal Reserve Bank (and its
transferees) as collateral security pursuant to Regulation A of the Board and
any Operating Circular issued by such Federal Reserve Bank. No such assignment
shall release the assigning Lender from its obligations hereunder.

         (j)      Notwithstanding anything to the contrary contained herein, any
Lender (a "GRANTING LENDER") may grant to a special purpose funding vehicle (an
"SPC"), identified as such in writing from time to time by the Granting Lender
to the Administrative Agent and the Borrower, the option to fund all or any part
of any Loan that such Granting Lender would otherwise be obligated to fund
pursuant to this Agreement; provided that (i) nothing herein shall constitute a
commitment by any SPC to make any Loan, and (ii) nothing herein shall excuse any
Granting Lender from its obligations hereunder. The funding of a Loan by an SPC
hereunder shall utilize the Commitment of the Granting Lender to the same
extent, and as if, such Loan were funded by such Granting Lender. Each party
hereto hereby agrees that no SPC shall be liable for any indemnity or similar
payment obligation under this Agreement for which a Lender would otherwise be
liable for so long as, and to the extent, the Granting Lender provides such
indemnity or makes such payment. In furtherance of the foregoing, each Lender
hereby agrees (which agreement shall survive the termination of this Agreement)
that, prior to the date that is one year and one day after the payment in full
of all outstanding commercial paper or other senior indebtedness of any SPC, it
will not institute against, or join any other Person in instituting against,
such SPC any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings under the laws of the United States or any State thereof. In
addition, notwithstanding anything to the contrary contained in this subsection
(j), any SPC may, with prior notice to, but without the prior written consent
of, the Borrower and the Administrative Agent and without paying any processing
fee therefor, assign all or a portion of its interests in any Loans to the
Granting Lender or to any financial institutions (consented to by the Borrower
and the Administrative Agent) providing liquidity and/or credit support to or
for the account of such SPC to support the funding or maintenance of Loans. This
subsection (j) may not be amended without the prior written consent of each
Granting Lender, all or any part of whose Loans are being funded by an SPC at
the time of such amendment. Notwithstanding the foregoing provisions of this
subsection, (1) an SPC shall not be deemed to be a Lender or a Participant and
shall have no rights under this Agreement except as provided in this subsection
(j), and in particular, but not by way of limitation, shall have no rights to
compensation for increased costs pursuant to Article III or Section 5.04 or
5.06, (2) the Granting Lender's obligations under this Agreement (including its
Commitment to the Borrower hereunder) shall remain unchanged, (3) the Granting
Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, (4) the Granting Lender shall remain the holder
of any Promissory Notes for all purposes of this Agreement, (5) the Borrower,
the Agents, the Issuing Banks and the other Lenders shall continue to deal
solely and directly with the Granting Lender in connection with such Granting
Lender's rights and obligations under this Agreement, and (6) the Granting
Lender shall indemnify and hold the Borrower harmless from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever which
may be incurred or shall arise as a result of any grant to an SPC contemplated
hereunder.

<PAGE>   89
                                                                              85

         SECTION 11.08. CONFIDENTIALITY. In connection with the negotiation and
administration of this Agreement and the other Loan Documents, the Borrower has
furnished and will from time to time furnish to the Agents, the Issuing Banks
and the Lenders (each, a "RECIPIENT") written information which is identified to
the Recipient when delivered as confidential (such information, other than any
such information which (i) was publicly available, or otherwise known to the
Recipient, at the time of disclosure, (ii) subsequently becomes publicly
available other than through any act or omission by the Recipient or (iii)
otherwise subsequently becomes known to the Recipient other than through a
Person whom the Recipient knows to be acting in violation of his or its
obligations to the Borrower, being hereinafter referred to as "CONFIDENTIAL
INFORMATION"). The Recipient will not knowingly disclose any such Confidential
Information to any third party (other than to those persons who have a
confidential relationship with the Recipient), and will take all reasonable
steps to restrict access to such information in a manner designed to maintain
the confidential nature of such information, in each case until such time as the
same ceases to be Confidential Information or as the Borrower may otherwise
instruct. It is understood, however, that the foregoing will not restrict the
Recipient's ability to freely exchange such Confidential Information with its
Affiliates or with prospective participants in or assignees of the Recipient's
position herein, but the Recipient's ability to so exchange Confidential
Information shall be conditioned upon any such Affiliate's or prospective
participant's (as the case may be) entering into an agreement as to
confidentiality similar to this Section 11.08. It is further understood that the
foregoing will not prohibit the disclosure of any or all Confidential
Information if and to the extent that such disclosure may be required (1) by a
regulatory agency or otherwise in connection with an examination of the
Recipient's records by appropriate authorities, (2) pursuant to court order,
subpoena or other legal process, (3) otherwise as required by law, or (4) in
order to protect such Recipient's interests or its rights or remedies hereunder
or under the other Loan Documents; in the event of any required disclosure under
clause (2), (3) or (4), above, the Recipient agrees to use reasonable efforts to
inform the Borrower as promptly as practicable to the extent not prohibited by
law.

         SECTION 11.09. WAIVER OF JURY TRIAL. THE BORROWER, THE AGENTS, THE
ISSUING BANKS, AND THE LENDERS EACH HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY OTHER INSTRUMENT OR DOCUMENT
DELIVERED HEREUNDER OR THEREUNDER.

         SECTION 11.10. GOVERNING LAW; SUBMISSION TO JURISDICTION. This
Agreement and the Promissory Notes shall be governed by, and construed in
accordance with, the laws of the State of New York. The Borrower, the Lenders,
the Issuing Banks, and the Agents each (i) irrevocably submits to the
jurisdiction of any New York State court or Federal court sitting in New York
City in any action arising out of any Loan Document, (ii) agrees that all claims
in such action may be decided in such court, (iii) waives, to the fullest extent
it may effectively do so, the defense of an inconvenient forum and (iv) consents
to the service of process by mail. A final judgment in any such action shall be
conclusive and may be enforced in other jurisdictions. Nothing herein shall
affect the right of any party to serve legal process in any manner permitted by
law or affect its right to bring any action in any other court.

<PAGE>   90
                                                                              86

         SECTION 11.11. RELATION OF THE PARTIES; NO BENEFICIARY. No term,
provision or requirement, whether express or implied, of any Loan Document, or
actions taken or to be taken by any party thereunder, shall be construed to
create a partnership, association, or joint venture between such parties or any
of them. No term or provision of the Loan Documents shall be construed to confer
a benefit upon, or grant a right or privilege to, any Person other than the
parties hereto. The Borrower hereby acknowledges that none of the Agents, the
Issuing Banks nor the Lenders has any fiduciary relationship with or fiduciary
duty to the Borrower arising out of or in connection with this Agreement or any
of the other Loan Documents, and the relationship between the Agents, the
Issuing Banks and the Lenders, on the one hand, and the Borrower, on the other
hand, in connection herewith or therewith is solely that of creditor and debtor.

         SECTION 11.12. EXECUTION IN COUNTERPARTS. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
Agreement.

         SECTION 11.13. SURVIVAL OF AGREEMENT. All covenants, agreements,
representations and warranties made herein and in the certificates pursuant
hereto shall be considered to have been relied upon by the Agents, the Issuing
Banks and the Lenders and shall survive the making by the Lenders of the
Extensions of Credit and the execution and delivery to the Lenders of any
Promissory Notes evidencing the Extensions of Credit and shall continue in full
force and effect so long as any Promissory Note or any amount due hereunder or
under any other Loan Document is outstanding and unpaid, any Letter of Credit is
outstanding, or any Commitment of any Lender has not been terminated.

         SECTION 11.14. WAIVER OF CERTAIN BANKRUPTCY CLAIMS. The Borrower, the
Agents, the Issuing Banks and the Lenders acknowledge and agree that (A) in the
event of (i) a bankruptcy, receivership, liquidation, dissolution,
reorganization, marshalling or similar case or proceeding of the Borrower or in
which the Subsidiaries of the Borrower are debtors, and (ii) a substantive
consolidation of the Borrower and its Subsidiaries, or any of them, the Agents,
the Issuing Banks and the Lenders will have no rights in or to the assets of the
Subsidiaries of the Borrower or in any distribution therefrom that was made in
violation of the provisions of either the Orion Power MidWest Credit Facility or
the Orion Power New York Credit Facility, in each case with respect to any such
Subsidiary, until such time as the indebtedness of such Subsidiary created and
evidenced thereby has been irrevocably repaid in full in cash, (B) the holders
of indebtedness under the Orion Power MidWest Credit Facility are relying, and
have been deemed to rely, on the acknowledgment and agreement set forth in
clause (A) preceding in extending indebtedness under the Orion Power MidWest
Credit Facility, and (C) the holders of indebtedness under the Orion Power New
York Credit Facility are relying, and have been deemed to rely, on the
acknowledgment and agreement set forth in clause (A) preceding in giving consent
to the incurrence by the Borrower of the indebtedness hereunder as contemplated
under the terms of the Orion Power New York Credit Facility. Each of the parties
hereto agrees that this Section 11.14 shall not be modified or amended without
the prior written consent of the lenders under the Orion Power New York Credit
Facility and the Orion Power MidWest Credit Facility.

<PAGE>   91
                                                                              87

         SECTION 11.15. COMPLIANCE WITH USURY LAWS. All agreements between the
Borrower, the Administrative Agent and each Lender are hereby expressly limited
so that in no contingency or event whatsoever, whether by reason of acceleration
of maturity of the indebtedness evidenced hereby or otherwise, shall the amount
paid or agreed to be paid to any Lender for the use or the forbearance of the
indebtedness evidenced hereby exceed the maximum permissible under applicable
law. As used in this Section 11.15, the term "APPLICABLE LAW" shall mean the law
in effect as of the date hereof, provided, however, that in the event there is a
change in the law which results in a higher permissible rate of interest, then
this Agreement and any Promissory Notes shall be governed by such new law as of
its effective date. In this regard, it is expressly agreed that it is the intent
of the Borrower and each Lender in the execution, delivery and acceptance of
this Agreement and any Promissory Notes to contract in strict compliance with
the laws of the State of New York from time to time in effect. If, under or from
any circumstances whatsoever, fulfillment of any provision hereof or of any of
the Loan Documents at the time performance of such provision shall be due, shall
involve transcending the limit of validity prescribed by applicable law, then
the obligation to be fulfilled shall automatically be reduced to the limit of
such validity, and if under or from any circumstances whatsoever any Lender
should ever receive as interest an amount which would exceed the highest lawful
rate, such amount which would be excessive interest shall be applied to the
reduction of the principal balance evidenced hereby and not to the payment of
interest. This provision shall control every other provision of all agreements
between the Borrower, the Administrative Agent and/or each Lender.

         SECTION 11.16. AMENDMENTS TO THIS AGREEMENT UNDER CERTAIN
CIRCUMSTANCES. Upon the removal of all restrictions on amendments to this
Agreement that are contained in the Orion Power New York Credit Facility, the
Orion Power MidWest Credit Facility and all other agreements or instruments
evidencing Permitted Subsidiary Debt (whether pursuant to an amendment thereto,
a refinancing thereof, or otherwise), either the Borrower, or the Agents and the
Lenders, shall have the right to request amendments to the provisions of this
Agreement (including, without limitation, default cure periods and pricing
terms), and upon any such request the parties hereto shall negotiate diligently
and in good faith to amend such provisions that the Borrower and the Lenders
mutually agree should be modified; provided, that (i) this Section 11.16 shall
not obligate any party hereto to agree to any such requested amendment(s) and
(ii) if such good faith negotiations shall not have resulted in mutual agreement
among the parties hereto to the requested amendment(s) within 60 days after the
initial request therefor, this Section 11.16 shall thereafter be of no further
force or effect.

<PAGE>   92
                                                                             S-1

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

                                          ORION POWER HOLDINGS, INC.

                                          By
                                            ----------------------------
                                               Name:
                                               Title:

                                          UNION BANK OF CALIFORNIA, N.A., as
                                           Administrative Agent

                                          By
                                            ----------------------------
                                               Name:
                                               Title:

                                          CIBC WORLD MARKETS CORP., as
                                           Syndication Agent

                                          By
                                            ----------------------------
                                               Name:
                                               Title:

                                          THE BANK OF NOVA SCOTIA, as
                                           Documentation Agent

                                          By
                                            ----------------------------
                                               Name:
                                               Title:

<PAGE>   93
                                                                             S-2

COMMITMENT                                    BANK

$20,000,000                                   UNION BANK OF CALIFORNIA, N.A.

                                              By
                                                ----------------------------
                                                   Name:
                                                   Title:

$20,000,000                                   CANADIAN IMPERIAL BANK OF COMMERCE

                                              By
                                                ----------------------------
                                                   Name:
                                                   Title:

$20,000,000                                   THE BANK OF NOVA SCOTIA

                                              By
                                                ----------------------------
                                                   Name:
                                                   Title:

$15,000,000                                   BAYERISCHE HYPO- UND VEREINSBANK
                                              AG, NEW YORK BRANCH

                                              By
                                                ----------------------------
                                                   Name:
                                                   Title:

                                              By
                                                ----------------------------
                                                   Name:
                                                   Title:
<PAGE>   94

                                                                       EXHIBIT A

                           FORM OF NOTICE OF BORROWING

                                                                          [Date]

Union Bank of California, N.A., as Administrative
  Agent for the Lenders parties to the
  Credit Agreement referred to below

Attention:        _______________

Ladies and Gentlemen:

         The undersigned, Orion Power Holdings, Inc. (the "BORROWER"), refers to
the Credit Agreement, dated as of July 27, 2000 (as amended, modified or
supplemented from time to time, the "CREDIT AGREEMENT", the terms defined
therein and not otherwise defined herein being used herein as therein defined),
among the Borrower, the Lenders named therein, the Issuing Banks from time to
time parties thereto, Union Bank of California, N.A., as Administrative Agent,
CIBC World Markets Corp., as Syndication Agent, and The Bank of Nova Scotia, as
Documentation Agent, and hereby gives you notice, irrevocably, pursuant to
Section 3.01 of the Credit Agreement that the undersigned hereby requests a
Borrowing under the Credit Agreement, and in that connection sets forth below
the information relating to such Borrowing (the "PROPOSED BORROWING") as
required by Section 3.01(a) of the Credit Agreement:

         (i)      The Business Day of the Proposed Borrowing is          ,     .
                                                                ------ --  ----

         (ii)     The Type of Loans comprising the Proposed Borrowing is [ABR
Loans] [Eurodollar Rate Loans].

         (iii)    The aggregate amount of the Proposed Borrowing is $          .
                                                                     ----------

         (1)[(iv) The initial Interest Period for each Loan made as part of
the Proposed Borrowing is      months.]
                          ----

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

  (1) To be included for a Proposed Borrowing comprised of Eurodollar Rate
      Loans.

<PAGE>   95
                                                                               2

         The undersigned hereby acknowledges that the delivery of this Notice of
Borrowing shall constitute a representation and warranty by the Borrower that,
on the date of the Proposed Borrowing, the statements contained in Section
6.03(a) of the Credit Agreement are true.

                                            Very truly yours,

                                            ORION POWER HOLDINGS, INC.

                                            By
                                              ----------------------------------
                                                Name:
                                                Title:

<PAGE>   96

                                                                       EXHIBIT B

                          FORM OF NOTICE OF CONVERSION

                                                                          [Date]

Union Bank of California, N.A., as Administrative
  Agent for the Lenders parties to the
  Credit Agreement referred to below

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

Ladies and Gentlemen:

         The undersigned, Orion Power Holdings, Inc. (the "BORROWER"), refers to
the Credit Agreement, dated as of July 27, 2000 (as amended, modified or
supplemented from time to time, the "CREDIT AGREEMENT", the terms defined
therein and not otherwise defined herein being used herein as therein defined),
among the Borrower, the Lenders named therein, the Issuing Banks from time to
time parties thereto, Union Bank of California, N.A., as Administrative Agent,
CIBC World Markets Corp., as Syndication Agent, and The Bank of Nova Scotia, as
Documentation Agent, and hereby gives you notice, irrevocably, pursuant to
Section 3.02 of the Credit Agreement that the undersigned hereby requests a
Conversion under the Credit Agreement, and in that connection sets forth below
the information relating to such Conversion (the "PROPOSED CONVERSION") as
required by Section 3.02 of the Credit Agreement:

         (i)      The Business Day of the Proposed Conversion is          ,    .
                                                                 ------ --  ---

         (ii)     The Type of Loans comprising the Proposed Conversion is [ABR
Loans] [Eurodollar Rate Loans].

         (iii)    The aggregate amount of the Proposed Conversion is  $        .
                                                                       --------

         (iv)     The Type of Loans to which such Loans are proposed to be
Converted is [ABR Loans] [Eurodollar Rate Loans].

<PAGE>   97
                                                                               2

         (v)      The Interest Period for each Loan made as part of the Proposed
Conversion is      month(s).(1)
              ----

         The undersigned hereby certifies that the Borrower's request for the
Proposed Conversion is made in compliance with Sections 3.02, 3.03 and 3.04 of
the Credit Agreement. The undersigned hereby acknowledges that the delivery of
this Notice of Conversion shall constitute a representation and warranty by the
Borrower that, on the date of the Proposed Conversion, the statements contained
in Section 6.03(a) of the Credit Agreement are true.

                                            Very truly yours,

                                            ORION POWER HOLDINGS, INC.

                                            By
                                              ----------------------------------
                                                Name:
                                                Title:

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

  (1) Delete for ABR Loans.

<PAGE>   98

                                                                       EXHIBIT C

                   FORM OF OPINION OF SPECIAL NEW YORK COUNSEL
                                 TO THE BORROWER

                                  July 27, 2000

Union Bank of California, N.A.                The Bank of Nova Scotia
445 South Figueroa Street                     One Liberty Plaza
Los Angeles, California 90071                 New York, New York 10006

CIBC World Markets Corp.                      Bayerische Hypo-und Vereinsbank AG
425 Lexington Avenue                          150 East 42nd Street
New York, New York 10017                      New York, New York 10017

            Re: Orion 2000 Credit Agreement for $75,000,000 Financing

Ladies and Gentlemen:

         We have acted as special New York counsel to Orion Power Holdings,
Inc., a Delaware corporation ("Borrower"), in connection with (i) the Credit
Agreement dated as of July 27, 2000 (the "Credit Agreement") among Borrower, the
Lenders and Issuing Banks from time to time party thereto, Union Bank of
California, N.A., as administrative agent for the Lenders (the "Administrative
Agent"), The Bank of Nova Scotia as the documentation agent (the "Documentation
Agent") and CIBC World Markets Corp., as syndication agent for the Lenders (the
"Syndication Agent"), and (ii) the agreements, instruments and other documents
referred to in the next paragraph. All capitalized terms used but not defined
herein have the respective meanings given to such terms in the Credit Agreement.
This opinion letter is delivered to you pursuant to Section 6.01(a)(viii)(A) of
the Credit Agreement.

         In rendering the opinions expressed below, we have examined the
agreements, instruments and other documents set forth in Schedule I hereto (the
"Opinion Documents") (with each such Opinion Document referred to therein
individually by the defined term ascribed thereto in the Credit Agreement). We
have also examined such records of Borrower and such agreements, instruments and
other documents as we have deemed necessary as a basis for the opinions
expressed below. In addition, we have without independent investigation relied
upon and assumed the truth and accuracy of all matters contained in the
Officer's Certificates of Borrower, attached hereto as Annex 1 and Annex 2.
Furthermore, we have obtained and relied upon such certificates and assurances
from public officials as we have deemed necessary for purposes of our opinions,
and our opinion in paragraph 1 as to the good standing of Borrower is

<PAGE>   99

Union Bank of California, N.A., et al.
July 27, 2000
Page 2

based solely upon such certificates. We have not, however, conducted any search
of public records concerning litigation or other legal proceedings.

         In our examination, we have assumed: (i) the genuineness and validity
of all signatures; (ii) the legal capacity of all natural persons; (iii) the
authenticity of all documents submitted to us as originals and the conformity to
originals of all documents submitted to us as copies or drafts; (iv) the due
organization, valid existence, and good standing of each party (except Borrower)
and the due authorization, execution and delivery of each Opinion Document
referred to above by each party thereto (except Borrower); (v) the full power,
authority and legal right of each party to such Opinion Documents (except
Borrower) to enter into the same; (vi) that each Opinion Document referred to
above is the legal, valid and binding obligation of each party thereto (other
than Borrower) enforceable against each such party in accordance with its terms;
(vii) that except as expressly set forth in paragraph 10 below, with respect to
which this assumption shall not apply, the parties have obtained and will obtain
and will maintain in full force and effect all necessary Governmental Approvals
for conducting their respective operations; (viii) the absence of evidence
extrinsic to the provisions of the written agreements between the parties that
the parties intended a meaning contrary to that expressed by those provisions;
(ix) the identity and capacity of all individuals acting or purporting to act as
public officials; (x) that each party to the Opinion Documents (other than
Borrower) has satisfied those legal requirements that are applicable to such
party to the extent necessary to entitle such party to enforce the Opinion
Documents to which it is a party; (xi) that each party to the Opinion Documents
has and will act in accordance with, and has and will refrain from taking any
action that is forbidden by, the terms and conditions of the Opinion Documents
to which it is a party; (xii) that each party to the Opinion Documents has not
and will not in the future take any discretionary action (including a decision
not to act) permitted under the Opinion Documents to which it is a party that
would result in a violation of law or constitute a breach or default under any
other agreement or court order to which such party may be subject; (xiii) that
there have been no express or implied amendments, waivers or estoppels with
respect to any of those Opinion Documents which were executed and delivered
prior to the date of this opinion letter (provided, that to our knowledge we are
not aware of any such amendments, waivers or estoppels except as set forth in
Schedule I); and (xiv) that no defaults, breaches or other failures to perform
have occurred and are continuing under any of the Opinion Documents which were
executed and delivered prior to the date of this opinion letter. We have also
without independent investigation relied upon the truth and accuracy of
representations and warranties as to factual matters contained in or made
pursuant to the documents referenced above and certificates delivered
thereunder.

         Whenever a statement herein is qualified by the phrase "to our
knowledge," it is intended to indicate that, during the course of our
representation of Borrower pursuant to the transactions contemplated by the
Opinion Documents, no information that would give current actual knowledge with
respect to the inaccuracy of such statement has come to the attention of those
attorneys in this firm who have rendered substantial legal services in
connection with the

<PAGE>   100

Union Bank of California, N.A., et al.
July 27, 2000
Page 3

representation described in the first paragraph of this opinion letter. With
respect to certain of such statements, we have made limited inquiry of Borrower
regarding matters covered by such statements, but we have made no independent
investigation as to the accuracy of such statements and none should be inferred
or implied; provided, however, that nothing has come to our attention that would
provide current actual knowledge of the inaccuracy of any such statement to any
of those attorneys. We have relied, with your permission, on the statements
contained in the Officer's Certificates of Borrower attached hereto as Annex 1
and Annex 2 as to the factual matters contained therein but we have made no
independent investigation as to the accuracy of such statements and none should
be inferred or implied; provided, however, that nothing has come to our
attention that would provide current actual knowledge of the inaccuracy of any
such statement to any of those attorneys.

         Based upon and subject to the foregoing and subject also to the
exceptions, assumptions, comments and qualifications set forth below, and having
considered such questions of law as we have deemed necessary as a basis for the
opinions expressed below, we are of the opinion that:

1.       Borrower is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware.

2.       Borrower has all requisite corporate power to own its property and
assets, to transact the business in which it is presently engaged and in which
it presently proposes to be engaged, and to execute and deliver, and to perform
its obligations under, the Opinion Documents.

3.       The execution, delivery and performance by Borrower of each Opinion
Document have been duly authorized by all necessary corporate action on the part
of Borrower.

4.       Each Opinion Document has been duly executed and delivered by Borrower.

5.       Each Opinion Document constitutes the legal, valid and binding
obligation of Borrower, enforceable against Borrower in accordance with its
terms.

6.       The execution and delivery by Borrower of, and the performance by
Borrower of its obligations under, each of the Opinion Documents do not and will
not violate any Applicable Law (as hereinafter defined). "Applicable Law" means
the Delaware General Corporation Law and those laws, statutes, rules and
regulations of the State of New York and of the United States of America which,
in our experience, are normally applicable to general business corporations
which engage in transactions of the type contemplated in the Opinion Documents;
provided, that we express no opinion as to any law, statute, rule or regulation
(a) of the type described in the penultimate paragraph of this opinion, or (b)
to which Borrower may be subject as a result of the legal or regulatory status
of the Administrative Agent, any Issuing Bank or any Lender or their involvement
in the transactions contemplated by the Opinion Documents.

<PAGE>   101

Union Bank of California, N.A., et al.
July 27, 2000
Page 4

7.       The execution and delivery by the Borrower of, and the performance by
Borrower of its obligations under, each of the Opinion Documents to which it is
a party do not and will not (a) conflict with or violate any provision of the
certificate of incorporation or bylaws of Borrower, or (b) conflict with or
violate or result in a breach of any of the provisions of, or constitute a
default under, any of the Applicable Contracts (as hereinafter defined) or any
other Opinion Document (excluding any covenant, restriction or provisions of any
such agreement or instrument with respect to financial covenants, ratios or
tests or any aspect of the financial condition or results of operation of
Borrower), or result in the creation or imposition of (or the obligation to
create or impose) a lien, charge or encumbrance (except Permitted Liens) upon
any of the properties or assets of Borrower. "Applicable Contracts" means those
agreements and instruments set forth on Schedule II hereto.

8.       To our knowledge, (a) there are no injunctions, writs, judgments,
preliminary restraining orders or orders of any nature issued by an arbitrator,
court or other governmental authority or regulatory agency against or affecting
Borrower in connection with the transactions contemplated by the Opinion
Documents, and (b) there are no actions, suits, arbitrations, litigations,
proceedings or investigations pending or threatened against the Borrower in any
court or before any other governmental authority or regulatory agency or any
arbitrator.

9.       A New York state court or a United States federal court sitting in New
York would give effect to the choice of New York law to govern the Opinion
Documents which select New York law as the law by which such Opinion Documents
will be governed, as provided in Section 5-1401 of the General Obligations Law
of the State of New York.

10.      No authorization, approval or consent of, and no notice to or filing or
registration with, any governmental authority or regulatory agency of the United
States of America, the State of New York or, pursuant to the Delaware General
Corporation Law, the State of Delaware is required on the part of Borrower for
the execution, delivery or performance by Borrower of any of the Opinion
Documents or the legality, validity and binding effect of any Opinion Document.

11.      The making of the Loans to Borrower and the application of the proceeds
thereof by Borrower pursuant to and in accordance with the Credit Agreement will
not violate Regulations T, U or X of the Board of Governors of the Federal
Reserve System.

12.      The Borrower is not an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.

         Our opinions in paragraph 5 above are subject to:

         (1)      limitations imposed by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or affecting the enforcement of
creditor's rights generally, including,

<PAGE>   102

Union Bank of California, N.A., et al.
July 27, 2000
Page 5

without limitation, laws relating to fraudulent transfers or conveyances,
preferences and equitable subordination;

         (2)      general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law), including
without limitation (i) the possible nonavailability of specific performance,
injunctive relief or any other equitable remedy, and (ii) concepts of
materiality, reasonableness, good faith and fair dealing;

         (3)      the unenforceability under certain circumstances of provisions
imposing liquidated damages or late payment charges if such amounts are
determined to be penalties in light of the actual amount of damages incurred;

         (4)      laws rendering unenforceable indemnification obligations that
are contrary to Federal or state securities laws and the public policy
underlying such laws;

         (5)      the unenforceability under certain circumstances of provisions
in any Opinion Document purporting to release, exculpate or exempt any party
from, or requiring indemnification of a party for, liability for its acts or
omissions, or purporting to impose a duty upon any party to indemnify any other
party, when any claimed damages result from the negligence, gross negligence,
recklessness, willful misconduct or unlawful conduct of the party seeking such
indemnity;

         (6)      the enforceability of provisions in the Opinion Documents to
the effect that terms may not be waived or modified except in writing may be
limited under certain circumstances;

         (7)      the qualification that certain provisions of any such document
to the effect that rights or remedies are not exclusive, that every right or
remedy is cumulative and may be exercised in addition to any other right or
remedy, that the election of some particular remedy does not preclude recourse
to one or more others or that failure to exercise or delay in exercising rights
or remedies will not operate as a waiver of any such right or remedy, may be
unenforceable in whole or in part; and

         (8)      the qualification that provisions in any such document that
contain a waiver of (i) the benefits of law or of statutory, regulatory, or
constitutional rights, unless and to the extent the law, statute, regulation or
constitution explicitly allows such waivers or (ii) unknown future defenses, may
be unenforceable in whole or in part.

         We express no opinion as to the effect of the laws of any jurisdiction
in which any of the Issuing Banks, the Lenders or the Administrative Agent is
located (other than the State of New York) that limit the interest, fees or
other charges or amounts such Persons may impose for the loan or use of money or
other credit.

<PAGE>   103

Union Bank of California, N.A., et al.
July 27, 2000
Page 6

         We express no opinion on the laws of any jurisdiction other than the
federal laws of the United States, the laws of the State of New York and the
Delaware General Corporation Law. We express no opinion as to (i) any law, rule,
statute, regulation, ordinance, code, order, judgment or published decree
relating to (A) environmental matters, including, without limitation, pollution,
protection of the environment or any Hazardous Substance, or any Governmental
Approval relating thereto, (B) labor, employee rights and benefits, and worker
or occupational safety and health, including ERISA, (C) taxation, (D) planning,
zoning, land use, building or construction matters, (E) antitrust or unfair
competition, including, without limitation, the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and (F) the ownership, transfer, use, sale
or subdivision of real property, (ii) except as expressly set forth in paragraph
10 above, and subject to and without limiting clause (i)(A) above, clause (iii)
below and the third paragraph of this opinion letter, any Governmental Approval,
(iii) utility regulatory matters, including, without limitation, any matters
with respect to the Federal Power Act of 1920, the Public Utility Holding
Company Act of 1935, as amended, the Natural Gas Act (15 U.S.C. Section 717 et
seq.), as amended, the Public Utility Regulatory Policies Act of 1970, as
amended, and Federal Energy Regulatory Commission rules, regulations and orders
and any New York laws, rules or regulations relating to utilities or ownership
or operation of electric generating facilities (including, without limitation,
New York Public Service Law or any rules and regulations of the New York Public
Service Commission) or transmission assets or systems (including, without
limitation, the New York Independent System Operator), (iv) any permit, license
or approval required for the ownership, operation and maintenance of Borrower's
assets or any of the Borrower's subsidiaries' assets, (v) with respect to our
opinion in paragraph 6 above, any law, rule, statute, regulation, ordinance,
code, order, judgment or published decree, the contravention of which would not
result in a Material Adverse Effect, (vi) patent, trademark or copyright
statutes, rules or regulations, (vii) any choice of law provision in any Opinion
Document except as set forth in paragraph 9 above, (viii) any provision in any
Opinion Document appointing one party as an attorney-in-fact of any adverse
party or providing that the decision of any particular Person will be conclusive
or binding on others, (ix) except as expressly set forth in paragraph 12 above,
any state or federal securities laws or regulations, (x) any right in or title
to any asset or property, (xi) any provision in any Opinion Document that
provides for the appointment of a receiver, (xii) any law, rule, regulation,
ordinance, code or similar provision of law of any county, municipality, or
similar political subdivision or any agency or instrumentality thereof, (xiii)
the enforceability of any provision that purports to grant rights of
subrogation, (xiv) the enforceability of any provision which purports to award
attorneys' fees solely to one party, or (xv) the enforceability of any provision
which is contrary to the public policy of any jurisdiction.

         This opinion letter is delivered as of the date hereof and is based on
the facts and circumstances and upon the current state of the law existing as of
the date hereof. It is possible that future changes or developments in facts,
circumstances, or the federal laws of the United States, the laws of the State
of New York and the Delaware General Corporation Law, could alter or affect such
opinions; however, we undertake no obligation to update or supplement this

<PAGE>   104

Union Bank of California, N.A., et al.
July 27, 2000
Page 7

opinion. Without our written consent: (i) no Person other than you may rely on
this letter for any purpose; (ii) this letter may not be cited or quoted in any
financial statement, prospectus, private placement memorandum or other similar
document; (iii) this letter may not be cited or quoted in any other document or
communication which might encourage reliance upon this letter by any person or
for any purpose excluded by the restrictions in this paragraph; and (iv) copies
of this letter may not be furnished to anyone for purposes of encouraging such
reliance. Notwithstanding the foregoing, (i) any Person which on or after the
date hereof becomes a Lender or Issuing Bank may be provided a copy of, and may
rely upon, this opinion letter as if it were addressed to such Person on and as
of the Commitment Closing Date, subject to the limitations contained in this
paragraph, and (ii) the Administrative Agent, any Lender or any Issuing Bank may
provide a copy of this opinion letter to any governmental entity which requires
such a copy and which has regulatory or supervisory authority over the
Administrative Agent, such Lender or such Issuing Bank, as the case may be (but
no recipient of such a copy pursuant to this clause (ii) shall be entitled to
rely thereon).

                                       Very truly yours,

                                   THELEN REID & PRIEST LLP

TBG/WFO/SPH

<PAGE>   105

                                                                       EXHIBIT D

                  FORM OF OPINION OF SPECIAL ENERGY REGULATORY
                             COUNSEL TO THE BORROWER

                                  July 27, 2000

Union Bank of California, N.A.
445 South Figueroa Street
Los Angeles, California  90071

CIBC World Markets Corp.
425 Lexington Avenue
New York, New York 10017

Ladies and Gentlemen:

         We are issuing this opinion letter in our capacity as special energy
regulatory legal counsel to Orion Power Holdings, Inc., a Delaware corporation
(the "Company"), in response to the requirement in Section 6.01(a)(viii)(B) of
the Credit Agreement (the "Credit Agreement"), dated as of July 27, 2000, among
the Company, Union Bank of California, N.A. ("UBC"), as Administrative Agent,
CIBC World Markets Corp. ("CIBC"), as Syndication Agent, The Bank of Nova
Scotia, as Documentation Agent, the banks named therein and from time to time a
party thereto (collectively, the "Lenders"), and the letter of credit issuing
banks from time to time a party thereto (collectively, the "Issuing Banks").
UBC, CIBC, the Lenders and the Issuing Banks are herein called "you."

         Capitalized terms used herein and not otherwise defined shall have the
meanings ascribed thereto in the Credit Agreement, provided that references to
any document mean such document in the form executed and delivered as of the
date hereof.

         The following is based exclusively on specific federal energy
regulatory statutes and orders, rules or regulations regarding (a) the
generation, transmission, marketing or sale of electricity or (b) the ownership
or operation of power plants. Subject to the assumptions, qualifications,
exclusions and other limitations which are identified in this letter, we advise
you that:

         1.       To our knowledge, the Company is not (i) subject to regulation
                  as a "holding company" or a "subsidiary company" of a holding
                  company or an "affiliate" of a subsidiary company or holding
                  company or a "public-utility company" under the Public Utility
                  Holding Company Act of 1935, as amended, or (ii) subject to
                  regulation under the Federal Power Act of 1920, as amended,
                  other than as

<PAGE>   106

Union Bank of California, N.A.
July ___, 2000
Page 2

                  contemplated by 18 C.F.R. Section 292.601(c) and other than
                  due to its subsidiaries' status as power marketers and owners
                  of certain electric transmission facilities subject to the
                  Federal Power Act.

         2.       No authorization, approval or consent of, and no notice to or
                  filing or registration with, the Federal Energy Regulatory
                  Commission ("FERC") or the Securities and Exchange Commission
                  ("SEC") under its Public Utility Holding Company Act
                  jurisdiction is required on the part of the Company for the
                  execution, delivery or performance by the Company of any of
                  the Loan Documents.

         For purposes of this opinion letter, we have relied, without
investigation, upon each of the following assumptions: (i) Each document
submitted to us for review is accurate and complete, each such document that is
an original is authentic, each such document that is a copy conforms to an
authentic original, and all signatures on each such document are genuine; (ii)
there are no agreements or understandings among the parties, written or oral,
and there is no usage of trade or course of prior dealing among the parties that
would, in either case, define, supplement or qualify the terms of the Credit
Agreement or the other Loan Documents; (iii) the constitutionality or validity
of a relevant statute, rule, regulation or agency action is not in issue; (iv)
all parties to the Credit Agreement and the other Loan Documents will act in
accordance with, and will refrain from taking any action that is forbidden by,
the terms and conditions of the Credit Agreement and the other Loan Documents;
(v) all agreements other than the Credit Agreement and the other Loan Documents
(if any) with respect to which we have provided advice in our letter or reviewed
in connection with our letter would be enforced as written; (vi) the Company and
its subsidiaries will not in the future take any discretionary action (including
a decision not to act) permitted under the Credit Agreement and the other Loan
Documents that would result in a violation of law or constitute a breach or
default under any other agreements or court orders to which the Company or its
subsidiaries may be subject; (vii) except for those governmental and regulatory
approvals that we have specifically opined upon herein, the Company and its
subsidiaries have obtained (and will in the future obtain) all permits and
governmental approvals required, and have taken (and will in the future take)
all actions required, relevant to the consummation of the transactions or
performance of the Credit Agreement and the other Loan Documents; and (viii)
each person who has taken any action relevant to any of our opinions in the
capacity of director or officer was duly elected to that director or officer
position and held that position when such action was taken. In addition, we have
relied without any independent verification upon: (i) information contained in
certificates and approvals obtained from governmental authorities; (ii) factual
information contained in applications to governmental authorities, the Credit
Agreement and the other Loan Documents; and (iii) factual information we have
obtained from such other sources as we have deemed reasonable. We have assumed
without investigation that there has been no relevant change or development
between the dates as of which the information cited in the preceding sentence
was given and the date of this letter and that the information upon which we
have relied is accurate and does not omit disclosures necessary to prevent such
information from being misleading. For purposes of each opinion, we have relied
upon decisions issued by

                                       2
<PAGE>   107

Union Bank of California, N.A.
July ___, 2000
Page 3

governmental authorities in each relevant jurisdiction, and such opinion is not
intended to provide any conclusion or assurance beyond that conveyed by that
decision.

         While we have not conducted any independent investigation to determine
facts upon which our opinions are based or to obtain information about which
this letter advises you, we confirm that we do not have any actual knowledge
which has caused us to conclude that our reliance and assumptions cited in the
preceding paragraph are unwarranted or that any information supplied in this
letter is wrong. The term "knowledge" whenever it is used in this letter with
respect to our firm means conscious awareness at the time this letter is
delivered on the date it bears by the following Kirkland & Ellis lawyers who
have reviewed the Credit Agreement and the other Loan Documents (herein called
"our Designated Transaction Lawyers"): Mitchell F. Hertz and Katharine
Costenbader.

         Our advice on every legal issue addressed in this letter is based
exclusively on the specific federal energy regulatory statutes and orders, rules
or regulations regarding (a) the generation, transmission, marketing or sale of
electricity or (b) the ownership or operation of power plants. We advise you
that issues addressed by this letter may be governed in whole or in part by
other laws, but we express no opinion as to whether any relevant difference
exists between the laws upon which our opinions are based and any other laws
which may actually govern. We are not providing this opinion letter except in
our capacity as special energy regulatory legal counsel to the Company on issues
relating to the FERC and SEC, under PUHCA and the Federal Power Act, and offer
no opinions on environmental or other matters relating to (a) the generation,
transmission, marketing or sale of electricity or (b) the ownership or operation
of power plants, whether or not addressed in the Credit Agreement or the other
Loan Documents.

         Our advice on each legal issue addressed in this letter represents our
opinion as to how that issue would be resolved were it to be considered by the
highest court of the jurisdiction upon whose law our opinion on that issue is
based. The manner in which any particular issue would be treated in any actual
court case would depend in part on facts and circumstances particular to the
case, and this letter is not intended to guarantee the outcome of any legal
dispute which may arise in the future.

         This letter speaks as of the time of its delivery on the date it bears.
We do not assume any obligation to provide you with any subsequent opinion or
advice by reason of any fact about which our Designated Transaction Lawyers did
not have actual knowledge at that time, by reason of any change subsequent to
that time in any law covered by any of our opinions, or for any other reason.

         You may rely upon this letter only for the purpose served by the
provision in the Credit Agreement cited in the initial paragraph of this letter
in response to which it has been delivered. Without our written consent: (i) no
person other than you may rely on this letter for any purpose; (ii) this letter
may not be cited or quoted in any financial statement, prospectus, private

                                       3
<PAGE>   108

Union Bank of California, N.A.
July ___, 2000
Page 4

placement memorandum or other similar document; (iii) this letter may not be
cited or quoted in any other document or communication which might encourage
reliance upon this letter by any person or for any purpose excluded by the
restrictions in this paragraph; and (iv) except as required by law, copies of
this letter may not be furnished to anyone (except to the Lenders and the
Issuing Banks) for purposes of encouraging such reliance; provided that any
Person who becomes a Lender or Issuing Bank on or after the date hereof may rely
on this opinion as if it were addressed to such Person on and as of the
Commitment Closing Date, subject to the limitations contained in this paragraph.

                                   Sincerely,
                                   Kirkland & Ellis

                                        4
<PAGE>   109

                                                                       EXHIBIT E

                        FORM OF OPINION OF COUNSEL TO THE
                              ADMINISTRATIVE AGENT

                                                              July 27, 2000

To Union Bank of California, N.A., as Administrative
  Agent under the Credit Agreement referred to below, and
  to the Lenders from time to time parties to the Credit
  Agreement referred to below

                  Re:      Orion Power Holdings, Inc.

Ladies and Gentlemen:

         We have acted as special counsel to Union Bank of California, N.A.,
individually and as Administrative Agent, in connection with the execution and
delivery of the Credit Agreement, dated as of July 27, 2000 (the "CREDIT
AGREEMENT"), among Orion Power Holdings, Inc., the Lenders named therein, the
Issuing Banks from time to time party thereto, Union Bank of California, N.A.,
as Administrative Agent, CIBC World Markets Corp., as Syndication Agent, and The
Bank of Nova Scotia, as Documentation Agent. Terms defined in the Credit
Agreement are used herein as therein defined.

         In this connection, we have examined executed counterparts of the
Credit Agreement, together with the other documents listed on Schedule A hereto.

         In our examination of the documents referred to above, we have assumed
the authenticity of all such documents submitted to us as originals, the legal
capacity of all natural persons, the genuineness of all signatures, the due
authority of the parties executing such documents, and the conformity to the
originals of all such documents submitted to us as copies. We have further
assumed that you have evaluated, and are satisfied with, the creditworthiness of
the Borrower and the business and financial terms evidenced by the Loan
Documents. We have relied, as to factual matters, on the documents we have
examined.

         Our opinions expressed below are limited to the law of the State of New
York and the Federal law of the United States, and we do not express any
opinions concerning any other law.

<PAGE>   110

July ___, 2000
Page 2

         Based upon and subject to the foregoing and upon such investigation as
we have deemed necessary, and while we have not independently considered the
matters covered by the opinions listed on Schedule A hereto to the extent
necessary to enable us to express the conclusions stated therein, we are of the
opinion that (a) the Credit Agreement is in substantially acceptable legal form
and (b) the other Loan Documents and the opinions and other documents listed on
Schedule A hereto are substantially responsive to the requirements of the
corresponding subsections of Sections 6.01 and 6.02 of the Credit Agreement
pursuant to which the same have been delivered.

                                Very truly yours,

<PAGE>   111

                                   SCHEDULE A

         Unless otherwise indicated, all documents are dated on or as of July
         27, 2000. Terms defined in the Credit Agreement are used herein as
         therein defined. All section references are to those contained in the
         Credit Agreement.

<PAGE>   112

                                                                       EXHIBIT F

                            FORM OF LENDER ASSIGNMENT

                                                         Dated            ,
                                                               ------- ---  ----

         Reference is made to the Credit Agreement, dated as of July 27, 2000
(said Agreement, as it may hereafter be amended, supplemented or otherwise
modified from time to time, being the "CREDIT AGREEMENT", the terms defined
therein and not otherwise defined herein being used herein as therein defined),
among Orion Power Holdings, Inc. (the "Borrower"), the Lenders named therein,
the Issuing Banks from time to time parties thereto, Union Bank of California,
N.A., as Administrative Agent, CIBC World Markets Corp., as Syndication Agent,
and The Bank of Nova Scotia, as Documentation Agent. Pursuant to the Credit
Agreement, ___________ (the "ASSIGNOR") has committed to make loans ("LOANS") to
the Borrower[, which Loans are evidenced by a promissory note (the "NOTE")
issued by the Borrower to the Assignor,] and to participate in Extensions of
Credit resulting from the issuance (or extension, modification or amendment) of
any Letter of Credit.

         The Assignor and _____________________________ (the "ASSIGNEE") agree
as follows:

         1.       The Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, that interest in and to
all of the Assignor's rights and obligations under the Credit Agreement as of
the date hereof which represents the percentage interest specified on Schedule 1
of all outstanding rights and obligations under the Credit Agreement (the
"ASSIGNED INTEREST"), including, without limitation, such interest in the
Assignor's Commitment[,] [and] the Loans owing to the Assignor [and the Note
held by the Assignor]. After giving effect to such sale and assignment, the
Assignee's Commitment and the amount of the Loans owing to the Assignee will be
as set forth in Section 2 of Schedule 1. The effective date of this sale and
assignment shall be the date specified in Section 3 of Schedule 1 hereto (the
"EFFECTIVE DATE").

         2.       On ________ __, ____, the Assignee will pay to the Assignor,
in same day funds, at such address and account as the Assignor shall advise the
Assignee, $________, and (subject to the satisfaction of the requirements set
forth in Section 11.07(d) of the Credit Agreement) the sale and assignment
contemplated

<PAGE>   113
                                                                               2

hereby shall thereupon become effective as of the Effective Date. From and after
the Effective Date, the Assignor agrees that the Assignee shall be entitled to
all rights, powers and privileges of the Assignor under the Credit Agreement
[and the Note] to the extent of the Assigned Interest, including without
limitation (i) the right to receive all payments in respect of the Assigned
Interest for the period from and after the Effective Date, whether on account of
principal, interest, fees, indemnities in respect of claims arising after the
Effective Date, increased costs, additional amounts or otherwise, (ii) the right
to vote and to instruct the Administrative Agent under the Credit Agreement
according to its Percentage based on the Assigned Interest, (iii) the right to
set-off and to appropriate and apply deposits of the Borrower as set forth in
the Credit Agreement and (iv) the right to receive notices, requests, demands
and other communications. The Assignor agrees that it will promptly remit to the
Assignee any amount received by it in respect of the Assigned Interest (whether
from the Borrower, the Administrative Agent or otherwise) in the same funds in
which such amount is received by the Assignor.

         3.       The Assignor (i) represents and warrants that it is the legal
and beneficial owner of the interest being assigned by it hereunder and that
such interest is free and clear of any adverse claim; (ii) makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with any Loan
Document or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of any Loan Document or any other instrument or document
furnished pursuant thereto; (iii) makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the
Borrower or any of its Subsidiaries or the performance or observance by the
Borrower of any of its obligations under any Loan Document or any other
instrument or document furnished pursuant thereto; and (iv) represents and
warrants to the Assignee and the Administrative Agent that it has duly executed
and delivered this Assignment and that the execution, delivery and performance
by the Assignor of this Assignment have been duly authorized by all necessary
action (corporate or otherwise). Except as specified in this Section 3, the
assignment of the Assigned Interest contemplated hereby shall be without
recourse to the Assignor.

         4.       The Assignee (i) confirms that it has received a copy of each
Loan Document, together with copies of the financial statements referred to in
Section 7.01(f) of the Credit Agreement and such other documents and information
as it has deemed appropriate to make its own credit analysis and decision to
enter into this Assignment and purchase the Assigned Interest, (ii) agrees that
it will, independently and without reliance upon the Agents, the Assignor or any
other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Loan Documents, (iii) confirms that it satisfies the
requirements of an Eligible Assignee, (iv) appoints and authorizes the
Administrative Agent to take

<PAGE>   114
                                                                               3

such action as agent on its behalf and to exercise such powers under the Loan
Documents as are delegated to the Administrative Agent by the terms thereof,
together with such powers as are reasonably incidental thereto, (v) agrees that
it will perform in accordance with their terms all of the obligations which by
the terms of the Loan Documents are required to be performed by it as a Lender
and (vi) represents and warrants to the Assignor and the Administrative Agent
that it has duly executed and delivered this Assignment and that the execution,
delivery and performance by the Assignee of this Assignment have been duly
authorized by all necessary action (corporate or otherwise).

         5.       This Assignment may be executed in any number of counterparts
and by different parties in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute but one and the same instrument.

         6.       This Assignment shall be governed by, and construed in
accordance with, the laws of the State of New York.

         IN WITNESS WHEREOF, the parties hereto have caused this Assignment to
be executed by their respective officers thereunto duly authorized, as of the
date first above written, such execution being made on Schedule 1 hereto.

<PAGE>   115

                                   Schedule 1
                                       to
                              Assignment Agreement

                            Dated             ,
                                  --------- --  ----

<TABLE>
<S>                                                                     <C>
Section 1.
---------

         Percentage Interest:                                                                   %
                                                                                           -----

Section 2.
---------

         Assignee's Commitment:                                                      $
                                                                                      -----------

         Outstanding Principal Amount of
              Loans owing to the Assignee:                                           $
                                                                                      -----------

Section 3.
---------

         Effective Date:(1)                                                               ,
                                                                               -------- --  ----
</TABLE>

                                    [NAME OF ASSIGNOR]

                                    By:
                                       ---------------------------------
                                          Name:
                                          Title:

                                    [NAME OF ASSIGNEE]

                                    By:
                                       ---------------------------------
                                          Name:
                                          Title:

                                    Domestic Lending Office:

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

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

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

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

(1) Such date must be at least five Business Days after the date of the
    Lender Assignment.

<PAGE>   116
                                                                               2

                                    Eurodollar Lending Office:

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

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

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

Consented to:(2)

ORION POWER HOLDINGS, INC.

By:
   ---------------------------------
     Name:
     Title:

UNION BANK OF CALIFORNIA, N.A.,
  as Administrative Agent

By:
   ---------------------------------
     Name:
     Title:

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

(2) Consent of the Borrower and the Administrative Agent is required for all
    assignments except (i) for any assignment by a Lender to any of its
    Affiliates or to any other Lender or any of its Affiliates and (ii) the
    consent of the Borrower is not required if an Event of Default has occurred
    and is continuing.

<PAGE>   117

                                                                       EXHIBIT G

                         FORM OF ISSUING BANK AGREEMENT

         ISSUING BANK AGREEMENT, dated as of ________ ___, 20__, between ORION
POWER HOLDINGS, INC., a Delaware corporation (the "BORROWER"), and
____________________________ (the "NEW ISSUING BANK").

                             PRELIMINARY STATEMENTS

         (1)      The Borrower has entered into a Credit Agreement, dated as of
July 27, 2000 (said Agreement, as amended, modified or supplemented from time to
time, being the "CREDIT AGREEMENT"), with certain banks named therein and from
time to time parties thereto, the letter of credit issuing banks named therein
and from time to time parties thereto, Union Bank of California, N.A., as
Administrative Agent, CIBC World Markets Corp., as Syndication Agent, and The
Bank of Nova Scotia, as Documentation Agent. Unless otherwise defined herein,
capitalized terms used herein shall have the meaning assigned to such terms in
the Credit Agreement.

         (2)      Pursuant to Section 4.01 of the Credit Agreement, the Borrower
may from time to time identify and arrange for one or more of the Lenders or any
other financial institution to act as an Issuing Bank thereunder and issue one
or more Letters of Credit. The Borrower desires to designate the New Issuing
Bank as an Issuing Bank under the Credit Agreement. Subject to the terms and
conditions hereof and of the Credit Agreement, the New Issuing Bank has agreed
to act as an Issuing Bank and to issue Letters of Credit from time to time at
the request of and for the account of the Borrower in an aggregate stated amount
not to exceed $___________(1) (such amount referred to herein as the
"COMMITMENT") at any one time outstanding.

         NOW, THEREFORE, in consideration of the premises and in order to induce
the New Issuing Bank to issue Letters of Credit from time to time, the parties
hereto agree as follows:

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

(1).       Such amount may not exceed the Letter of Credit Sublimit.

<PAGE>   118
                                                                               2

                                    ARTICLE I
                                   DEFINITIONS

         SECTION 1.01. CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):

         "BENEFICIARY" means, with respect to any Letter of Credit, the
beneficiary of such Letter of Credit.

         "COMMITMENT" has the meaning assigned to that term in Preliminary
Statement (2) hereof.

         "COMMITMENT TERMINATION DATE" has the meaning assigned to that term in
Section 3.01 hereof.

         "LETTER OF CREDIT" means a "Letter of Credit" (as such term is defined
in the Credit Agreement) issued by the New Issuing Bank, in form and substance
satisfactory to the New Issuing Bank, the Borrower and the Administrative Agent.

         "STATED TERMINATION DATE" means, with respect to any Letter of Credit,
the stated termination date of such Letter of Credit; provided, that the Stated
Termination Date of each Letter of Credit shall in no event be later than the
earlier to occur of (i) the date that occurs one year after the date of issuance
of such Letter of Credit and (ii) the date that is five Business Days prior to
the Termination Date.

         SECTION 1.02. COMPUTATION OF TIME PERIODS. Computation of a period of
time from a specified date to a later specified date shall be made in accordance
with the Credit Agreement.

         SECTION 1.03. ACCOUNTING TERMS. All accounting terms not specifically
defined herein or in the Credit Agreement shall be construed in accordance with
generally accepted United States accounting principles as in effect as of the
date hereof consistently applied, except as otherwise stated herein.

                                   ARTICLE II
                              THE CREDIT AGREEMENT

         SECTION 2.01. CREDIT AGREEMENT. (a) The parties hereto acknowledge and
agree that this Agreement is an "Issuing Bank Agreement" under the Credit
Agreement, and that the parties hereto shall be entitled to the rights and
remedies, and bound by the obligations, accorded to the parties in interest to
an "Issuing Bank Agreement" as so provided in the Credit Agreement. The parties
hereto hereby further acknowledge and agree that the Administrative Agent and
the Lenders are intended third-party beneficiaries hereof and are entitled
(acting

<PAGE>   119
                                                                               3

through the Administrative Agent, in the case of the Lenders) to the rights and
benefits accorded hereunder.

         (b) The New Issuing Bank hereby acknowledges and agrees that it is an
"Issuing Bank" under the Credit Agreement, that, by its execution and delivery
hereof, it is deemed a party to the Credit Agreement as if it were a signatory
thereof in such capacity and that it assumes all obligations, and acquires all
rights and remedies, of an "Issuing Bank" under the Credit Agreement.

         (c) In the event of any conflict between the terms of this Agreement
and the terms of the Credit Agreement (unless such conflict arises solely as a
result of an amendment to the Credit Agreement made after the date hereof
without the written consent of the New Issuing Bank thereto), the terms of the
Credit Agreement shall control and such conflicting terms hereunder shall be of
no force or effect.

                                   ARTICLE III
                    AMOUNT AND TERMS OF THE LETTERS OF CREDIT

         SECTION 3.01. THE LETTERS OF CREDIT. The New Issuing Bank agrees, on
the terms and conditions hereinafter set forth, to issue each Letter of Credit
to the Beneficiary designated therefor by the Borrower pursuant to the
applicable Request for Issuance on any Business Day during the period from the
date hereof to and including the date that occurs ten Business Days immediately
preceding the Termination Date (the "COMMITMENT TERMINATION DATE"), in an
aggregate stated amount not to exceed the amount of the Commitment less the
aggregate stated amount of all previously issued and outstanding Letters of
Credit, and expiring on or before the Stated Termination Date designated by the
Borrower in such Request for Issuance.

         SECTION 3.02. ISSUING THE LETTERS OF CREDIT. Each Letter of Credit
shall be issued pursuant to Section 4.02 of the Credit Agreement.

         SECTION 3.03. LETTER OF CREDIT FEES. The Borrower agrees to pay to the
New Issuing Bank for its own account such fronting or other fees as may be
agreed upon from time to time by the Borrower and the New Issuing Bank; each
such fee agreement is incorporated herein by reference for the benefit of the
New Issuing Bank.

         SECTION 3.04. PAYMENTS AND COMPUTATIONS. The Borrower shall make each
payment hereunder not later than 1:00 P.M. (New York City time) on any day when
due in U.S. Dollars. The Borrower hereby authorizes the New Issuing Bank, if and
to the extent payment is not made when due hereunder, to charge from time to
time against any or all of the Borrower's accounts with the New Issuing Bank any
amount so due. Computations of any fees hereunder shall be

<PAGE>   120
                                                                               4

made by the New Issuing Bank on the basis of a year of 360 days for the actual
number of days (excluding the first day but including the last day) elapsed.

         SECTION 3.05. EXTENSION OF THE STATED TERMINATION DATE. The Borrower
may request the New Issuing Bank in writing (with a copy of each such request to
the Administrative Agent) to extend the Stated Termination Date of any Letter of
Credit for purposes of this Agreement and such Letter of Credit to any date not
later than the earlier to occur of (i) the date that occurs one year after the
effective date of such extension and (ii) the date that occurs five Business
Days prior to the Termination Date; provided, however, that such request shall
not be necessary for any Letter of Credit that, by its terms, provides that it
shall be automatically renewed or extended for a stated period of time (not to
exceed one year) at the end of its then-scheduled Stated Termination Date unless
the New Issuing Bank notifies the Beneficiary thereof prior to such Stated
Termination Date that the New Issuing Bank elects not to renew or extend such
Letter of Credit (provided, that any such Letter of Credit shall have a final
expiration date, which shall not be subject to automatic renewal or extension,
no later than the date that occurs five Business Days prior to the Termination
Date). If the Borrower shall make such a request, the New Issuing Bank shall
notify the Borrower in writing whether or not the New Issuing Bank consents to
such request and, if the New Issuing Bank does so consent, the conditions of
such consent (including, without limitation, conditions relating to legal
documentation and the consent of the Beneficiary thereof). Any such extension
shall be effective only if and when made in accordance with Articles IV and VI
of the Credit Agreement.

                                   ARTICLE IV
                             CONDITIONS OF ISSUANCE

         SECTION 4.01. CONDITIONS PRECEDENT TO ISSUANCE OF EACH LETTER OF
CREDIT. The obligation of the New Issuing Bank to issue each Letter of Credit is
subject to the satisfaction of the applicable conditions precedent set forth in
Article VI of the Credit Agreement.

                                    ARTICLE V
                         REPRESENTATIONS AND WARRANTIES

         SECTION 5.01. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. The
Borrower hereby represents and warrants for the benefit of the New Issuing Bank
that the representations and warranties of the Borrower set forth in Article VII
of the Credit Agreement are true and correct on the date hereof, on each date of
issuance of a Letter of Credit and on each date on which any of the material
terms or conditions of a Letter of Credit are modified, as if made on and as of
such date.

<PAGE>   121
                                                                               5

                                   ARTICLE VI
                                  MISCELLANEOUS

         SECTION 6.01. AMENDMENTS, ETC. No amendment or waiver of any provision
of this Agreement, nor consent to any departure by the Borrower therefrom, shall
in any event be effective unless the same shall be in writing and signed by the
New Issuing Bank and the Borrower and consented to by the Administrative Agent.

         SECTION 6.02. NOTICES, ETC. All notices and other communications
provided for hereunder shall be made in accordance with Section 11.02 of the
Credit Agreement and sent, if to the New Issuing Bank, at its address set forth
on the signature page hereof.

         SECTION 6.03. NO WAIVER; REMEDIES. No failure on the part of the New
Issuing Bank to exercise, and no delay in exercising, any right hereunder or
under the Credit Agreement shall operate as a waiver thereof; nor shall any
single or partial exercise of any right hereunder or thereunder preclude any
other or further exercise thereof or the exercise of any other right. The
remedies herein and therein provided are cumulative and not exclusive of any
remedies provided by law.

         SECTION 6.04. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on
demand (a) the reasonable fees and expenses of counsel to the New Issuing Bank
in connection with the preparation, execution, delivery and administration of
this Agreement and any other documents that may be delivered in connection with
this Agreement and any proposed modification, amendment or consent relating to
this Agreement and with respect to advising the New Issuing Bank as to its
rights and responsibilities under this Agreement and (b) all costs and expenses
(including reasonable counsel fees and expenses) in connection with (i) the
enforcement of this Agreement and such other documents that may be delivered in
connection with this Agreement (whether through negotiations, legal proceedings
or otherwise) and (ii) any action or proceeding relating to a court order,
injunction, or other process or decree restraining or seeking to restrain the
New Issuing Bank from paying any amount under any Letter of Credit. In addition,
the Borrower shall pay any and all stamp and other taxes and fees payable or
reasonably determined to be payable in connection with the execution and
delivery of this Agreement or any Letter of Credit or any such other documents,
and agrees to save the New Issuing Bank harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or omission to
pay such taxes and fees.

         SECTION 6.05. BINDING EFFECT. This Agreement shall become effective
when it shall have been executed by the Borrower and the New Issuing Bank and
consented to in writing by the Administrative Agent (for itself as
Administrative Agent and on behalf of the Lenders); and thereafter shall be
binding upon and inure to the benefit of the Borrower, the New Issuing Bank, the
Administrative

<PAGE>   122
                                                                               6

Agent, the Lenders and their respective successors and assigns, except that the
Borrower shall not have the right to assign its rights hereunder or any interest
herein without the prior written consent of the Lenders and the New Issuing Bank
shall not have the right to assign its rights hereunder or any interest herein
without the prior written consent of the Majority Lenders.

         SECTION 6.06. SEVERABILITY. Any provision of this Agreement which is
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or non-authorization without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of such
provision in any other jurisdiction.

         SECTION 6.07. WAIVER OF JURY TRIAL. EACH OF THE NEW ISSUING BANK AND
THE BORROWER HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
LETTER OF CREDIT, OR ANY OTHER INSTRUMENT OR DOCUMENT DELIVERED HEREUNDER OR
THEREUNDER.

         SECTION 6.08. GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement
shall be governed by, and construed in accordance with, the laws of the State of
New York. The New Issuing Bank (i) irrevocably submits to the non-exclusive
jurisdiction of any New York State court or Federal court sitting in New York
City in any action arising out of this Agreement or any Letter of Credit, (ii)
agrees that all claims in such action may be decided in such court, (iii)
waives, to the fullest extent it may effectively do so, the defense of an
inconvenient forum and (iv) consents to the service of process by mail. A final
judgment in any such action shall be conclusive and may be enforced in other
jurisdictions. Nothing herein shall affect the right of any party to serve legal
process in any manner permitted by law or affect its right to bring any action
in any other court.

         SECTION 6.09. HEADINGS. Section headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.

         SECTION 6.10. EXECUTION IN COUNTERPARTS. This Agreement may be executed
and consented to in any number of counterparts and by different parties hereto
in separate counterparts, each of which when so executed or consented to shall
be deemed to be an original and all of which taken together shall constitute one
and the same instrument.

<PAGE>   123
                                                                               7

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

                                            ORION POWER HOLDINGS, INC.

                                            By
                                              ----------------------------
                                                 Title:

                                            [                            ], as
                                             ----------------------------
                                            New Issuing Bank

                                            By
                                              ----------------------------
                                                 Title:

                                            Address:

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

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

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

Consented to as of the date
first above written:

UNION BANK OF CALIFORNIA, N.A., as Administrative
Agent on behalf of the Lenders

By
  ----------------------------
     Title:<PAGE>   1

                                                                    EXHIBIT 10.4

                                                                  CONFORMED COPY

================================================================================

                                GENERATING PLANT
                                 AND GAS TURBINE
                        ASSET PURCHASE AND SALE AGREEMENT

                                       FOR

                            ASTORIA GENERATING PLANTS

                  LOCATED AT ASTORIA, QUEENS COUNTY, NEW YORK,

                              GOWANUS GAS TURBINES

                   LOCATED AT BROOKLYN, KINGS COUNTY, NEW YORK

                                       AND

                              NARROWS GAS TURBINES

                   LOCATED AT BROOKLYN, KINGS COUNTY, NEW YORK

                                 By and Between

                  CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.

                                       and

                        ASTORIA GENERATING COMPANY, L.P.

                            Dated as of March 2, 1999

================================================================================
<PAGE>   2

                                                                            Page
                                                                            ----

                                    ARTICLE I

                                   Definitions

SECTION 1.01. Definitions ..................................................   1
SECTION 1.02. Accounting Terms .............................................  14

                                   ARTICLE II

                        Purchase and Sale: Assumption of
                               Certain Liabilities

SECTION 2.01. Purchase and Sale ............................................  15
SECTION 2.02. Auctioned Assets and Retained Assets .........................  15
SECTION 2.03. Assumed Obligations and Retained
                Liabilities ................................................  19
SECTION 2.04. Third Party Consents .........................................  24
SECTION 2.05. Franchise Property ...........................................  25

                                   ARTICLE III

                                 Purchase Price

SECTION 3.01. Purchase Price ...............................................  26
SECTION 3.02. Post-Closing Adjustment ......................................  26
SECTION 3.03. Allocation of Purchase Price .................................  27

                                   ARTICLE IV

                                   The Closing

SECTION 4.01. Time and Place of Closing ....................................  29
SECTION 4.02. Payment of Purchase Price and Estimated
                Adjustment Amount ..........................................  29

                                       -i-
<PAGE>   3

                                    ARTICLE V

                    Representations and Warranties of Seller

SECTION 5.01. Organization; Qualification ..................................  29
SECTION 5.02. Authority Relative to This Agreement .........................  29
SECTION 5.03. Consents and Approvals; No Violation .........................  30
SECTION 5.04. Year 2000 ....................................................  31
SECTION 5.05. Personal Property ............................................  31
SECTION 5.06. Real Estate ..................................................  31
SECTION 5.07. Leases .......................................................  32
SECTION 5.08. Certain Contracts and Arrangements ...........................  32
SECTION 5.09. Legal Proceedings ............................................  32
SECTION 5.10. Permits; Compliance with Law .................................  33
SECTION 5.11. Environmental Matters ........................................  33
SECTION 5.12. Labor Matters ................................................  34
SECTION 5.13. ERISA; Benefit Plans .........................................  35
SECTION 5.14. Taxes ........................................................  36
SECTION 5.15. Independent Engineering Assessments ..........................  36
SECTION 5.16. Undisclosed Liabilities ......................................  37
SECTION 5.17. Brokers ......................................................  37
SECTION 5.18. Insurance ....................................................  37

                                   ARTICLE VI

                     Representations and Warranties of Buyer

SECTION 6.01. Organization .................................................  38
SECTION 6.02. Authority Relative to This Agreement .........................  38
SECTION 6.03. Consents and Approvals; No Violation .........................  38
SECTION 6.04. Availability of Funds ........................................  40
SECTION 6.05. Brokers ......................................................  40

                                   ARTICLE VII

                            Covenants of the Parties

SECTION 7.01. Conduct of Business Relating to the Auctioned Assets .........  40
SECTION 7.02. Access to Information ........................................  43
SECTION 7.03. Consents and Approvals; Transferable Permits .................  45
SECTION 7.04. Further Assurances ...........................................  46
SECTION 7.05. Public Statements ............................................  48
SECTION 7.06. Tax Matters ..................................................  48
SECTION 7.07. Bulk Sales or Transfer Laws ..................................  49
SECTION 7.08. Storage ......................................................  49

                                      -ii-
<PAGE>   4

SECTION 7.09. Information Resources ........................................  50
SECTION 7.10. Witness Services .............................................  50
SECTION 7.11. Consent Orders ...............................................  50
SECTION 7.12. Nitrogen Oxide Allowances ....................................  51
SECTION 7.13. Trade Names ..................................................  51
SECTION 7.14. NYPA Agreements ..............................................  51
SECTION 7.15. Narrows ......................................................  51

                                  ARTICLE VIII

                                   Conditions

SECTION 8.01. Conditions Precedent to Each Party's Obligation To
                Effect the Purchase and Sale ...............................  52
SECTION 8.02. Conditions Precedent to Obligation of Buyer To
                Effect the Purchase and Sale ...............................  53
SECTION 8.03. Conditions Precedent to Obligation of Seller To
                Effect the Purchase and Sale ...............................  55

                                   ARTICLE IX

                                Employee Matters

SECTION 9.01. Employee Matters .............................................  56
SECTION 9.02. Continuation of Equivalent Benefit Plans/Credited Service ....  58
SECTION 9.03. Pension Plan .................................................  59
SECTION 9.04. 401(k) Plan ..................................................  61
SECTION 9.05. Welfare Plans ................................................  61
SECTION 9.06. Short- and Long-Term Disability ..............................  63
SECTION 9.07. Life Insurance and Accidental Death and Dismemberment
                Insurance ..................................................  63
SECTION 9.08. Severance ....................................................  63
SECTION 9.09. Workers Compensation .........................................  65

                                    ARTICLE X

                     Indemnification and Dispute Resolution

SECTION 10.01. Indemnification .............................................  65
SECTION 10.02. Third Party Claims Procedures ...............................  68

                                      -iii-
<PAGE>   5

                                   ARTICLE XI

                                   Termination

SECTION 11.01. Termination .................................................  69

                                   ARTICLE XII

                            Miscellaneous Provisions

SECTION 12.01. Expenses ....................................................  69
SECTION 12.02. Amendment and Modification; Extension; Waiver ...............  70
SECTION 12.03. No Survival of Representations or Warranties ................  70
SECTION 12.04. Notices .....................................................  70
SECTION 12.05. Assignment; No Third Party Beneficiaries ....................  71
SECTION 12.06. Governing Law ...............................................  72
SECTION 12.07. Counterparts ................................................  72
SECTION 12.08. Interpretation ..............................................  72
SECTION 12.09. Jurisdiction and Enforcement ................................  73
SECTION 12.10. Entire Agreement ............................................  74
SECTION 12.11. Severability ................................................  74
SECTION 12.12. Conflicts ...................................................  75

                                      -iv-
<PAGE>   6

                             SCHEDULES AND EXHIBITS

Schedule 2.02(a)(ii)          Spare Parts
Schedule 2.02(a)(iii)(A)      Buyer Personal Property Located on
                              Buyer Real Estate
Schedule 2.02(a)(iii)(B)      Buyer Personal Property Located on
                              Seller Real Estate
Schedule 2.02(a)(iii)(C)      Buyer Personal Property Located on
                              NYPA Real Estate
Schedule 2.02(a)(iii)(D)      NYPA Personal Property
Schedule 2.02(a)(iv)          Assigned Contracts
Schedule 2.02(a)(v)           Transferable Permits
Schedule 2.02(a)(vi)          SO2 Allowances
Schedule 2.02(b)(ii)(A)       Seller Personal Property Located on
                              Buyer Real Estate
Schedule 2.02(b)(ii)(C)       Communications Equipment
Schedule 2.03(a)(iv)          Seller Consent Orders
Schedule 2.03(a)(xii)         Assumed Seller Obligations under
                              NYPA Agreements
Schedule 2.05(a)              Franchise Property
Schedule 5.03(a)              Contracts Requiring Third Party
                              Consents
Schedule 5.08(a)              Material Contracts
Schedule 5.09                 Legal Proceedings
Schedule 5.10(a)(i)           Exceptions Under Permits
Schedule 5.10(a)(ii)          Non-Environmental Violations
Schedule 5.10(b)              Nontransferable Permits and
                              Environmental Permits
Schedule 5.11                 Environmental Matters
Schedule 5.13                 Benefit Plans
Schedule 5.15(a)              Exceptions to Independent
                              Engineering Assessment
Schedule 5.15(b)              Changes to Auctioned Assets
Schedule 5.16                 Other Undisclosed Liabilities
Schedule 7.14                 Rights and Interests under NYPA
                              Agreements
Schedule 7.15                 Narrows
Schedule 9.01(a)              Job Titles
Schedule 9.01(b)              Collective Bargaining Agreements

Exhibit A-1                   Form of Astoria Zoning Lot
                              Development Agreement between
                              Seller and Arthur Kill Acquiror
Exhibit A-2                   Form of Astoria Zoning Lot
                              Development Agreement between
                              Seller and Buyer
Exhibit A-3                   Form of Gowanus Zoning Lot
                              Development Agreement between
                              Seller and Buyer

                                       -v-
<PAGE>   7

Exhibit B-1                   Form of Deed of Conveyance for Queens County
Exhibit B-2                   Form of Deed of Conveyance for Kings County
Exhibit C                     Form of FIRPTA Affidavit
Exhibit D                     Form of Opinion of John D. McMahon,
                              Esq., General Counsel of Seller
Exhibit E                     Form of Opinion of Counsel to Buyer
Exhibit F                     Summary of Terms and Conditions for
                              License for A-10 Dock between
                              Seller and Buyer
Exhibit G                     Form of Transition Capacity
                              Agreement between Seller and Buyer
Exhibit H                     Summary of Terms and Conditions for
                              License for A-0 Dock between Seller
                              and Buyer
Exhibit I                     Form of Astoria Declaration of
                              Subdivision Easements
Exhibit J                     Form of Gowanus Declaration of
                              Subdivision Easements
Exhibit K                     Form of Guarantee Agreement
Exhibit L                     Form of Opinion of Counsel to
                              Guarantor

                                      -vi-
<PAGE>   8

                              GENERATING PLANT AND GAS TURBINE ASSET PURCHASE
                        AND SALE AGREEMENT (including the Schedules hereto, this
                        "Agreement"), dated as of March 2, 1999, by and between
                        CONSOLIDATED EDISON COMPANY OF NEW YORK, INC., a New
                        York corporation ("Seller"), and ASTORIA GENERATING
                        COMPANY, L.P., a Delaware limited partnership ("Buyer",
                        collectively with Seller, the "Parties").

            WHEREAS Seller has offered the Auctioned Assets (as defined herein)
for sale at auction pursuant to the Order Authorizing the Process for Auctioning
of Generation Plant issued by the PSC (as defined herein) and effective as of
July 21, 1998; and

            WHEREAS Buyer desires to purchase, and Seller desires to sell, the
Auctioned Assets upon the terms and conditions hereinafter set forth.

            NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements hereinafter set forth, and intending
to be legally bound hereby, the Parties agree as follows:

                                    ARTICLE I

                                   Definitions

            SECTION 1.01. Definitions. (a) As used in this Agreement, the
following terms have the following meanings:

            "A-0 License" means the license from Buyer to Seller in respect of
the A-0 dock at Astoria, the material terms of which shall be substantially as
set forth in Exhibit H.

            "A-10 License" means the license from Seller to Buyer in respect of
the A-10 dock at Astoria, the material terms of which shall be substantially as
set forth in Exhibit F.

            "Accountants" shall have the meaning set forth in Section 3.02(b).
<PAGE>   9
                                                                               2

            "Adjustment Amount" shall have the meaning set forth in Section
3.02(a).

            "Adjustment Date" shall have the meaning set forth in Section
3.02(c).

            "Adjustment Statement" shall have the meaning set forth in Section
3.02(a).

            "Affected Employees" shall have the meaning set forth in Section
9.01(a).

            "Affected Union Employees" shall have the meaning set forth in
Section 9.01(b).

            "Affiliate" shall have the meaning set forth in Rule 12b-2 of the
General Rules and Regulations under the Securities Exchange Act of 1934, as
amended.

            "Agreement" shall have the meaning set forth in the Preamble.

            "Allocation" shall have the meaning set forth in Section 3.03.

            "Ancillary Agreements" means the Continuing Site Agreements, the
Declaration of Easements Agreements, the Declarations of Subdivision Easements,
the Zoning Lot Development Agreements, the Transition Capacity Agreement, the
deeds contemplated by Section 8.02(e)(i) and any other agreement to which Buyer
and Seller are party and which is expressly identified by its terms as an
Ancillary Agreement hereunder.

            "Applicable Law" shall have the meaning set forth in Section 3.03.

            "Arthur Kill Acquiror" means the person referred to as "Buyer" in
the Generating Plant and Gas Turbine Asset Purchase and Sale Agreement for
Arthur Kill Generating Plants and Astoria Gas Turbines between Seller and such
person.

            "Assumed Consent Order Obligations" shall have the meaning set forth
in Section 2.03(a)(iv).

            "Assumed Obligations" shall have the meaning set forth in Section
2.03(a).

            "Assumed Seller Obligations Under NYPA Agreements" shall have the
meaning set forth in Section 2.03(a)(xii).
<PAGE>   10
                                                                               3

            "Astoria Continuing Site Agreement" means the Astoria Continuing
Site Agreement dated as of even date herewith between Seller and Buyer.

            "Astoria Declaration of Easements" means the Astoria Declaration of
Easements by Seller dated as of January 27, 1999, as amended.

            "Astoria Declaration of Subdivision Easements" means the Astoria
Declaration of Subdivision Easements to be made by Seller substantially in the
form of Exhibit I, except for changes required by any Governmental Authority to
the extent that no such change materially and adversely impairs the continued
use and operation of the Auctioned Assets as currently conducted.

            "Astoria Zoning Lot Development Agreement" means (a) the Astoria
Zoning Lot Development Agreement between Seller and Arthur Kill Acquiror, in the
form of Exhibit A-1, if executed and delivered prior to the Closing Date or (b)
the Astoria Zoning Lot Development Agreement between Seller and Buyer, in the
form of Exhibit A-2.

            "Auctioned Assets" shall have the meaning set forth in Section
2.02(a).

            "Benefit Plans" shall have the meaning set forth in Section 5.13.

            "Bidder Confidentiality Agreements" shall have the meaning set forth
in Section 7.02(b).

            "Business Day" means any day other than Saturday, Sunday and any day
which is a legal holiday or a day on which banking institutions in New York are
authorized or required by law or other action of a Governmental Authority to
close.

            "Buyer" shall have the meaning set forth in the Preamble.

            "Buyer Assets" shall have the meaning set forth in Section 2.03(a)
(x).

            "Buyer Benefit Plans" shall have the meaning set forth in Section
9.02(c).

            "Buyer Facilities" shall mean the "Parcel B Facilities" and "Parcel
D Facilities" under the Astoria Declaration of Easements, together with the
respective
<PAGE>   11
                                                                               4

"Buyer Facilities" under each of the Gowanus and Narrows Declaration of
Easements Agreements.

            "Buyer Indemnitees" shall have the meaning set forth in Section
10.01(a).

            "Buyer Material Adverse Effect" shall have the meaning set forth in
Section 6.03(a).

            "Buyer Real Estate" shall have the meaning set forth in Section
2.02(a)(i).

            "Buyer Required Regulatory Approvals" shall have the meaning set
forth in Section 6.03(b).

            "Buyer's 401(k) Plans" shall have the meaning set forth in Section
9.04(a).

            "Buyer's Pension Plans" shall have the meaning set forth in Section
9.03(a).

            "Buyer's Welfare Plans" shall have the meaning set forth in Section
9.05(a).

            "Closing" shall have the meaning set forth in Section 4.01.

            "Closing Date" shall have the meaning set forth in Section 4.01.

            "Code" means the Internal Revenue Code of 1986, as amended.

            "Collective Bargaining Agreement" shall have the meaning set forth
in Section 9.01(b).

            "Communications Equipment" means the equipment, systems, switches
and lines used in connection with voice, data and other communications
activities.

            "Confidentiality Agreement" means the Confidentiality Agreement
dated September 22, 1998 between Seller and Orion Power Holdings, Inc.

            "Continued Employee" shall have the meaning set forth in Section
9.01(a).

            "Continued Non-Union Employee" shall have the meaning set forth in
Section 9.02(a).
<PAGE>   12
                                                                               5

            "Continued Union Employee" shall have the meaning set forth in
Section 9.01(b).

            "Continuing Site Agreements" means the Astoria Continuing Site
Agreement, the Gowanus Continuing Site Agreement and the Narrows Continuing Site
Agreement.

            "Contracts" shall have the meaning set forth in Section 2.02(a)
(iv).

            "Conveyance Plans" shall have the meaning set forth in Section
2.02(a)(i).

            "Declaration of Easements Agreements" means the Astoria Declaration
of Easements, the Gowanus Declaration of Easements Agreement and Narrows
Declaration of Easements Agreement.

            "Declarations of Subdivision Easements" means the Astoria
Declaration of Subdivision Easements and the Gowanus Declaration of Subdivision
Easements.

            "Emission Reduction Credits" means credits, in units that are
established by the environmental regulatory agency with jurisdiction over the
source or facility that has obtained the credits, resulting from a reduction in
the emissions of air pollutants from an emitting source or facility (including,
and to the extent allowable under applicable law, reductions from retirements,
control of emissions beyond that required by applicable law and fuel switching),
that: (i) have been certified by NYSDEC as complying with the law and
regulations of the State of New York governing the establishment of such credits
(including that such emissions reductions are real, enforceable, permanent and
quantifiable); or (ii) have been certified by any other applicable regulatory
authority as complying with the law and regulations governing the establishment
of such credits (including that such emissions reductions are real, enforceable,
permanent and quantifiable). Emission Reduction Credits include certified air
emissions reductions, as described above, regardless of whether the regulatory
agency certifying such reductions designates such certified air emissions
reductions by a name other than "emissions reduction credits".

            "Encumbrances" means any mortgages, pledges, liens, security
interests, conditional and installment sale agreements, activity and use
limitations, exceptions, conservation easements, rights-of-way, deed
restrictions, encumbrances and charges of any kind.
<PAGE>   13
                                                                               6

            "Environmental Laws" means all former, current and future Federal,
state, local and foreign laws (including common law), treaties, regulations,
rules, ordinances, codes, decrees, judgments, directives or orders (including
consent orders) and Environmental Permits, in each case, relating to pollution
or protection of the environment or natural resources, including laws relating
to Releases or threatened Releases, or otherwise relating to the generation,
manufacture, processing, distribution, use, treatment, storage, arrangement for
disposal, transport, recycling or handling, of Hazardous Substances.

            "Environmental Liability" means all liabilities, obligations,
damages, losses, claims, actions, suits, judgments, orders, fines, penalties,
fees, expenses and costs, including: (i) remediation costs, engineering costs,
environmental consultant fees, laboratory fees, permitting fees, investigation
costs and defense costs and reasonable attorneys' fees and expenses; (ii) any
claims, demands and causes of action relating to or resulting from any personal
injury (including wrongful death), property damage (real or personal) or natural
resource damage; and (iii) any penalties, fines or costs associated with the
failure to comply with any Environmental Law.

            "Environmental Permits" means the permits, licenses, consents,
approvals and other governmental authorizations with respect to Environmental
Laws relating primarily to the power generation operations of the Generating
Plants or the Gas Turbines.

            "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.

            "ERISA Affiliate" shall have the meaning set forth in Section 5.13.

            "Estimated Adjustment Amount" shall have the meaning set forth in
Section 4.02.

            "FERC" means the Federal Energy Regulatory Commission.

            "Federal Power Act" shall have the meaning set forth in Section
5.03(b).

            "Filed Seller SEC Documents" means the reports, schedules, forms,
statements and other documents filed by Seller with the Securities and Exchange
Commission since January 1, 1997, and publicly available prior to the date of
this Agreement.
<PAGE>   14
                                                                               7

            "Final Allocation" shall have the meaning set forth in Section 3.03.

            "Franchise Property" shall have the meaning set forth in Section
2.05(a).

            "GAAP" shall have the meaning set forth in Section 1.02.

            "Gas Turbines" means the gas turbine units comprised of the Astoria
GT1, Gowanus GT1 through GT4 and Narrows GT1 and GT2.

            "Generating Facilities" means the Generating Plants, the Gas
Turbines and any additional generating plants, gas turbines or other generating
facilities constructed by Buyer after the Closing Date at the site of any
Auctioned Assets.

            "Generating Plants" means the two retired steam turbine generating
units designated as Astoria units 1 and 2 and the three operating steam turbine
generating units designated as Astoria units 3, 4 and 5.

            "Governmental Authority" means any court, administrative or
regulatory agency or commission or other governmental entity or instrumentality,
domestic, foreign or supranational or any department thereof.

            "Gowanus Continuing Site Agreement" means the Gowanus Continuing
Site Agreement dated as of even date herewith between Seller and Buyer.

            "Gowanus Declaration of Easements Agreement" means the Gowanus
Declaration of Easements Agreement dated as of even date herewith between Seller
and Buyer.

            "Gowanus Declaration of Subdivision Easements" means the Gowanus
Declaration of Subdivision Easements to be made by Seller substantially in the
form of Exhibit J, except for changes required by any Governmental Authority to
the extent that no such change materially and adversely impairs the continued
use and operation of the Auctioned Assets as currently conducted.

            "Gowanus Zoning Lot Development Agreement" means the Gowanus Zoning
Lot Development Agreement between Seller and Buyer in the form of Exhibit A-3.
<PAGE>   15
                                                                               8

            "Guarantee Agreement" means the Guarantee Agreement dated as of even
date herewith between Guarantor and Seller substantially in the form of Exhibit
K.

            "Guarantor" means Orion Power Holdings, Inc.

            "Hazardous Substances" means (i) any petrochemical or petroleum
products, crude oil or any fraction thereof, ash, radioactive materials, radon
gas, asbestos in any form, urea formaldehyde foam insulation or polychlorinated
biphenyls, (ii) any chemicals, materials, substances or wastes defined as or
included in the definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," "restricted hazardous materials," "extremely hazardous
substances," "toxic substances," "contaminants" or "pollutants" or words of
similar meaning and regulatory effect contained in any Environmental Law or
(iii) any other chemical, material, substance or waste which is prohibited,
limited or regulated by any Environmental Law.

            "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.

            "Income Tax" means any Federal, state, local or foreign Tax or
surtax (i) based upon, measured by or calculated with respect to net income,
profits or receipts (including the New York State Gross Receipts Tax (including
the excess dividends tax), the New York City Public Utilities Excise Tax, any
and all municipal gross receipts Taxes, capital gains Taxes and minimum Taxes)
or (ii) based upon, measured by or calculated with respect to multiple bases
(including corporate franchise taxes) if one or more of the bases on which such
Tax may be based, measured by or calculated with respect to, is described in
clause (i), in each case, together with any interest, penalties, or additions to
such Tax.

            "Indemnifiable Loss" shall have the meaning set forth in Section
10.01(a).

            "Indemnifying Party" shall have the meaning set forth in Section
10.01(c).

            "Indemnitee" shall have the meaning set forth in Section 10.01(c)

            "Independent Engineering Assessments" shall have the meaning set
forth in Section 5.15.

            "Interconnection Facilities" means those items of switching
equipment, switchyard controls, protective relays
<PAGE>   16
                                                                               9

and related facilities of Seller that are used by Seller in connection with the
provision of Interconnection Services.

            "Interconnection Services" means the service provided by Seller to
Buyer to interconnect the Generating Facilities to the Transmission System.

            "Inventory Survey" shall have the meaning set forth in Section
3.02(a).

            "ISO" means the New York Independent System Operator.

            "Local 1-2" shall have the meaning set forth in Section 9.01(a).

            "Local 1-2 Collective Bargaining Agreement" shall have the meaning
set forth in Section 9.01(a).

            "Material Adverse Effect" means any change, or effect on the
Auctioned Assets, that is materially adverse to the business, operations or
condition (financial or otherwise) of the Auctioned Assets, taken as a whole,
other than (i) any change or effect resulting from changes in the international,
national, regional or local wholesale or retail energy, capacity or ancillary
services electric power markets, (ii) any change or effect resulting from
changes in the international, national, regional or local markets for fuel,
(iii) any change or effect resulting from changes in the national, regional or
local electric transmission systems, (iv) any change or effect resulting from
any bid cap, price limitation, market power mitigation measure, including the
Mitigation Measures, or other regulatory or legislative measure in respect of
transmission services or the wholesale or retail energy, capacity or ancillary
services markets adopted or approved (or failed to be adopted or approved) by
FERC, the PSC or any other Governmental Authority or proposed by any person, (v)
any change or effect resulting from any regulation, rule, procedure or order
adopted or proposed (or failed to be adopted or proposed) by or with respect to,
or related to, the ISO, (vi) any change or effect resulting from any action or
measure taken or adopted, or proposed to be taken or adopted, by any local,
state, regional, national or international reliability organization and (vii)
any materially adverse change in or effect on the Auctioned Assets which is
cured by Seller before the Closing Date.

            "Mitigation Measures" shall have the meaning set forth in Section
6.03(b).
<PAGE>   17
                                                                              10

            "MMS" means the Material Management System, which is an information
resources system served by Seller's mainframe computer.

            "Narrows Continuing Site Agreement" means the Narrows Continuing
Site Agreement dated as of even date herewith between Seller and Buyer.

            "Narrows Declaration of Easements Agreement" means the Narrows
Declaration of Easements Agreement dated as of even date herewith between Seller
and Buyer.

            "Narrows Turbines" shall have the meaning set forth in Section 7.15.

            "NYPA" means the Power Authority of the State of New York.

            "NYPA Agreements" means the Indenture, made as of December 13, 1974,
between Seller and NYPA, and the NYPA Operating Agreement.

            "NYPA Operating Agreement" means the Astoria Operating Agreement
dated January 5, 1981, between NYPA and Seller, as amended.

            "NYSDEC" means the New York State Department of Environmental
Conservation.

            "Off-Site" means any location except (i) the Auctioned Assets and
(ii) any location to or under which Hazardous Substances present or Released at
the Auctioned Assets have migrated.

            "Offering Memorandum" means the Offering Memorandum dated August
1998 describing the Generating Plants and the Gas Turbines, and the materials
delivered with such Offering Memorandum, as such Offering Memorandum and such
materials may have been amended or supplemented.

            "Operating Records" shall have the meaning set forth in Section
2.02(a)(viii).

            "Party" shall have the meaning set forth in the Preamble.

            "Permits" means the permits, licenses, consents, approvals and other
governmental authorizations (other than with respect to Environmental Laws)
relating primarily to the power generation operations of the Generating Plants
or the Gas Turbines.
<PAGE>   18
                                                                              11

            "Permitted Exceptions" means (i) all exceptions, restrictions,
easements, charges, rights-of-way and monetary and nonmonetary encumbrances
which are set forth in any Permits or Environmental Permits, (ii) statutory
liens for current taxes or assessments not yet due or delinquent or the validity
of which is being contested in good faith by appropriate proceedings, (iii)
mechanics', carriers', workers', repairers' and other similar liens arising or
incurred in the ordinary course of business relating to obligations as to which
there is no default on the part of Seller or the validity of which are being
contested in good faith by appropriate proceedings, (iv) zoning, entitlement,
conservation restriction and other land use and environmental regulations by
Governmental Authorities (v) such title matters set forth in the Certificate of
Title No. NY981606, as amended, the Certificate of Title No. NY971417, as
amended, and the Certificate of Title No. NY971418, as amended, in each case,
issued by the Title Company, (vi) all matters disclosed on the Conveyance Plans
and any other facts that would be disclosed by an accurate survey and physical
inspection of the Buyer Real Estate, (vii) Encumbrances, easements, obligations
or other restrictions created pursuant to or provided for in any Ancillary
Agreement or any NYPA Agreement, (viii) restrictions and regulations imposed by
the ISO, any Governmental Authority or any local, state, regional, national or
international reliability council and (ix) such other Encumbrances or
imperfections in or failure of title which would not, individually or in the
aggregate, reasonably be expected to materially impair the continued use and
operation of the Auctioned Assets as currently conducted.

            "person" means any individual, partnership, limited liability
company, joint venture, corporation, trust, unincorporated organization or
Governmental Authority.

            "PPMIS" means the Power Plant Maintenance Information System, which
is an information resources system served by Seller's mainframe computer.

            "Prorated Items" shall have the meaning set forth in Section 2.03(a)
(viii).

            "Protective Relaying System" means the system relating to the
Generating Facilities comprised of components collectively used to detect
defective power system elements or other conditions of an abnormal nature,
initiate appropriate control circuit action in response
<PAGE>   19
                                                                              12

thereto and isolate the appropriate system elements in order to minimize damage
to equipment and interruption to service.

            "PSC" means the New York State Public Service Commission.

            "Purchase Price" shall have the meaning set forth in Section 3.01.

            "Release" means any release, spill, emission, leaking, dumping,
injection, pouring, deposit, disposal, discharge, dispersal, leaching or
migration into the environment (including ambient air, surface water,
groundwater, land surface or subsurface strata) or within any building,
structure, facility or fixture.

            "Restraints" shall have the meaning set forth in Section 8.01(b).

            "Retained Assets" shall have the meaning set forth in Section
2.02(b).

            "Retained Liabilities" shall have the meaning set forth in Section
2.03(b).

            "Revenue Meters" means all meters measuring demand, energy and
reactive components, and all pulse isolation relays, pulse conversion relays and
associated totalizing and remote access pulse recorder equipment, in each case,
required to measure the transfer of energy between the Parties.

            "Revocable Consent" shall have the meaning set forth in Section
2.05(a).

            "Segregated Reimbursement Accounts" shall have the meaning set forth
in Section 9.05(b).

            "Seller" shall have the meaning set forth in the Preamble.

            "Seller Assets" shall have the meaning set forth in Section
2.03(b)(x).

            "Seller Consent Orders" shall have the meaning set forth in Section
2.03(a)(iv).

            "Seller Facilities" shall mean the "Parcel A Facilities" under the
Astoria Declaration of Easements, together with the respective "Seller
Facilities" under each
<PAGE>   20
                                                                              13

of the Gowanus and Narrows Declaration of Easements Agreements.

            "Seller Indemnitees" shall have the meaning set forth in Section
10.01(b).

            "Seller Real Estate" means all real property and leaseholds or other
interests in real property of Seller (including the premises on which the
Substations are located), other than Buyer Real Estate.

            "Seller Required Regulatory Approvals" shall have the meaning set
forth in Section 5.03(b).

            "Seller's 401(k) Plans" shall have the meaning set forth in Section
9.04(a).

            "Seller's Pension Plans" shall have the meaning set forth in Section
9.03(a).

            "Seller's Reimbursement Account Plans" shall have the meaning set
forth in Section 9.05(b).

            "SO2 Allowances" means allowances that have been allocated to Seller
for the Generating Plants or the Gas Turbines by the Administrator of the United
States Environmental Protection Agency under Title IV of the Clean Air Act
authorizing the emission of one ton of sulfur dioxide per allowance during or
after the year 2000.

            "Substations" shall have the meaning set forth in Section
2.02(b)(i).

            "Tax Benefit" means, with respect to any Indemnifiable Loss for any
person, the positive excess, if any, of the Tax liability of such person without
regard to such Indemnifiable Loss over the Tax liability of such person taking
into account such Indemnifiable Loss, with all other circumstances remaining
unchanged.

            "Tax Cost" means, with respect to any indemnity payment for any
person, the positive excess, if any, of the Tax liability of such person taking
such indemnity payment into account over the Tax liability of such person
without regard to such payment, with all other circumstances remaining
unchanged.

            "Tax Return" means any return, report, information return or other
document (including any related or supporting information) required to be
supplied to any authority with respect to Taxes.
<PAGE>   21
                                                                              14

            "Taxes" means all taxes, surtaxes, charges, fees, levies, penalties
or other assessments imposed by any United States Federal, state or local or
foreign taxing authority, including Income Tax, excise, property, sales,
transfer, franchise, special franchise, payroll, recording, withholding, social
security or other taxes, or any liability for taxes incurred by reason of
joining in the filing of any consolidated, combined or unitary Tax Returns, in
each case including any interest, penalties or additions attributable thereto;
provided, however, that "Taxes" shall not include sewer rents or charges for
water.

            "Termination Date" shall have the meaning set forth in Section
11.01(b).

            "Third Party Claim" shall have the meaning set forth in Section
10.02(a).

            "Title Company" means Commonwealth Land Title Insurance Company or
any other reputable title insurance company licensed to do business in New York.

            "Transferable Permits" shall have the meaning set forth in Section
2.02(a)(v).

            "Transferring Employee Records" shall have the meaning set forth in
Section 2.02(a)(viii).

            "Transferring Employees" shall have the meaning set forth in Section
2.02(a)(viii).

            "Transition Capacity Agreement" means the Transition Capacity
Agreement to be entered into between Seller and Buyer substantially in the form
of Exhibit G.

            "Transmission System" shall have the meaning set forth in Section
2.02(b)(i)

            "Zoning Lot Development Agreements" means the Astoria Zoning Lot
Development Agreement and the Gowanus Zoning Lot Development Agreement.

            SECTION 1.02. Accounting Terms. Any accounting terms used in this
Agreement or the Ancillary Agreements shall, unless otherwise specifically
provided, have the meanings customarily given them in accordance with United
States generally accepted accounting principles ("GAAP") and all financial
computations hereunder or thereunder shall, unless otherwise specifically
provided, be computed in accordance with GAAP consistently applied.
<PAGE>   22
                                                                              15

                                   ARTICLE II

              Purchase and Sale; Assumption of Certain Liabilities

            SECTION 2.01. Purchase and Sale. Upon the terms and subject to the
satisfaction of the conditions contained in this Agreement, at the Closing,
Seller agrees to sell, assign, convey, transfer and deliver to Buyer, and Buyer
agrees to purchase, assume and acquire from Seller all the Auctioned Assets. In
the case of any Auctioned Assets not located at the Generating Plants or Gas
Turbines (including supplies, materials and spare parts inventory), Buyer agrees
that (i) from and after the Closing, except to the extent specifically otherwise
provided in the Ancillary Agreements, Buyer will bear all risk of casualty or
loss with regard to such Auctioned Assets (regardless of whether they remain on
Seller's property or otherwise in Seller's possession) and (ii) Seller shall
store such Auctioned Assets in accordance with Section 7.08.

            SECTION 2.02. Auctioned Assets and Retained Assets. (a) Auctioned
Assets. The term "Auctioned Assets" means all the assets, real and personal
property, goodwill and rights of Seller of whatever kind and nature, whether
tangible or intangible, in each case, primarily relating to the power generation
operations of the Generating Plants or the Gas Turbines, other than the Retained
Assets, including:

            (i) subject to Section 2.05, all real property and leaseholds or
      other interests in real property of Seller relating primarily to the power
      generation operations of the Generating Plants or the Gas Turbines
      described as (A) Parcels B and D as shown on the Astoria Generating
      Station ALTA/ACSM Land Title Survey dated February 17, 1999, (B) Parcel A
      as shown on the Gowanus Gas Turbine Site ALTA/ACSM Land Title Survey
      Conveyance Plan dated February 23, 1999 and (C) the Narrows Gas Turbine
      Site as shown on the Narrows Gas Turbine Site ALTA/ACSM Land Title Survey
      Conveyance Plan dated February 23, 1999, in each case, as may hereafter be
      amended in immaterial respects (collectively, the "Conveyance Plans"),
      together with all buildings, improvements, structures and fixtures
      thereon, subject to Permitted Exceptions or Encumbrances otherwise
      disclosed to Buyer in this Agreement or the Ancillary Agreements with
      respect thereto (the "Buyer Real Estate");

            (ii) subject to Section 2.04 and Section 2.05, all inventories of
      fuels, supplies, materials and spare parts relating primarily to the power
      generation
<PAGE>   23
                                                                              16

      operations of the Generating Plants or the Gas Turbines, together with and
      subject to (A) all Permitted Exceptions or Encumbrances otherwise
      disclosed to Buyer in this Agreement or the Ancillary Agreements with
      respect thereto and (B) all warranties against manufacturers and vendors
      relating thereto, including the spare parts listed on Schedule 2.02(a)
      (ii), in each case, other than assets that become obsolete or that are
      used, consumed, replaced or disposed in the ordinary course of business
      consistent with past practice or as permitted by this Agreement;

            (iii) subject to Section 2.04 and Section 2.05, (A) the machinery,
      equipment, facilities, furniture and other personal property (other than
      vehicles) relating primarily to the power generation operations of the
      Generating Plants or the Gas Turbines, including a stand-alone local area
      network and other items of personal property located on Buyer Real Estate
      or temporarily removed from Buyer Real Estate for repairs, servicing or
      maintenance and listed on Schedule 2.02(a)(iii)(A), (B) machinery,
      equipment, facilities, furniture and other personal property located on
      Seller Real Estate or temporarily removed from Seller Real Estate for
      repairs, servicing or maintenance and listed on Schedule 2.02(a)(iii)
      (B), (C) machinery, equipment, facilities, furniture and other personal
      property located on real property owned by NYPA or temporarily removed
      from such real property for repairs, servicing or maintenance and listed
      on Schedule 2.02(a)(iii)(C) and (D) machinery, equipment, facilities,
      furniture and other personal property listed on Schedule 2.02(a)(iii)(D)
      to the extent Seller has obtained title thereto from NYPA prior to
      Closing, in each case, (1) together with and subject to (x) all Permitted
      Exceptions or Encumbrances otherwise disclosed to Buyer in this Agreement
      or the Ancillary Agreements with respect thereto and (y) all warranties
      against manufacturers or vendors relating thereto and (2) other than
      assets that become obsolete or that are used, consumed, replaced or
      disposed in the ordinary course of business consistent with past practice
      or as permitted by this Agreement;

            (iv) subject to Section 2.04, all right, title and interest of
      Seller in, to and under all contracts, agreements, personal property
      leases (whether Seller is lessor or lessee thereunder), commitments and
      all other legally binding arrangements (other than Seller Consent Orders),
      whether oral or written (A) set forth on
<PAGE>   24
                                                                              17

      Schedule 2.02(a)(iv) or (B) otherwise relating primarily to the power
      generation operations of the Generating Plants or the Gas Turbines and
      entered into by Seller in accordance with Section 7.01 (the "Contracts"),
      in each case, to the extent in full force and effect on the Closing Date;

            (v) subject to Section 7.03(c), the Permits and Environmental
      Permits that are transferred or transferable by Seller to Buyer
      (collectively, the "Transferable Permits"), including the Transferable
      Permits set forth on Schedule 2.02(a)(v), in each case, to the extent in
      full force and effect on the Closing Date;

            (vi) the SO2 Allowances listed on Schedule 2.02(a)(vi);

            (vii) all nitrogen oxide allowances allocated to the Generating
      Plants or the Gas Turbines by NYSDEC under the New York State Nitrogen
      Oxides Budget Program that have not been used on or prior to the Closing
      Date (it being understood that, for purposes of this Agreement, one
      nitrogen oxide allowance shall be deemed "used" for each ton of actual
      nitrogen oxide emitted from the Generating Plants or Gas Turbines between
      May 1 of any year and September 30 of such year, inclusive);

            (viii)(A) all data, information, books, operating records,
      operating, safety and maintenance manuals, engineering design plans,
      blueprints and as-built plans, specifications, procedures, facility
      compliance plans, environmental procedures and similar records of Seller
      relating primarily to the power generation operations of the Generating
      Plants or the Gas Turbines, to the extent in Seller's possession or
      readily available (collectively, "Operating Records"), and (B) all
      personnel files relating to employees of Seller to be employed by Buyer
      after the Closing Date in accordance with Article IX (the "Transferring
      Employees"), to the extent in Seller's possession and readily available
      and to the extent such files pertain to (1) skill and development training
      and resumes, (2) seniority histories, (3) salary and benefit information,
      (4) Occupational Safety and Health Act medical reports, (5) active medical
      restriction forms and (6) any other matters, disclosure of which by Seller
      to Buyer is permitted under applicable law without the consent of the
      Transferring Employee, but not including any performance evaluations or
      disciplinary records (collectively, the "Transferring
<PAGE>   25
                                                                              18

      Employee Records"); provided, however, that Seller shall be permitted to
      retain copies, or originals to the extent it provides Buyer with copies of
      same, of all Operating Records and Transferring Employee Records; and

            (ix)(A) except as provided in Section 2.02(b)(iv), the software
      relating primarily to the power generation operations of the Generating
      Plants or the Gas Turbines (provided, however, that Buyer acknowledges
      that it will require licenses from third parties in order to be legally
      entitled to use such software), and (B) a non-exclusive, royalty-free
      license to use solely in connection with the Auctioned Assets the software
      or other copyrighted material owned by Seller located at Buyer Real
      Estate.

            (b) Retained Assets. The term "Retained Assets" means:

            (i) the transmission and distribution facilities owned, controlled
      or operated by Seller for purposes of providing point-to-point
      transmission service, network integration service and distribution service
      and other related purposes, including the real property and equipment
      located at the Astoria East Substation, the Astoria West Substation, the
      North Queens Substation, the Gowanus Substation and the Greenwood
      Substation (collectively, the "Substations"), used in controlling
      continuity between the Generating Plants and Gas Turbines and the
      transmission and distribution facilities and for other purposes (the
      "Transmission System");

            (ii)(A) except as set forth in Section 2.02(a)(iii), all
      Interconnection Facilities and other transmission, distribution and
      substation machinery, equipment and facilities and related support
      equipment located on Buyer Real Estate or Seller Real Estate or
      temporarily removed from Buyer Real Estate or Seller Real Estate for
      repairs, servicing or maintenance, including items listed on Schedule
      2.02(b)(ii)(A); (B) all Revenue Meters installed by Seller; (C)
      Communications Equipment and related support equipment (1) located on
      Buyer Real Estate or temporarily removed from Buyer Real Estate for
      repairs, servicing or maintenance and listed on Schedule 2.02(b)(ii)(C)
      or acquired by Seller after the date of this Agreement and designated by
      Seller as a Retained Asset or (2) located on Seller Real Estate or
      temporarily removed from Seller Real Estate for
<PAGE>   26
                                                                              19

      repairs, servicing or maintenance; and (D) all Protective Relaying Systems
      not located on Buyer Real Estate;

            (iii) all cash, cash equivalents, bank deposits and accounts
      receivable held or owned by Seller;

            (iv)(A) all mainframe computer systems of Seller, (B) the code to
      all software described in Section 2.02(a)(ix)(B), and (C) all software,
      copyrights, know-how or other proprietary information relating primarily
      to any other Retained Assets or any Retained Liabilities, including
      software, copyrights, know-how or other proprietary information licensed
      to Buyer pursuant to Section 2.02 (a)(ix)(B);

            (v) the names "Consolidated Edison", "Con Edison", "Con Ed",
      "Consolidated Edison Company", "Consolidated Edison Company of New York,
      Inc.", "Consolidated Edison, Inc.", "New York Edison", "Brooklyn Edison",
      "Staten Island Edison" and "Edison" and any related or similar trade
      names, trademarks, service marks or logos (and any rights to and in the
      same, including any right to use the same);

            (vi) subject to Section 7.06(d), any refund or credit related to
      Taxes or sewer rents or water charges or any other liabilities or
      obligations in respect of the Auctioned Assets, in each case, attributable
      to periods (or portions thereof) prior to the Closing Date;

            (vii) all personnel records (other than Transferring Employee
      Records) and all other records (other than Operating Records);

            (viii)(A) all Emission Reduction Credits held or possessed by
      Seller and (B) SO2 Allowances held or possessed by Seller and not listed
      on Schedule 2.02(a)(vi); and

            (ix) any other asset that is not described with particularity in
      this Agreement as an Auctioned Asset.

            SECTION 2.03. Assumed Obligations and Retained Liabilities. (a)
Assumed Obligations. At the Closing, Buyer shall assume, and from and after the
Closing, shall discharge, all of the liabilities and obligations, direct or
indirect, known or unknown, absolute or contingent, which relate to the
Auctioned Assets or are otherwise specified
<PAGE>   27
                                                                              20

below, other than the Retained Liabilities (collectively, the "Assumed
Obligations"), including:

            (i) except as set forth in Section 2.03(b)(ii), any liabilities and
      obligations under the Contracts;

            (ii) any liabilities and obligations for goods delivered or services
      rendered on or after the Closing Date relating to the Auctioned Assets;

            (iii) except as set forth in Sections 2.03(b)(iii) or (iv), any
      Environmental Liability arising out of or in connection with (A) any
      violation or alleged violation of, or noncompliance or alleged
      noncompliance with, any Environmental Laws, prior to, on or after the
      Closing Date, with respect to the ownership or operation of the Auctioned
      Assets, notwithstanding that, as contemplated by Section 7.03(c), Seller
      may remain the "holder of record" with respect to certain Transferable
      Permits, (B) the condition of any Auctioned Assets prior to, on or after
      the Closing Date, including any actual or alleged presence, Release or
      threatened Release of any Hazardous Substance at, on, in, under or
      migrating onto or from, the Auctioned Assets, prior to, on or after the
      Closing Date (except for any such Release from equipment or property owned
      or operated by Seller and located on, or constituting, Seller Real Estate
      adjacent to Buyer Real Estate that (1) occurs on or after the Closing Date
      and (2) is caused by Seller or its Affiliates), (C) any Release or
      threatened Release of any Hazardous Substance on or after the Closing Date
      from the Buyer Facilities or otherwise originating from, or relating to,
      any equipment owned or used by Buyer that is located on Seller Real Estate
      or (D) the transportation, storage, Release, threatened Release or
      recycling of, or arrangement for such activities with respect to,
      Hazardous Substances generated in respect of the Auctioned Assets at or to
      any location, on or after the Closing Date;

            (iv) any liabilities and obligations relating to the Auctioned
      Assets under the consent orders listed on Schedule 2.03(a)(iv)(the
      "Seller Consent Orders") and identified thereon as "Assumed Consent Order
      Obligations" (the "Assumed Consent Order Obligations")

            (v) except as set forth in Section 2.03(b)(iv), any liabilities and
      obligations with respect to the Permits to the extent arising or accruing
      on or after the Closing Date;
<PAGE>   28
                                                                              21

            (vi)(A) all wages, overtime, employment taxes, severance pay,
      transition payments, workers compensation benefits, occupational safety
      and health liabilities or other similar liabilities and obligations in
      respect of Transferring Employees to the extent arising or accruing on or
      after the Closing Date, and (B) all other liabilities and obligations with
      respect to the Transferring Employees for which Buyer is responsible
      pursuant to Article IX;

            (vii)(A) any liabilities and obligations (other than any
      Environmental Liabilities which are Retained Liabilities) in respect of
      any personal injury or property damage claim relating to, resulting from
      or arising out of the Generating Plants or Gas Turbines or (B) any
      liabilities and obligations in respect of any discrimination, wrongful
      discharge or unfair labor practice claim by any Transferring Employee, in
      the case of each of the foregoing clauses (A) and (B), to the extent
      arising or accruing on or after the Closing Date;

            (viii) any liabilities and obligations, with respect to the periods
      that include the Closing Date, with respect to real or personal property
      rent, taxes based on the ownership or use of property, utilities charges
      and similar charges that primarily relate to the Generating Plants or the
      Gas Turbines (collectively, the "Prorated Items"), to the extent such
      Prorated Items relate to the period from and after the Closing Date,
      including (A) personal property taxes, real estate and occupancy taxes,
      assessments and other charges (which shall be apportioned or adjusted as
      provided in the Zoning Lot Development Agreements), (B) rent and all other
      items payable by Seller under any Contract, (C) any fees with respect to
      any Transferable Permit and (D) sewer rents and charges for water,
      telephone, electricity and other utilities, in each case calculated by
      multiplying the amount of any such Prorated Item by a fraction the
      numerator of which is the number of days in such period from and after the
      Closing Date and the denominator of which is the number of days in such
      period;

            (ix) any liabilities and obligations in respect of Taxes (other than
      Prorated Items) attributable to the Auctioned Assets arising or accruing
      during taxable periods (or portions thereof) beginning on or after the
      Closing Date;
<PAGE>   29
                                                                              22

            (x) any liabilities and obligations in respect of damage to property
      or personal injury or death relating to, resulting from or arising out of
      any property, machinery, equipment, facilities or systems from time to
      time owned by Buyer or its Affiliates subject to the Ancillary Agreements
      or employed by Buyer in connection with the performance of the Ancillary
      Agreements ("Buyer Assets"), or any Protective Relaying System owned by
      Seller as contemplated by the Continuing Site Agreement, regardless of
      whether the property damage or personal injury is caused by a Seller
      Indemnitee or a Buyer Indemnitee;

            (xi) any liabilities and obligations under the Ancillary Agreements
      in respect of the Auctioned Assets to the extent arising on or after the
      Closing Date; and

            (xii) any liabilities and obligations relating to the Auctioned
      Assets under the NYPA Agreements and listed on Schedule 2.03(a)(xii)(the
      "Assumed Seller Obligations under NYPA Agreements"); provided, however,
      that to the extent required for qualification of Buyer, with respect to
      the Auctioned Assets, as an exempt wholesale generator under the Energy
      Policy Act of 1992, Buyer may delegate and/or assign its obligations to
      provide electricity and/or steam to NYPA to an Affiliate of Buyer;
      provided further, however, that no such delegation or assignment shall
      relieve Buyer of such obligations.

            (b) Retained Liabilities. Buyer shall not assume or be obligated to
pay, perform or otherwise discharge the following liabilities or obligations
(the "Retained Liabilities")

            (i) any liabilities and obligations of Seller primarily relating to
      any Retained Assets (other than as contemplated by Section 2.03 (a)(x));

            (ii) any payment obligations of Seller, including under Contracts,
      for goods delivered or services rendered prior to the Closing Date;

            (iii)(A) any Environmental Liability of Seller arising out of or in
      connection with the transportation, storage, Release, threatened Release
      or recycling of, or arrangement for such activities with respect to,
      Hazardous Substances at or to any Off-Site location, prior to the Closing
      Date, (B) any Environmental Liability of Seller arising out of or in
      connection with any Release or threatened Release of
<PAGE>   30
                                                                              23

      any Hazardous Substance on or after the Closing Date from the Seller
      Facilities or otherwise originating from, or relating to, any equipment
      owned or used by Seller that is located on Buyer Real Estate and (C) any
      liabilities and obligations relating to Auctioned Assets under the Seller
      Consent Orders, except Assumed Consent Order Obligations;

            (iv) any monetary fines (excluding (A) natural resource damages, (B)
      cleanup or remediation costs and (C) other costs of a similar nature)
      imposed by a Governmental Authority to the extent arising out of or
      relating to acts or omissions of Seller in respect of the Auctioned Assets
      prior to the Closing Date;

            (v)(A) all wages, overtime, employment taxes, severance pay,
      transition payments, workers compensation benefits, occupational safety
      and health liabilities or other similar liabilities and obligations in
      respect of Transferring Employees to the extent arising or accruing prior
      to the Closing Date and (B) all other liabilities and obligations with
      respect to the Transferring Employees for which Seller is responsible
      pursuant to Article IX;

            (vi)(A) any liabilities and obligations (other than any
      Environmental Liabilities which are Assumed Obligations) in respect of any
      personal injury or property damage claim relating to the Generating Plants
      or Gas Turbines or (B) any liabilities and obligations in respect of any
      discrimination, wrongful discharge or unfair labor practice claim by any
      Transferring Employee, in the case of each of the foregoing clauses (A)
      and (B), to the extent arising out of or relating to acts or omissions of
      Seller prior to the Closing Date;

            (vii) any liabilities and obligations, with respect to the period
      prior to the Closing Date, for the Prorated Items, calculated as set forth
      in Section 2.03(a)(viii);

            (viii) any liabilities and obligations in respect of Taxes (other
      than Prorated Items) attributable to the Auctioned Assets arising or
      accruing during taxable periods (or portions thereof) ending before the
      Closing Date, including Income Taxes attributable to income realized by
      Seller pursuant to the transactions contemplated by this Agreement;
<PAGE>   31
                                                                              24

            (ix) any liabilities and obligations arising after the date of this
      Agreement in respect of which Seller has provided pursuant to Section
      7.01(d)(ii) that such liabilities and obligations shall not be assumed or
      retained by Buyer;

            (x) any liabilities and obligations in respect of damage to property
      or personal injury or death relating to, resulting from or arising out of
      any property, machinery, equipment, facilities or systems from time to
      time owned by Seller or its Affiliates subject to the Ancillary Agreements
      or employed by Seller in connection with the performance of the Ancillary
      Agreements ("Seller Assets"), regardless of whether the property damage or
      personal injury is caused by a Seller Indemnitee or a Buyer Indemnitee;

            (xi) any liabilities and obligations under the Ancillary Agreements
      in respect of the Retained Assets; and

            (xii) any liabilities and obligations relating to Auctioned Assets
      under the NYPA Agreements, except Assumed Seller Obligations under NYPA
      Agreements.

            SECTION 2.04. Third Party Consents. (a) Notwithstanding Section
2.02(a)(ii), (iii) or (iv), to the extent that Seller's rights under any
Contract or warranty may not be assigned without the consent of another person
which consent has not been obtained, this Agreement shall not constitute an
agreement to assign the same if an attempted assignment would constitute a
breach thereof or be unlawful, and Seller, at its expense, shall use its
reasonable best efforts to obtain prior to the Closing any such required
consents.

            (b) Seller and Buyer agree that if any consent to an assignment of
any such Contract or warranty shall not be obtained or if any attempted
assignment would in Seller's reasonable opinion be ineffective or would impair
any material rights and obligations of Buyer under such Contract or warranty, as
applicable, so that Buyer would not acquire the benefit of all such rights and
obligations, Seller, to the maximum extent permitted by law and such Contract or
warranty, as applicable, shall after the Closing appoint Buyer to be Seller's
representative and agent with respect to such Contract or warranty, as
applicable, and Seller shall, to the maximum extent permitted by law and such
Contract or warranty, as applicable, enter into such reasonable arrangements
with Buyer as are necessary to provide Buyer with the benefits and obligations
of such
<PAGE>   32
                                                                              25

Contract or warranty, as applicable. Seller and Buyer shall cooperate and shall
each use their reasonable best efforts after the Closing to obtain an assignment
of each such Contract or warranty, as applicable, to Buyer.

            SECTION 2.05. Franchise Property. (a) Notwithstanding Section
2.02(a)(i), (ii) and (iii), to the extent it would be unlawful for Buyer to
operate, use or maintain the machinery, equipment and property listed on
Schedule 2.05(a)(collectively, the "Franchise Property") to Buyer without Buyer
obtaining from the City of New York a revocable consent, franchise agreement or
other arrangement permitting Buyer to hold title to the Franchise Property (the
"Revocable Consent"), Seller and Buyer agree that (i) Buyer shall use its
reasonable best efforts to cause the Revocable Consent to be entered into prior
to Closing, including filing a petition with the City of New York in respect of
the Revocable Consent not later than 45 days after the date of this Agreement,
and Seller shall cooperate in good faith in connection therewith, (ii) if the
Revocable Consent has not been obtained by Buyer prior to Closing (A) title to
the Franchise Property shall be deemed not to be transferred at Closing, (B)
Seller, to the maximum extent permitted by law, shall after Closing appoint
Buyer to be Seller's representative with respect to the Franchise Property, (C)
Seller shall operate, use and maintain the Franchise Property at Buyer's expense
and Buyer shall pay all real and personal property taxes applicable thereto and
(D) Buyer shall use its reasonable best efforts after Closing to cause the
Revocable Consent to be entered into, at which time title to the Franchise
Property shall be deemed transferred from Seller to Buyer pursuant to this
Agreement, and Seller shall cooperate in good faith in connection therewith and
(iii) Buyer shall pay all fees, charges and other expenses in connection with
the Revocable Consent.

            (b) Seller and Buyer further agree that for the purposes of (i) the
Ancillary Agreements and Sections 2.03, 10.01 and 10.02 of this Agreement, the
terms "Auctioned Assets", "Buyer Assets" and "Buyer Facilities" shall in any
event each be deemed to include the Franchise Property and (ii) the Ancillary
Agreements, the Franchise Property shall in any event be deemed to be owned by
Buyer.
<PAGE>   33
                                                                              26

                                   ARTICLE III

                                 Purchase Price

            SECTION 3.01. Purchase Price. The purchase price for the Auctioned
Assets shall be $550,000,000 (the "Purchase Price").

            SECTION 3.02. Post-Closing Adjustment. (a) Within 20 Business Days
after the Closing, Seller shall prepare and deliver to Buyer a statement (an
"Adjustment Statement") which reflects the book cost, as reflected on the books
of Seller as of the Closing Date, of all fuel inventory and supplies, materials
and spare parts inventory included in the Auctioned Assets (the "Adjustment
Amount") and, upon request of Buyer, related accounting material used by Seller
to prepare the Adjustment Statement. The Adjustment Amount will be based, in
respect of fuel, on the actual fuel inventory on the Closing Date and, in
respect of supplies, materials and spare parts, on an inventory survey conducted
within ten Business Days prior to the Closing Date, in each case, consistent
with the inventory procedures of Seller in effect as of the date of this
Agreement (the "Inventory Survey"). Seller will permit an employee, or
representative, of Buyer to observe the Inventory Survey. The Adjustment
Statement shall be prepared using (i) GAAP and (ii) the same rolling average
unit costs that Seller has historically used to calculate the book cost of its
fuel and supplies, materials and spare parts inventory. Buyer agrees to
cooperate with Seller in connection with the preparation of the Adjustment
Statement and related information, and shall provide to Seller such access,
books, records and information as may be reasonably requested from time to time.

            (b) Buyer may dispute the quantity delivered or quality of any
inventory item shown on the Adjustment Statement, or the mathematical
calculations reflected therein, by notifying Seller in writing of the disputed
amount, and the basis of such dispute, within 20 Business Days of Buyer's
receipt of the Adjustment Statement; provided, however, that in respect of the
quality of any inventory item, Buyer may not dispute Seller's normal and
customary methods for accounting for excess inventory. Buyer shall have no right
to dispute any other matter in respect of the Adjustment Statement, including
historical rolling average unit costs used to calculate the book cost of the
inventory or the appropriateness, under GAAP or otherwise, of using such
historical rolling average unit cost to determine the book cost of any
particular item of inventory. In the event of a dispute with respect to the
<PAGE>   34
                                                                              27

quantity or quality of any inventory item shown on the Adjustment Statement, or
the mathematical calculations reflected therein, Buyer and Seller shall attempt
to reconcile their differences and any resolution by them as to any disputed
amounts shall be final, binding and conclusive on the Parties. If Buyer and
Seller are unable to reach a resolution of such differences within 20 Business
Days of receipt of Buyer's written notice of dispute to Seller, Buyer and Seller
shall submit the amounts remaining in dispute for determination and resolution
to PricewaterhouseCoopers LLP or any other accounting firm of recognized
national standing reasonably acceptable to Seller and Buyer (the "Accountants"),
which shall be instructed to determine and report to the Parties, within 20
Business Days after such submission, upon such remaining disputed amounts, and
such report shall be final, binding and conclusive on the Parties with respect
to the amounts disputed. Buyer and Seller shall each pay one-half of the fees
and disbursements of the Accountants in connection with the resolution of such
disputed amounts.

            (c) If the Adjustment Amount is greater or less than the Estimated
Adjustment Amount, then on the Adjustment Date (as defined below), (i) to the
extent that the Adjustment Amount exceeds the Estimated Adjustment Amount, Buyer
shall pay to Seller the amount of such excess and (ii) to the extent that the
Adjustment Amount is less than the Estimated Adjustment Amount, Seller shall pay
to Buyer the amount of such deficiency. "Adjustment Date" means (1) if Buyer
does not disagree in any respect with the Adjustment Statement, the twenty-third
Business Day following Buyer's receipt of the Adjustment Statement or (2) if
Buyer shall disagree in any respect with the Adjustment Statement, the third
Business Day following either the resolution of such disagreement by the Parties
or a final determination by the Accountants in accordance with Section 3.02(b).
Any amount paid under this Section 3.02(c) shall be paid with interest for the
period commencing on the Closing Date through the date of payment, calculated at
the prime rate of the Chase Manhattan Bank in effect on the Closing Date, and in
cash by wire transfer of immediately available funds.

            SECTION 3.03. Allocation of Purchase Price. Buyer shall deliver to
Seller at Closing a preliminary allocation among the Auctioned Assets of the
Purchase Price and among such other consideration paid to Seller pursuant to
this Agreement that is properly includible in Buyer's tax basis for the
Auctioned Assets for Federal income tax purposes, and, as soon as practicable
following the Closing (but in any event within 10 Business Days following the
<PAGE>   35
                                                                              28

final determination of the Adjustment Amount), Buyer shall prepare and deliver
to Seller a final allocation of the Purchase Price and additional consideration
described in the preceding clause, and the post-closing adjustment pursuant to
Section 3.02, among the Auctioned Assets (the "Allocation"). The Allocation
shall be consistent with Section 1060 of the Code and the Treasury Regulations
thereunder. Seller hereby agrees to accept Buyer's Allocation unless Seller
determines that such Allocation was not prepared in accordance with Section 1060
of the Code and the regulations thereunder ("Applicable Law"). If Seller so
determines, Seller shall within 20 Business Days thereafter propose any changes
necessary to cause the Allocation to be prepared in accordance with Applicable
Law. Within 10 Business Days following delivery of such proposed changes, Buyer
shall provide Seller with a statement of any objections to such proposed
changes, together with a reasonably detailed explanation of the reasons
therefor. If Buyer and Seller are unable to resolve any disputed objections
within 10 Business Days thereafter, such objections shall be referred to the
Accountants, whose review will be limited to whether Buyer's Allocation of such
disputed items regarding the Allocation was prepared in accordance with
Applicable Law. The Accountants shall be instructed to deliver to Seller and
Buyer a written determination of the proper allocation of such disputed items
within 20 Business Days. Such determination shall be conclusive and binding upon
the parties hereto for all purposes, and the Allocation shall be so adjusted
(the Allocation, including the adjustment, if any, to be referred to as the
"Final Allocation"). The fees and disbursements of the Accountants attributable
to the Allocation shall be shared equally by Buyer and Seller. Each of Buyer and
Seller agrees to timely file Internal Revenue Service Form 8594, and all
Federal, state, local and foreign Tax Returns, in accordance with such Final
Allocation and to report the transactions contemplated by this Agreement for
Federal Income Tax and all other tax purposes in a manner consistent with the
Final Allocation. Each of Buyer and Seller agrees to promptly provide the other
party with any additional information and reasonable assistance required to
complete Form 8594, or compute Taxes arising in connection with (or otherwise
affected by) the transactions contemplated hereunder. Each of Buyer and Seller
shall timely notify the other Party and each shall timely provide the other
Party with reasonable assistance in the event of an examination, audit or other
proceeding regarding the Final Allocation.
<PAGE>   36
                                                                              29

                                   ARTICLE IV

                                   The Closing

            SECTION 4.01. Time and Place of Closing. Upon the terms and subject
to the satisfaction of the conditions contained in Article VIII, the closing of
the sale of the Auctioned Assets contemplated by this Agreement (the "Closing")
will take place on such date as the Parties may agree, which date shall be as
soon as practicable, but no later than ten Business Days, following the date on
which all of the conditions set forth in Article VIII have been satisfied or
waived, at the offices of Cravath, Swaine & Moore in New York City or at such
other place or time as the Parties may agree. The date and time at which the
Closing actually occurs is hereinafter referred to as the "Closing Date".

            SECTION 4.02. Payment of Purchase Price and Estimated Adjustment
Amount. At the Closing, Buyer will pay or cause to be paid to Seller by wire
transfer of immediately available funds to an account previously designated in
writing by Seller an amount in United States dollars equal to (a) the Purchase
Price plus (b) Seller's good faith estimate of the Adjustment Amount (the
"Estimated Adjustment Amount"), which estimate shall be provided to Buyer no
later than five Business Days prior to the Closing.

                                    ARTICLE V

                    Representations and Warranties of Seller

            Seller represents and warrants to Buyer as follows:

            SECTION 5.01. Organization; Qualification. Seller is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of New York and has all requisite corporate power and authority to own,
lease and operate the Auctioned Assets and to carry on the business of the
Auctioned Assets as currently conducted.

            SECTION 5.02. Authority Relative to This Agreement. Seller has all
necessary corporate power and authority to execute and deliver this Agreement
and the Ancillary Agreements and to consummate the transactions contemplated
hereby and thereby. The execution and delivery by Seller of this Agreement and
the Ancillary Agreements and the consummation by Seller of the transactions
contemplated hereby and thereby have been duly and validly authorized by
<PAGE>   37
                                                                              30

the Board of Trustees of Seller or by a committee thereof to whom such authority
has been delegated and no other corporate proceedings on the part of Seller are
necessary to authorize this Agreement or the Ancillary Agreements or the
consummation of the transactions contemplated hereby or thereby. This Agreement
and the Ancillary Agreements have been duly and validly executed and delivered
by Seller and, assuming that this Agreement and the Ancillary Agreements
constitute valid and binding agreements of Buyer and each other party thereto,
subject to the receipt of the Seller Required Regulatory Approvals and the Buyer
Required Regulatory Approvals, constitute valid and binding agreements of
Seller, enforceable against Seller in accordance with their respective terms.

            SECTION 5.03. Consents and Approvals; No Violation. (a) Subject to
obtaining the Seller Required Regulatory Approvals and the Buyer Required
Regulatory Approvals, neither the execution and delivery of this Agreement or
the Ancillary Agreements by Seller nor the sale by Seller of the Auctioned
Assets pursuant to this Agreement will (i) conflict with or result in any breach
of any provision of the Certificate of Incorporation or By-laws of Seller, (ii)
except as set forth on Schedule 5.03(a), result in a default (or give rise to
any right of termination, cancelation or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
agreement, lease or other instrument or obligation to which Seller is a party or
by which Seller, or any of the Auctioned Assets, may be bound, except for such
defaults (or rights of termination, cancelation or acceleration) as to which
requisite waivers or consents have been obtained or which would not,
individually or in the aggregate, create a Material Adverse Effect or (iii)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Seller, or the Auctioned Assets, except for such violations which
would not, individually or in the aggregate, create a Material Adverse Effect.

            (b) Except for (i) application by Seller to, and the approval of,
the PSC, pursuant to ss. 70 of the Public Service Law of the State of New York,
of the transfer to Buyer of the Auctioned Assets, (ii) the filings by Seller and
Buyer required by the HSR Act and the expiration or earlier termination of all
waiting periods under the HSR Act, (iii) application by Seller to, and the
approval of, FERC under (A) Section 203 of the Federal Power Act of 1935 (the
"Federal Power Act") with respect to the transfer of Auctioned Assets
constituting jurisdictional assets under the Federal Power Act and (B) Section
205 of the Federal Power Act with respect to each Continuing Site Agreement and
<PAGE>   38
                                                                              31

any wholesale power sales agreement to be entered into by Seller and Buyer,
including the Transition Capacity Agreement, (iv) the issuance of approval by
the New York City Department of Buildings and, to the extent required, the New
York City Department of Business Services of the tax lot subdivision
contemplated by this Agreement in a form suitable for submission to the New York
City Department of Finance for the issuance of tax lot numbers and (v)
declarations, filings or registrations with, or notices to, or authorizations,
consents or approvals of, any Governmental Authority which become applicable to
Seller or the transactions contemplated hereby or by the Ancillary Agreements as
a result of the specific regulatory status or jurisdiction of incorporation or
organization of Buyer (or any of its Affiliates) or as a result of any other
facts that specifically relate to the business or activities in which Buyer (or
any of its Affiliates) is or proposes to be engaged (collectively, the "Seller
Required Regulatory Approvals"), no declaration, filing or registration with, or
notice to, or authorization, consent or approval of any Governmental Authority
is necessary for the consummation by Seller of the transactions contemplated
hereby or by the Ancillary Agreements, other than such declarations, filings,
registrations, notices, authorizations, consents or approvals (A) which, if not
obtained or made, would not, individually or in the aggregate, create a Material
Adverse Effect or (B) which relate to the Transferable Permits.

            (c) To the knowledge of Seller, there is no reason that it should
fail to obtain the Seller Required Regulatory Approvals.

            SECTION 5.04. Year 2000. Seller has informed Buyer of the status, as
of the date of this Agreement, of measures to prevent computer software,
hardware and embedded systems used in connection with the Auctioned Assets from
experiencing malfunctions or other usage problems in connection with years
beginning with "20", except for such malfunctions or other usage problems which
would not, individually or in the aggregate, create a Material Adverse Effect.

            SECTION 5.05. Personal Property. Except for Permitted Exceptions,
Seller has good and marketable title, free and clear of all Encumbrances, to all
personal property included in the Auctioned Assets.

            SECTION 5.06. Real Estate. The Conveyance Plans contain descriptions
of the Buyer Real Estate. Copies of the most recent real property surveys and
title insurance information in the possession of Seller with respect to the
<PAGE>   39
                                                                              32

Buyer Real Estate or any portion thereof have heretofore been delivered by
Seller to Buyer or made available for inspection by Buyer, receipt of which is
hereby acknowledged by Buyer.

            SECTION 5.07. Leases. As of the date of this Agreement, Seller is
neither a tenant nor a licensee under any real property leases or licenses which
(a) are to be transferred and assigned to Buyer on the Closing Date and (b)(i)
provide for annual payments of more than $100,000 or (ii) are material to the
Auctioned Assets.

            SECTION 5.08. Certain Contracts and Arrangements. (a) Except for (i)
any contract or agreement listed on Schedule 2.02(a)(iv) or Schedule 5.08(a) and
(ii) Contracts which will expire prior to the Closing Date or that are permitted
to be entered into under this Agreement, Seller is not a party to any contract
which is material to the business or operations of the Auctioned Assets. Seller
has made available to Buyer for inspection true and complete copies of all
contracts listed on Schedule 2.02(a)(iv) or Schedule 5.08(a) and each of the
NYPA Agreements.

            (b) Each Contract (i) constitutes a valid and binding obligation of
Seller, and, to the knowledge of Seller, constitutes a valid and binding
obligation of the other parties thereto, (ii) to the knowledge of Seller, is in
full force and effect and (iii) other than Contracts covered by Section 2.04, to
the knowledge of Seller, may be transferred to Buyer pursuant to this Agreement
and will continue in full force and effect thereafter, in each case, without
breaching the terms thereof or resulting in the forfeiture or impairment of any
rights thereunder, except for such breaches, forfeitures or impairments which
would not, individually or in the aggregate, create a Material Adverse Effect.

            (c) There is not, under any of the Contracts or any of the NYPA
Agreements, any default or event which, with notice or lapse of time or both,
would constitute a default by Seller, except for such events of default and
other events as to which requisite waivers or consents have been obtained or
which would not, individually or in the aggregate, create a Material Adverse
Effect.

            SECTION 5.09. Legal Proceedings. Except as set forth on Schedule
5.09 or in the Filed Seller SEC Documents, as of the date of this Agreement,
there are no claims, actions, proceedings or investigations pending or, to the
knowledge of Seller, threatened against or relating to Seller which would,
individually or in the aggregate, be
<PAGE>   40
                                                                              33

reasonably expected to create a Material Adverse Effect. With respect to the
business or operations of the Auctioned Assets, Seller is not, as of the date of
this Agreement, subject to any outstanding judgment, rule, order, writ,
injunction or decree of any court, governmental or regulatory authority which
would create a Material Adverse Effect. The representations and warranties of
Seller set forth in this Section 5.09 shall not apply to, and do not cover, any
environmental matters which, with respect to any representations and warranties
of Seller, are exclusively governed by Section 5.11.

            SECTION 5.10. Permits; Compliance with Law. (a) Except as set forth
on Schedule 5.l0(a)(i), Seller holds, and is in compliance with, all Permits
necessary to conduct the business and operations of the Auctioned Assets as
currently conducted, and, to the knowledge of Seller, Seller is otherwise in
compliance with all laws, statutes, orders, rules, regulations, ordinances or
judgments of any Governmental Authority applicable to the business and
operations of the Auctioned Assets, except for such failures to hold or comply
with such Permits, or such failures to be in compliance with such laws,
statutes, orders, rules, regulations, ordinances or judgments, which would not,
individually or in the aggregate, create a Material Adverse Effect. Except as
set forth on Schedule 5.10(a)(ii), Seller has not received any written
notification that it is in violation of any of such Permits or laws, statutes,
orders, rules, regulations, ordinances or judgments, except for notifications of
violations which would not, individually or in the aggregate, create a Material
Adverse Effect. The representations and warranties of Seller set forth in this
Section 5.10 shall not apply to, and do not cover, any environmental matters
which, with respect to any representations and warranties of Seller, are
exclusively governed by Section 5.11.

            (b) Notwithstanding the last sentence of Section 5.10(a), except as
set forth on Schedule 5.10(b), there are no material Permits or material
Environmental Permits that, in each case, are not Transferable Permits and are
required for Buyer to conduct the business and operations of the Auctioned
Assets as currently conducted.

            SECTION 5.11. Environmental Matters. (a) Except as set forth in
Schedule 5.11 or disclosed in the Filed Seller SEC Documents, Seller holds, and
is in compliance with, the Environmental Permits required for Seller to conduct
the business and operations of the Auctioned Assets as currently conducted under
applicable Environmental Laws, and, to the knowledge of Seller, Seller is
otherwise in
<PAGE>   41
                                                                              34

compliance with applicable Environmental Laws with respect to the business and
operations of the Auctioned Assets, except for such failures to hold or comply
with such Environmental Permits, or such failures to be in compliance with such
Environmental Laws, which would not, individually or in the aggregate, create a
Material Adverse Effect.

            (b) Except as set forth in Schedule 5.11 or disclosed in the Filed
Seller SEC Documents, Seller has not received any written notice of violation of
any Environmental Law or any written request for information with respect
thereto, or been notified that it is a potentially responsible party under the
Federal Comprehensive Environmental Response, Compensation, and Liability Act or
any similar state law with respect to any real property included in the Buyer
Real Estate or in any lease forming part of the Auctioned Assets, except for
such matters under such laws as would not, individually or in the aggregate,
create a Material Adverse Effect.

            (c) Except as set forth in Schedule 5.11 or disclosed in the Filed
Seller SEC Documents, with respect to the business and operations of the
Auctioned Assets, Seller is not subject to any outstanding judgment, decree or
judicial order relating to compliance with any Environmental Law or to
investigation or cleanup of Hazardous Substances under any applicable
Environmental Law, except for (i) the Seller Consent Orders and (ii) such
judgments, decrees or judicial orders that would not, individually or in the
aggregate, create a Material Adverse Effect.

            (d) Except as set forth in Schedule 5.11 or disclosed in the Filed
Seller SEC Documents, as of the date of this Agreement, there are no claims,
actions, proceedings or investigations pending, or to the knowledge of Seller,
threatened against or relating to Seller, with respect to the exposure at the
Auctioned Assets of any person to Hazardous Substances, which, if adversely
determined, would, individually or in the aggregate, create a Material Adverse
Effect.

            SECTION 5.12. Labor Matters. Seller has previously made available to
Buyer copies of all collective bargaining agreements to which Seller is a party
or is subject and which relate to the business or operations of the Auctioned
Assets. With respect to the business and operations of the Auctioned Assets, as
of the date of this Agreement, (a) Seller is in compliance with all applicable
laws regarding employment and employment practices, terms and conditions of
employment and wages and hours, (b) Seller has not received written notice of
any unfair labor practice
<PAGE>   42
                                                                              35

complaint against Seller pending before the National Labor Relations Board, (c)
there is no labor strike, slowdown or stoppage actually pending or, to the
knowledge of Seller, threatened against or affecting Seller, (d) Seller has not
received notice that any representation petition respecting the employees of
Seller has been filed with the National Labor Relations Board, (e) no
arbitration proceeding arising out of or under collective bargaining agreements
is pending against Seller and (f) Seller has not experienced any primary work
stoppage since at least December 31, 1996, except, in the case of each of the
foregoing clauses (a) through (f), for such matters as would not, individually
or in the aggregate, create a Material Adverse Effect.

            SECTION 5.13. ERISA: Benefit Plans. Schedule 5.13 sets forth a list
of all material deferred compensation, profit-sharing, retirement and pension
plans and all material bonus and other material employee benefit or fringe
benefit plans maintained, or with respect to which contributions have been made,
by Seller with respect to current or former employees employed in connection
with the power generation operations of the Generating Plants and the Gas
Turbines (collectively, "Benefit Plans"). Seller and each trade or business
(whether or not incorporated) which are or have ever been under common control,
or which are or have ever been treated as a single employer, with Seller under
Section 414(b), (c), (m) or (o) of the Code (an "ERISA Affiliate") have
fulfilled their respective obligations under the minimum funding requirements of
Section 302 of ERISA, and Section 412 of the Code, with respect to each Benefit
Plan which is an "employee pension benefit plan" as defined in Section 3(2) of
ERISA and each such plan is in compliance in all material respects with the
presently applicable provisions of ERISA and the Code, except for such failures
to fulfill such obligations or comply with such provisions which would not,
individually or in the aggregate, create a Material Adverse Effect. Neither
Seller nor any ERISA Affiliate has incurred any liability under Section 4062(b)
of ERISA, or any withdrawal liability under Section 4201 of ERISA, to the
Pension Benefit Guaranty Corporation in connection with any Benefit Plan which
is subject to Title IV of ERISA which liability remains outstanding, and there
has not been any reportable event (as defined in Section 4043 of ERISA) with
respect to any such Benefit Plan (other than a reportable event with respect to
which the 30-day notice requirement has been waived by the PBGC). Neither Seller
nor any ERISA Affiliate or parent corporation, within the meaning of Section
4069(b) or Section 4212(c) of ERISA, has engaged in any transaction, within the
meaning of Section 4069(b) or Section 4212(c) of ERISA. No Benefit Plan and no
"employee pension benefit
<PAGE>   43
                                                                              36

plan" (as defined in Section 3(2) of ERISA) maintained by Seller or any ERISA
Affiliate or to which Seller or any ERISA Affiliate has contributed is a
multiemployer plan.

            SECTION 5.14. Taxes With respect to the Auctioned Assets and trades
or businesses associated with the Auctioned Assets, (a) all Tax Returns required
to be filed have been filed and (b) all Taxes shown to be due on such Tax
Returns, and all Taxes otherwise owed, have been paid in full, except to the
extent that any failure to file or any failure to pay any Taxes would not,
individually or in the aggregate, create a Material Adverse Effect. No written
notice of deficiency or assessment has been received from any taxing authority
with respect to liabilities for Taxes of Seller in respect of the Auctioned
Assets which has not been fully paid or finally settled or which is not being
contested in good faith through appropriate proceedings, except for any such
notices regarding Taxes which would not, individually or in the aggregate,
create a Material Adverse Effect. There are no outstanding agreements or waivers
extending the applicable statutory periods of limitation for Taxes associated
with the Auctioned Assets for any period, except for any such agreements or
waivers which would not, individually or in the aggregate, create a Material
Adverse Effect.

            SECTION 5.15. Independent Engineering Assessments. (a) Seller has
reviewed the 1998 assessments prepared by Stone & Webster with respect to the
Generating Plants and the Gas Turbines (the "Independent Engineering
Assessments"), and, except as set forth on Schedule 5.15(a), to the knowledge of
Seller, as of the date of the Independent Engineering Assessments, there was no
untrue statement of a material fact or omission of any material fact therein
that would reasonably suggest that the condition of the Generating Plants and
the Gas Turbines, taken as a whole, as of such date was materially and adversely
different from that described in such Independent Engineering Assessments.

            (b) Except as set forth on Schedule 5.15(b), since the date of the
Independent Engineering Assessments, there has not been, subject to ordinary
wear and tear and to routine maintenance, any casualty, physical damage,
destruction or physical loss with respect to, or, to the knowledge of Seller,
any adverse change in the physical condition of, any Generating Plant or Gas
Turbine, except for such casualty, physical damage, destruction, physical loss
or adverse change which would not, individually or in the aggregate, create a
Material Adverse Effect.
<PAGE>   44
                                                                              37

            SECTION 5.16. Undisclosed Liabilities. With respect to the Auctioned
Assets, there are no liabilities or obligations of any nature or kind (absolute,
accrued, contingent or otherwise) that would have been required to be set forth
on a balance sheet in respect of the Auctioned Assets or in the notes thereto
prepared in accordance with GAAP, as applied by Seller in connection with its
December 31, 1997 balance sheet, except for any such liabilities or obligations
which (a) are disclosed in or contemplated or permitted by this Agreement or the
Ancillary Agreements (including the Assumed Obligations), (b) are disclosed in
the Offering Memorandum, (c) are disclosed in the Filed Seller SEC Documents,
(d) have been incurred in the ordinary course of business, (e) are disclosed on
Schedule 5.16 or (f) which would not, individually or in the aggregate, create a
Material Adverse Effect.

            SECTION 5.17. Brokers. No broker, finder or other person is entitled
to any brokerage fees, commissions or finder's fees in connection with the
transaction contemplated hereby by reason of any action taken by Seller, except
Morgan Stanley & Co. Incorporated, which is acting for and at the expense of
Seller.

            SECTION 5.18. Insurance. Seller carries policies of insurance
covering fire, workers' compensation, property all-risk, comprehensive bodily
injury, property damage liability, automobile liability, product liability,
completed operations, explosion, collapse, contractual liability, personal
injury liability and other forms of insurance relating to the Auctioned Assets,
or otherwise self-insures in accordance with all statutory and regulatory
criteria against any such liabilities, which insurance is in such amounts, has
such deductibles and retentions and is underwritten by such companies as would
be obtained by a reasonably prudent electric power business.

            EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN
THIS ARTICLE V, THE AUCTIONED ASSETS ARE BEING SOLD AND TRANSFERRED "AS IS,
WHERE IS", AND SELLER IS NOT MAKING ANY OTHER REPRESENTATIONS OR WARRANTIES
WRITTEN OR ORAL, STATUTORY, EXPRESS OR IMPLIED, CONCERNING SUCH AUCTIONED ASSETS
OR WITH RESPECT TO THIS AGREEMENT OR THE ANCILLARY AGREEMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, INCLUDING, IN PARTICULAR WITH
RESPECT TO THE AUCTIONED ASSETS, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR
A PARTICULAR PURPOSE, ALL OF WHICH ARE HEREBY EXPRESSLY EXCLUDED AND DISCLAIMED
BY SELLER AND WAIVED BY BUYER. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING,
SELLER MAKES NO REPRESENTATION OR WARRANTY WITH RESPECT TO THE INFORMATION SET
FORTH IN, OR CONTEMPLATED BY, THE
<PAGE>   45
                                                                              38

OFFERING MEMORANDUM (EXCEPT TO THE EXTENT EXPRESSLY INCORPORATED BY REFERENCE
INTO THIS AGREEMENT).

                                   ARTICLE VI

                     Representations and Warranties of Buyer

            Buyer represents and warrants to Seller as follows:

            SECTION 6.01. Organization. Buyer is a limited partnership duly
formed, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as is now being conducted. Buyer shall
be duly qualified and licensed to do business as a foreign corporation and is in
good standing in the State of New York on or prior to the Closing Date.

            SECTION 6.02. Authority Relative to This Agreement. Buyer has all
necessary power and authority to execute and deliver this Agreement and the
Ancillary Agreements to which it is party and to consummate the transactions
contemplated hereby and thereby. The execution and delivery by Buyer of this
Agreement and such Ancillary Agreements and the consummation by Buyer of the
transactions contemplated hereby and thereby have been duly and validly
authorized by the Board of Directors of the general partner of Buyer and no
other proceedings on the part of Buyer are necessary to authorize this Agreement
or such Ancillary Agreements or the consummation of the transactions
contemplated hereby or thereby. This Agreement and such Ancillary Agreements
have been duly and validly executed and delivered by Buyer and, assuming that
this Agreement and the Ancillary Agreements constitute valid and binding
agreements of Seller and each other party thereto, subject to the receipt of the
Buyer Required Regulatory Approvals and the Seller Required Regulatory
Approvals, this Agreement and the Ancillary Agreements constitute valid and
binding agreements of Buyer, enforceable against Buyer in accordance with their
respective terms.

            SECTION 6.03. Consents and Approvals; No Violation. (a) Subject to
obtaining the Buyer Required Regulatory Approvals and the Seller Required
Regulatory Approvals, neither the execution and delivery of this Agreement or
the Ancillary Agreements to which it is party by Buyer nor the purchase by Buyer
of the Auctioned Assets pursuant to this Agreement will (i) conflict with or
result in any breach of any provision of the limited partnership
<PAGE>   46
                                                                              39

agreement (or other similar governing documents) of Buyer, (ii) result in a
default (or give rise to any right of termination, cancelation or acceleration)
under any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, agreement, lease or other instrument or obligation to which
Buyer or any of its subsidiaries is a party or by which any of their respective
assets may be bound or (iii) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to Buyer, or any of its assets, except in
the case of clauses (ii) and (iii) for such failures to obtain a necessary
consent, defaults and violations which would not, individually or in the
aggregate, have a material adverse effect on the ability of Buyer to consummate
the transactions contemplated by, and discharge its obligations under, this
Agreement and the Ancillary Agreements (a "Buyer Material Adverse Effect").

            (b) Except for (i) approval of the PSC pursuant to ss. 70 of the
Public Service Law of the State of New York, of the transfer to Buyer of the
Auctioned Assets, (ii) the filings by Buyer and Seller required by the HSR Act
and the expiration or earlier termination of all waiting periods under the HSR
Act, (iii) application by Buyer to, and the approval of, FERC under (A) Section
203 of the Federal Power Act with respect to the transfer of Auctioned Assets
constituting jurisdictional assets under the Federal Power Act and (B) Section
205 of the Federal Power Act with respect to (1) each Continuing Site Agreement
and any wholesale power sales agreement to be entered into by Seller and Buyer,
including the Transition Capacity Agreement, and (2) authorization to sell
capacity and energy from Generating Plants and Gas Turbines at market-based
rates (provided, however, that Buyer acknowledges that "market-based rates" for
the purpose of this Agreement means rates that are subject to any bid cap, price
limitation or other market power mitigation measure imposed by FERC or PSC in
respect of the New York State or New York City wholesale and retail energy and
capacity electric power markets or any other restriction imposed by FERC or PSC
with respect to the power generation operations and assets of Buyer, including
the FERC Order Accepting Market Power Mitigation Measures dated September 22,
1998, as modified (Docket No. ER98-3169-000)(the "Mitigation Measures")), (iv)
qualification of Buyer, with respect to the Auctioned Assets, as an exempt
wholesale generator under the Energy Policy Act of 1992, (v) the issuance of
approval by the New York City Department of Buildings and, to the extent
required, the New York City Department of Business Services of the tax lot
subdivision contemplated by this Agreement in a form suitable for submission to
the New York City Department of Finance for the issuance of tax lot numbers and
(vi) obtaining the
<PAGE>   47
                                                                              40

Revocable Consent from the City of New York (collectively, the "Buyer Required
Regulatory Approvals"), no declaration, filing or registration with, or notice
to, or authorization, consent or approval of any Governmental Authority is
necessary for the consummation by Buyer of the transactions contemplated hereby
or by the Ancillary Agreements, other than such declarations, filings,
registrations, notices, authorizations, consents or approvals (A) which, if not
obtained or made would not, individually or in the aggregate, have a Buyer
Material Adverse Effect or (B) which relate to the Transferable Permits.

            (c) To the knowledge of Buyer, there is no reason that it should
fail to obtain the Buyer Required Regulatory Approvals.

            SECTION 6.04. Availability of Funds. Buyer will have sufficient
funds available to it or will have received binding written commitments (copies
of which will be delivered to Seller when available) from one or more nationally
recognized financial institutions to provide sufficient funds on the Closing
Date to pay the Purchase Price and Estimated Adjustment Amount.

            SECTION 6.05. Brokers. No broker, finder or other person is entitled
to any brokerage fees, commissions or finder's fees in connection with the
transaction contemplated hereby by reason of any action taken by Buyer.

                                   ARTICLE VII

                            Covenants of the Parties

            SECTION 7.01. Conduct of Business Relating to the Auctioned Assets.
(a) Except with the prior written consent of Buyer (such consent not to be
unreasonably withheld) or as required to effect the purchase and sale of the
Auctioned Assets and related transactions contemplated by this Agreement, during
the period from the date of this Agreement to the Closing Date, Seller will
operate the Auctioned Assets in the usual, regular and ordinary course and in
accordance with good industry practice and applicable legal requirements, and
continue to pay accounts payable which relate to the Auctioned Assets in a
timely manner, consistent with past practice.

            (b) Notwithstanding the foregoing, except as contemplated in this
Agreement or the Ancillary Agreements, prior to the Closing Date, without the
prior written consent
<PAGE>   48
                                                                              41

of Buyer (such consent not to be unreasonably withheld), Seller will not:

            (i) except for Permitted Exceptions, grant any Encumbrance on the
      Auctioned Assets securing any indebtedness for borrowed money or guarantee
      or other liability for the obligations of any person;

            (ii) make any material change in the levels of fuel inventory and
      supplies, materials and spare parts inventory customarily maintained by
      Seller with respect to the Auctioned Assets, other than consistent with
      past practice (including the use of spare parts in connection with certain
      power generation assets of Seller described in the Offering Memorandum
      other than the Generating Plants or Gas Turbines);

            (iii) sell, lease (as lessor), transfer or otherwise dispose of, any
      of the Auctioned Assets, other than assets that become obsolete or assets
      used, consumed or replaced in the ordinary course of business consistent
      with past practice (including the use of spare parts in connection with
      certain power generation assets of Seller described in the Offering
      Memorandum other than the Generating Plants or Gas Turbines);

            (iv) terminate, materially extend or otherwise materially amend any
      of the Contracts (other than in accordance with their respective terms) or
      waive any default by, or release, settle or compromise any material claim
      against, any other party thereto;

            (v) amend any of the Transferable Permits, other than (A)
      Transferable Permits not material to the operations of the Auctioned
      Assets as currently conducted, (B) as reasonably necessary to complete the
      transfer of Permits as contemplated hereby, (C) routine renewals or
      non-material modifications or amendments and (D) modifications,
      alterations and amendments contemplated by Section 7.03(b);

            (vi) enter into any Contract for the purchase, sale or storage of
      fuel with respect to the Auctioned Assets (whether commodity or
      transportation) with a term in excess of 12 months, if the aggregate
      future liability or receivable outstanding on the date for measurement for
      the purpose of this covenant for all such Contracts would be in excess of
      $2 million, not including any such Contract terminable by notice of not
      more than 30 days without penalty or cost (other than de minimis
      administrative costs); provided, however, that Seller
<PAGE>   49
                                                                              42

      may enter into Contracts for the storage of fuel with respect to the
      Auctioned Assets with a term ending not later than December 31, 2000 and
      otherwise on terms consistent with Seller's past practice;

            (vii)(A) establish, adopt, enter into or amend any Collective
      Bargaining Agreement or Benefits Plans, except (1) if such action would
      not create a Material Adverse Effect or (2) as required under applicable
      law or under the terms of any Collective Bargaining Agreement or (B) grant
      to any Affected Employee any increase in compensation, except (1) in the
      ordinary course of business consistent with past practice or (2) to the
      extent required by the terms of any Collective Bargaining Agreement,
      employment agreement in effect as of the date of this Agreement or
      applicable law;

            (viii) enter into any Contract with respect to the Auctioned Assets
      for goods or services not addressed in clauses (i) through (vii) with a
      term in excess of 12 months, if the aggregate future liability or
      receivable outstanding on the date for measurement for the purpose of this
      covenant for all such Contracts would be in excess of $2 million, not
      including any such Contract terminable by notice of not more than 30 days
      without penalty or cost (other than de minimis administrative costs);
      provided, however, that notwithstanding any other provision of this
      Agreement to the contrary, Seller may (A) enter into any Contract
      reasonably necessary to effect the physical, legal or operational
      separation of the sites on which the Auctioned Assets are located or to
      otherwise implement the change of ownership contemplated hereby, or
      subdivision, of such sites or implement the provisions of the Ancillary
      Agreements and (B) enter into and record the Declarations of Subdivision
      Easements; or

            (ix) enter into any Contract with respect to the Auctioned Assets
      relating to any of the transactions set forth in the foregoing clauses (i)
      through (viii).

            (c) Without limiting the generality of Sections 7.01(a) and (b), to
the extent Section 7.01(a) or (b) prohibits Seller from entering into any
Contract for goods and services in connection with maintenance or capital
expenditures, Buyer agrees that Seller may request Buyer's consent to enter into
such Contract, such consent not to be unreasonably withheld, and to the extent
Buyer so consents, all liabilities and obligations under such Contract shall
<PAGE>   50
                                                                              43

constitute Assumed Obligations and Buyer shall otherwise reimburse Seller for
all its expenditures thereunder.

            (d) Notwithstanding anything in this Section 7.01 to the contrary,
Seller may take any action, incur any expense or enter into any obligation with
respect to the Auctioned Assets to the extent that (i) all obligations and
liabilities arising with respect thereto do not constitute Assumed Obligations
or (ii) Seller otherwise provides that such obligations and liabilities shall
not be assumed or retained by Buyer.

            (e) Notwithstanding anything in this Section 7.01 to the contrary,
Seller may (i) amend the NYPA Operating Agreement in order to (A) provide NYPA
with the use of the fuel handling facilities related to the A-10 dock at Astoria
for fuel oil deliveries in accordance with historic fuel deliveries to NYPA at
such dock, (B) establish procedures for scheduling such fuel oil deliveries to
provide a fair allocation of the right to use such fuel handling facilities, (C)
provide for reimbursement of NYPA for incremental, reasonable fuel costs
incurred by NYPA to obtain replacement fuel when Buyer fails to satisfy its
obligations under the NYPA Agreements assumed pursuant to Section 2.03(a)(xii)
and relating to the obligations described in clause (A) or clause (B) above and
(D) provide for the installation by NYPA of water meters and the allocation of
charges for water as between NYPA and Buyer based on readings therefrom and (ii)
obtain title to the machinery, equipment, facilities, furniture and other
personal property listed on Schedule 2.02(a)(iii)(D), and Buyer agrees that the
Assumed Seller Obligations under NYPA Agreements shall be deemed amended
accordingly.

            SECTION 7.02. Access to Information. (a) Between the date of this
Agreement and the Closing Date, Seller will, subject to the Confidentiality
Agreement, during ordinary business hours and upon reasonable notice (i) give
Buyer and its representatives reasonable access (A) to all books, records,
plants, offices and other facilities and properties constituting the Auctioned
Assets, including for the purpose of observing the operation by Seller of the
Auctioned Assets and (B) to the Auctioned Assets that are not located at the
Generating Plants or Gas Turbines for the purpose of preparing to store spare
parts after the Closing, (ii) permit Buyer to make such reasonable inspections
thereof as Buyer may reasonably request, (iii) furnish Buyer with such financial
and operating data and other information with respect to the Auctioned Assets as
Buyer may from time to time reasonably request, (iv) furnish Buyer upon request
a copy of each material
<PAGE>   51
                                                                              44

report, schedule or other document with respect to the Auctioned Assets filed by
Seller with, or received by Seller from, the PSC or FERC; provided, however,
that (A) any such activities shall be conducted in such a manner as not to
interfere unreasonably with the operation of the Auctioned Assets, (B) Seller
shall not be required to take any action which would constitute a waiver of the
attorney-client privilege and (C) Seller need not supply Buyer with (1) any
information or access which Seller is under a legal obligation not to supply or
(2) any information which Seller has previously supplied to Buyer.
Notwithstanding anything in this Section 7.02 to the contrary, (I) Seller will
not be required to provide such information or access to any employee records
other than Transferring Employee Records, (II) Buyer shall not have the right to
perform or conduct any environmental sampling or testing at, in, on, around or
underneath the Auctioned Assets and (III) Seller shall not be required to
provide such access or information with respect to any Retained Asset or
Retained Liabilities.

            (b) Unless otherwise agreed to in writing by Buyer, Seller shall,
for a period commencing on the Closing Date and terminating three years after
the Closing Date, keep confidential and shall cause its representatives to keep
confidential all Confidential Information (as defined in the Confidentiality
Agreement) on the terms set forth in the Confidentiality Agreement. Except as
contemplated by the following sentence, Seller shall not release any person from
any confidentiality agreement now existing with respect solely to the Auctioned
Assets or waive or amend any provision thereof. After the Closing Date, upon
reasonable request of Buyer, Seller shall, to the maximum extent permitted by
law and the applicable Bidder Confidentiality Agreement (as defined below),
appoint Buyer to be Seller's representative and agent in respect of confidential
information relating to the Auctioned Assets under the confidentiality
agreements ("Bidder Confidentiality Agreements") between Seller and prospective
purchasers of certain generation assets of Seller of which the Auctioned Assets
form part.

            (c) From and after the Closing Date, Buyer shall retain all
Operating Records (whether in electronic form or otherwise) relating to the
Auctioned Assets on or prior to the Closing Date. Buyer also agrees that, from
and after the Closing Date, Seller shall have the right, upon reasonable request
to Buyer, to receive from Buyer copies of any Operating Records or other
information in Buyer's possession relating to the Auctioned Assets on or prior
to the Closing Date and required by Seller in order to comply with applicable
law. Seller shall reimburse Buyer for its
<PAGE>   52
                                                                              45

reasonable costs and expenses incurred in connection with the foregoing
sentence.

            SECTION 7.03. Consents and Approvals; Transferable Permits. (a)
Seller and Buyer shall cooperate with each other and (i) prepare and file (or
otherwise effect) as soon as practicable all applications, notices, petitions
and filings with respect to and (ii) use their reasonable best efforts
(including negotiating in good faith modifications and amendments to this
Agreement and the Ancillary Agreements) to obtain (A) the Seller Required
Regulatory Approvals and the Buyer Required Regulatory Approvals and (B) any
other consents, approvals or authorizations of any other Governmental
Authorities or third parties that are necessary to consummate the transactions
contemplated by this Agreement or the Ancillary Agreements. Without limiting the
generality of the foregoing, (1) each Party agrees to, upon the other Party's
request, support such other Party's applications for regulatory approvals of the
purchase and sale of the Auctioned Assets contemplated by this Agreement, (2)
Buyer agrees not to seek any relief from, or modifications or amendments in
respect of, any bid cap, price limitation or other market power mitigation
measure or other restriction with respect to any power generation operations and
assets described in or contemplated by Section 6.03(b)(iii)(B) (2) until after
the Closing Date and (3) Buyer and Seller agree to defend any lawsuits or other
legal proceedings, whether judicial or administrative, challenging this
Agreement or the Ancillary Agreements, or the consummation of the transactions
contemplated hereby or thereby, including seeking to have any stay or temporary
restraining order entered by any Governmental Authority vacated or reversed.

            (b) Upon execution of this Agreement, Seller shall commence the
process of transferring to Buyer the Transferable Permits, including completing
and filing applications and related documents with the appropriate Governmental
Authorities. Seller hereby reserves the right to modify, alter or amend any
Transferable Permit or to refuse to correct violations or deficiencies in
respect of any Transferable Permit as long as such modification, alteration,
amendment or refusal would not, individually or in the aggregate, create a
Material Adverse Effect. Seller shall use its reasonable best efforts to give
notice to Buyer of any modification, alteration or amendment to any Transferable
Permit.

            (c) Seller shall use its reasonable best efforts to cooperate with
Buyer in the transfer of Transferable Permits to Buyer by Closing. If the
transfer of any
<PAGE>   53
                                                                              46

Transferable Permit cannot be completed by Closing, Buyer is hereby authorized,
but not required, to act as Seller's representative and agent in respect of such
Transferable Permit and to do all things necessary for effecting transfer of
such Transferable Permit as soon after the Closing as is practicable, with
Seller remaining the Transferable Permit "holder of record" in such case until
such transfer is completed. In the case of each such Transferable Permit, Seller
shall, to the maximum extent permitted by law and such Transferable Permit,
enter into such reasonable arrangements with Buyer as are necessary to provide
Buyer with the benefits and obligations of such Transferable Permit. If Buyer is
able to complete the transfer of any Transferable Permit after Closing without
the occurrence of any event that, if such event had occurred between the
execution of this Agreement and the Closing, would have created, individually or
in the aggregate, a Material Adverse Effect, Seller may substitute Buyer in its
place and stead as the Party responsible for completing the transfer of such
Transferable Permit.

            SECTION 7.04. Further Assurances. (a) Subject to the terms and
conditions of this Agreement, each of the Parties will use its reasonable best
efforts to take, or cause to be taken, as soon as possible, all action, and to
do, or cause to be done, as soon as possible, all things necessary, proper or
advisable under applicable laws and regulations to consummate the sale of the
Auctioned Assets pursuant to this Agreement as soon as possible, including using
its reasonable best efforts to ensure satisfaction of the conditions precedent
to each Party's obligations hereunder. Prior to Buyer's submission of any
application with a Governmental Authority for a regulatory approval, Buyer shall
submit such application to Seller for review and comment and Buyer shall
incorporate into such application any revisions reasonably requested by Seller.
Neither of the Parties will, without prior written consent of the other Party,
take or fail to take, or permit their respective Affiliates to take or fail to
take, any action, which would reasonably be expected to prevent or materially
impede, interfere with or delay the consummation, as soon as possible, of the
transactions contemplated by this Agreement or the Ancillary Agreements. Without
limiting the generality of the foregoing, each of the Parties shall use its
reasonable best efforts to negotiate in good faith as soon as possible after the
date of this Agreement, and enter into (i) the A-0 License and the A-10 License,
the terms of which shall be substantially as set forth in Exhibits H and F,
respectively, (ii) to the extent required to achieve subdivision of the Astoria
site, one or more contracts, agreements or other arrangements satisfactory to
the New
<PAGE>   54
                                                                              47

York City Fire Department regarding fire prevention at the Astoria site and
(iii) any other agreement reasonably necessary to consummate the sale of the
Auctioned Assets pursuant to this Agreement as soon as possible.

            (b) From time to time after the date hereof, without further
consideration and at its own expense, (i) Seller will execute and deliver such
instruments of assignment or conveyance as Buyer may reasonably request to more
effectively vest in Buyer Seller's title to the Auctioned Assets (subject to
Permitted Exceptions and the other terms of this Agreement) and (ii) Buyer will
execute and deliver such instruments of assumption as Seller may reasonably
request in order to more effectively consummate the sale of the Auctioned Assets
and the assumption of the Assumed Obligations pursuant to this Agreement.

            (c) Seller shall not, and shall use its reasonable best efforts to
cause its Affiliates not to, sponsor or support any recommendation or
application to effect prior to April 1, 2002 (i) a reduction in the locational
generation capacity requirement that 80% of New York City peak electric loads
must be met with in-City generation capacity, as in effect as of the date of
this Agreement, unless such reduction is justified by a significant change in
the transmission import capability into New York City whether as a result of
actions by Seller or others, (ii) a reduction in the $105/kW-year bid and price
cap in respect of capacity under the Mitigation Measures, as in effect as of the
date of this Agreement or (iii) a change in the method of determining required
system capability set forth in NYPP Billing Procedure 4-11 (Installed Reserve
Requirements), as in effect as of the date of this Agreement that would reduce
the installed reserve requirements for the winter capability period applicable
to summer peaking systems if such reduction would also reduce the annual price
for installed capacity that Buyer could otherwise obtain.

            (d) Seller shall join or support Buyer's application to the PSC for
the certification required under Section 32(c) of the Public Utility Holding
Company Act of 1935 in order for Buyer to obtain qualification, with respect to
the Auctioned Assets, as an exempt wholesale generator under the Energy Policy
Act of 1992.

            (e) Seller and Buyer shall cooperate in good faith to establish a
transition committee to consider operational and business issues related to the
purchase and sale of the Auctioned Assets.
<PAGE>   55
                                                                              48

            (f) Prior to the Closing Date, Seller shall cooperate in good faith
with Buyer to enable Buyer to obtain insurance in respect of the Auctioned
Assets comparable to that maintained by Seller as of the date of this Agreement.

            (g) Seller and Buyer shall cooperate in good faith to enable Buyer
to obtain fuel storage capacity with respect to the Auctioned Assets.

            SECTION 7.05. Public Statements. The Parties shall consult with each
other prior to issuing any public announcement, statement or other disclosure
with respect to this Agreement, the Ancillary Agreements or the transactions
contemplated hereby or thereby, including any statement appearing in any filing
contemplated hereby or thereby, and shall not issue any such public
announcement, statement or other disclosure prior to such consultation, except
as may be required by law.

            SECTION 7.06. Tax Matters. (a) All transfer and sales taxes
(including any petroleum business taxes and similar excise taxes on sales of
petroleum based products) incurred in connection with this Agreement and the
transactions contemplated hereby shall be borne by Buyer. Buyer shall prepare
and file in a timely manner any and all Tax Returns or other documentation
relating to such taxes; provided, however, that, to the extent required by
applicable law, Seller will join in the execution of any such Tax Returns or
other documentation relating to any such taxes. Buyer shall provide to Seller
copies of each Tax Return described in the proviso in the preceding sentence at
least 30 days prior to the date such Tax Return is required to be filed.

            (b) At Seller's election, but on no less than 10 Business Days'
notice to Buyer, the transfer of the Auctioned Assets and the receipt of the
Purchase Price shall be made through a qualified intermediary in a manner
satisfying the requirements of Treasury Regulation Section 1.1031(k)-1(g), so
long as such election by Seller does not create a Material Adverse Effect and
Seller indemnifies Buyer for its additional costs and expenses incurred by
reason of such election.

            (c) Each Party shall provide the other Party with such assistance as
may reasonably be requested by the other Party in connection with the
preparation of any Tax Return, any audit or other examination by any taxing
authority, or any judicial or administrative proceedings relating to liability
for Taxes, and each Party shall retain and provide the other Party with any
records or information which may be
<PAGE>   56
                                                                              49

relevant to such return, audit, examination or proceedings. Any information
obtained pursuant to this Section 7.06 (c) or pursuant to any other Section
hereof providing for the sharing of information or review of any Tax Return or
other instrument relating to Taxes shall be kept confidential by the parties
hereto.

            (d) If either Buyer or Seller receives a refund of Taxes in respect
of the Auctioned Assets for a taxable period including the Closing Date, Buyer
shall pay to Seller the portion of any such refund attributable to the portion
of such taxable period prior to the Closing Date, and Seller shall pay to Buyer
the portion of any such refund attributable to the portion of such taxable
period on and after the Closing Date.

            SECTION 7.07. Bulk Sales or Transfer Laws. Buyer acknowledges that
Seller will not comply with the provisions of any bulk sales or transfer laws of
any jurisdiction in connection with the transactions contemplated by this
Agreement. Buyer hereby waives compliance by Seller with the provisions of the
bulk sales or transfer laws of all applicable jurisdictions.

            SECTION 7.08. Storage. Seller shall store for Buyer the Auctioned
Assets described in the second sentence of Section 2.01 until the date that is
six months after the Closing Date or, in respect of all or a portion of such
Auctioned Assets, until one or more earlier dates proposed by Buyer with
reasonable advance notice, which schedule shall be reasonably acceptable to
Seller. Buyer agrees to reimburse Seller for its reasonable costs and expenses
in connection with such storage. Buyer agrees that Seller shall have no
responsibility or liability for the actual removal of such Auctioned Assets from
the actual storage location, and that Buyer shall have sole responsibility
therefor. Notwithstanding the provisions of Section 10.01, Buyer agrees that
Seller shall have no liability for loss or damage with respect to the matters
contemplated by this Section 7.08 or such Auctioned Assets, and Buyer agrees to
hold each Seller Indemnitee harmless from and against all loss or damage or
Indemnifiable Losses, and to indemnify each Seller Indemnitee from and against
all loss or damage or Indemnifiable Losses incurred, asserted against or
suffered as a result of any storage or other services provided by Seller
pursuant to this Section 7.08, in each case, except to the extent any such loss
or damage or Indemnifiable Loss results in whole or in part from the gross
negligence or wilful or wanton acts or omissions to act of any Seller Indemnitee
(or any contractor or subcontractor of Seller).
<PAGE>   57
                                                                              50

            SECTION 7.09. Information Resources. From the Closing Date until the
date that is three months thereafter, Seller shall provide Buyer with access to
Seller's mainframe computer only to the extent reasonably necessary to enable
Buyer to use the PPMIS and MMS (in read only mode) systems and applications
solely in connection with the Auctioned Assets. Buyer agrees that it will not
use any such access for any purpose other than for the use of the PPMIS and MMS
systems and applications solely in connection with the Auctioned Assets. Buyer
acknowledges that, as long as it retains access to Seller's mainframe computer,
Seller, its employees and third parties may have access to Buyer's information
resources systems and applications (including the PPMIS and MMS systems and
applications served by Seller's mainframe computer) . Notwithstanding the
provisions of Section 10.01, Buyer agrees that Seller shall have no liability or
obligation whatsoever with respect to the matters contemplated by this Section
7.09, and Buyer agrees to hold each Seller Indemnitee harmless from and against
all loss or damage or Indemnifiable Losses, and to indemnify each Seller
Indemnitee from and against all loss or damage or Indemnifiable Losses incurred,
asserted against or suffered as a result of Buyer's access to Seller's mainframe
computer pursuant to this Section 7.09, in each case, except to the extent any
such loss or damage or Indemnifiable Loss results in whole or in part from the
gross negligence or wilful or wanton acts or omissions to act of any Seller
Indemnitee (or any contractor or subcontractor of Seller).

            SECTION 7.10. Witness Services. At all times from and after the
Closing Date, each Party shall use reasonable best efforts to make available to
the other Party, upon reasonable written request, its and its subsidiaries' then
current or former officers, directors, employees (including former employees of
Seller) and agents as witnesses to the extent that (i) such persons may
reasonably be required by such requesting Party in connection with any claim,
action, proceeding or investigation in which such requesting Party may be
involved and (ii) there is no conflict between Buyer and Seller in such claim,
action, proceeding or investigation. Such other Party shall be entitled to
receive from such requesting Party, upon the presentation of invoices for such
witness services, payments for such amounts, relating to supplies, disbursements
and other out-of-pocket expenses and direct and indirect costs of employees who
are witnesses, as may be reasonably incurred in providing such witness services.

            SECTION 7.11. Consent Orders. Buyer and Seller agree to cooperate
with each other and NYSDEC to facilitate
<PAGE>   58
                                                                              51

the entry of a consent order between NYSDEC and Buyer, wherein Buyer will agree
to assume and perform the Assumed Consent Order Obligations.

            SECTION 7.12. Nitrogen Oxide Allowances. Seller agrees to negotiate
in good faith with NYSDEC for nitrogen oxide allowances to be allocated to the
Auctioned Assets for any period subsequent to the year 2002.

            SECTION 7.13. Trade Names. Seller shall not object to the use by
Buyer of any trade names, trademarks, service marks or logos (and any rights to
and in the same, including any right to use the same) primarily relating to the
Generating Facilities that contain the words "Astoria", "Gowanus" or "Narrows".

            SECTION 7.14. NYPA Agreements. (a) Seller shall, to the maximum
extent permitted by law and the NYPA Agreements, enter into such reasonable
arrangements with Buyer as are necessary to provide Buyer with the benefits of
Seller's rights and interests under the NYPA Agreements relating to the
Auctioned Assets and set forth on Schedule 7.14.

            (b) Buyer hereby acknowledges that Seller has provided it with
copies of the NYPA Agreements.

            SECTION 7.15. Narrows. From the date of this Agreement to the
Closing and notwithstanding anything to the contrary contained in Section 7.01,
Seller shall use its reasonable best efforts to obtain in the following order of
preference (a)(i) fee title, or (ii) a permanent easement to maintain and
operate the existing Narrows Gas Turbines (the "Narrows Turbines") at the
Narrows Gas Turbine Site in a manner consistent with the operation by Seller of
the Narrows Turbines in the past or (b) if the options in clause (a) above are
not capable of being obtained within a reasonable period (which period may run
prior to Closing) a long term lease with a lease term of not less than 20 years
having terms reasonably satisfactory to Buyer that will permit the maintenance
and operation of the Narrows Turbines at the Narrows Gas Turbine Site in a
manner consistent with the operation by Seller of the Narrows Turbines in the
past, in each case in respect of that real property described on Schedule 7.15.
From the Closing until the third anniversary of the date of this Agreement,
Buyer shall, at its election, either (x) take over Seller's efforts to obtain
such fee title, easement or long term lease (and in such event Buyer shall keep
Seller informed of its efforts, consult with Seller in its efforts and act in a
commercially reasonable manner in its efforts) and, in the event Buyer has taken
<PAGE>   59
                                                                              52

over the efforts referred to above, Seller shall reimburse Buyer for its
reasonable costs and expenses incurred in pursuing such efforts, or (y) require
Seller to continue to use its reasonable best efforts to obtain such fee title,
easement or long term lease. The amounts paid or payable to obtain such fee
title, easement or long term lease shall be the responsibility of Seller;
provided, however, that the amounts payable by Seller under this Section 7.15,
including by way of reimbursement to Buyer, shall not exceed $5 million in the
aggregate. Seller's obligations under this Section 7.15 shall cease in all
respects upon such third anniversary.

                                  ARTICLE VIII

                                   Conditions

            SECTION 8.01. Conditions Precedent to Each Party's Obligation To
Effect the Purchase and Sale. The respective obligations of each Party to effect
the purchase and sale of the Auctioned Assets shall be subject to the
satisfaction or waiver by such Party on or prior to the Closing Date of the
following conditions, unless, in the case of Section 8.01(c) below, the PSC
determines that such condition need not be included or complied with:

            (a) the Seller Required Regulatory Approvals and Buyer Required
      Regulatory Approvals, other than the Revocable Consent, shall have been
      obtained and all conditions to effectiveness prescribed therein or
      otherwise by law, regulation or order shall have been satisfied; provided,
      however, that if at the time any Seller Required Regulatory Approval or
      Buyer Required Regulatory Approval is obtained, a Party reasonably expects
      a request for rehearing or a challenge thereto to be filed or if a request
      for rehearing or a challenge thereto has been filed, in each case, which,
      if successful, would cause such Seller Required Regulatory Approval or
      Buyer Required Regulatory Approval, as the case may be, to be reversed,
      stayed, enjoined, set aside, annulled, suspended or substantially
      modified, then such Party may by notice to the other Party within five
      Business Days after receipt of such Seller Required Regulatory Approval or
      Buyer Required Regulatory Approval, as the case may be, delay the Closing
      until the time for requesting rehearing has expired or until such
      challenge is decided, in each case, whether or not any appeal thereof is
      pending; provided further, however, that if the Closing is delayed
      pursuant to the foregoing
<PAGE>   60
                                                                              53

      provision, the Termination Date shall be automatically extended for a
      period of time equal to the period of such delay;

            (b) no preliminary or permanent injunction or other order or decree
      by any Federal or state court of competent jurisdiction and no statute or
      regulation enacted by any Governmental Authority prohibiting the
      consummation of the purchase and sale of the Auctioned Assets
      (collectively, "Restraints") shall be in effect;

            (c) the ISO shall have become operational to the extent reasonably
      necessary to monitor market power in respect of the Auctioned Assets; and

            (d) delivery of each Continuing Site Agreement, each Declaration of
      Easements Agreement, each Declaration of Subdivision Easements and each
      Zoning Lot Development Agreement to the Title Company for recording.

            SECTION 8.02. Conditions Precedent to Obligation of Buyer To Effect
the Purchase and Sale. The obligation of Buyer to effect the purchase and sale
of the Auctioned Assets contemplated by this Agreement shall be subject to the
satisfaction or waiver by Buyer on or prior to the Closing Date of the following
additional conditions:

            (a) Seller shall have performed in all material respects its
      covenants and agreements contained in this Agreement which are required to
      be performed on or prior to the Closing Date;

            (b) the representations and warranties of Seller which are set forth
      in this Agreement shall be true and correct as of the date of this
      Agreement and as of the Closing Date, as if made at and as of such time
      (except to the extent expressly made as of an earlier date, in which case
      as of such date), except where the failure of such representations and
      warranties to be so true and correct (without giving effect to any
      limitation as to "materiality" or "Material Adverse Effect" set forth
      therein) would not, individually or in the aggregate, create a Material
      Adverse Effect;

            (c) Buyer shall have received a certificate from an authorized
      officer of Seller, dated the Closing Date, to the effect that, to the best
      of such officer's knowledge, the conditions set forth in Sections 8.02 (a)
      and (b) have been satisfied;
<PAGE>   61
                                                                              54

            (d) all material Permits and Environmental Permits required for
      Buyer to conduct the business and operations of the Auctioned Assets as
      currently conducted shall have been transferred or will be transferable to
      Buyer, or shall have been obtained or will be obtainable by Buyer, or
      shall have been made available to Buyer in accordance with Section
      7.03(c), on, prior to or within a reasonable period of time after the
      Closing Date;

            (e) Buyer shall have received (i) the deeds of conveyance
      substantially in the form of Exhibits B-1 and B-2, respectively, (ii) a
      Foreign Investment in Real Property Tax Act Certification and Affidavit
      substantially in the form of Exhibit C and (iii) an opinion from John D.
      McMahon, Esq., General Counsel of Seller or other counsel reasonably
      acceptable to Buyer, dated the Closing Date, substantially in the form set
      forth in Exhibit D;

            (f) execution and delivery by Seller of each of (i) the Transition
      Capacity Agreement and the Zoning Lot Development Agreements and (ii) the
      A-10 License and the A-0 License, each in a form reasonably satisfactory
      to Buyer;

            (g) the Title Company shall be willing to issue to Buyer a New York
      form of ALTA (1992) Owner's Title Insurance Policy insuring fee title to
      the Buyer Real Estate in an amount equal to that portion of the Purchase
      Price properly allocable to Buyer Real Estate, subject only to the
      Permitted Exceptions;

            (h) Buyer shall have received originals of the ALTA/ACSM Land Title
      Surveys which include the Buyer Real Estate in addition to other property,
      signed by the surveyor with Buyer's name and the name of not more than one
      other Party designated by Buyer added to the certification set forth
      thereon; and

            (i)(x) There shall not be any New York State Governmental Authority
with jurisdiction seeking to prevent Buyer from operating the Narrows Turbines
on the Narrows Gas Turbine Site in a manner consistent with the operation of the
Narrows Turbines by Seller in the past as a result of the state of title in
respect of the real property described in Schedule 7.15 and (y) if (x) is not
satisfied, the presence of the state of facts in (x) in and of itself and
without regard to any other facts or circumstances, will not have a reasonable
probability of materially and adversely affecting Buyer's ability to obtain
financing for the
<PAGE>   62
                                                                              55

acquisition of the Auctioned Assets (it being understood that the obtaining of a
"use permit" or equivalent Permit from the appropriate Governmental Authority in
form and substance reasonably satisfactory to Buyer in respect of such real
property and the Narrows Turbines by Buyer shall satisfy this condition and the
obtaining of fee title, an easement or long term lease satisfying the
requirements of Section 7.15 shall also satisfy such condition).

            SECTION 8.03. Conditions Precedent to Obligation of Seller To Effect
the Purchase and Sale. The obligation of Seller to effect the purchase and the
sale of the Auctioned Assets contemplated by this Agreement shall be subject to
the satisfaction or waiver by Seller on or prior to the Closing Date of the
following additional conditions:

            (a) Buyer shall have performed in all material respects its
      covenants and agreements contained in this Agreement which are required to
      be performed on or prior to the Closing Date;

            (b) the representations and warranties of Buyer which are set forth
      in this Agreement shall be true and correct as of the date of this
      Agreement and as of the Closing Date, as if made at and as of such time
      (except to the extent expressly made as of an earlier date, in which case
      as of such date), except where the failure of such representations and
      warranties to be so true and correct (without giving effect to any
      limitation as to "materiality" or "Buyer Material Adverse Effect" set
      forth therein) would not, individually or in the aggregate, create a Buyer
      Material Adverse Effect;

            (c) Seller shall have received a certificate from an authorized
      officer of Buyer, dated the Closing Date, to the effect that, to the best
      of such officer's knowledge, the conditions set forth in Sections 8.03 (a)
      and (b) have been satisfied;

            (d) Seller shall have received an opinion substantially in the form
      of Exhibit E dated as of the Closing Date and from counsel reasonably
      acceptable to Seller;

            (e) execution and delivery by Buyer of each of (i) Transition
      Capacity Agreement, the Gowanus Zoning Lot Development Agreement and,
      unless executed and delivered prior to the Closing Date, the Astoria
      Zoning Lot Development Agreement and (ii) the A-10 License and the A-0
      License, each in a form reasonably satisfactory to Seller;
<PAGE>   63
                                                                              56

            (f) Buyer shall have provided evidence in form and substance
      reasonably satisfactory to Seller of compliance by Buyer with its
      obligations under Article IX;

            (g) the Guarantee Agreement shall be in full force and effect;

            (h) Guarantor shall have performed in all material respects its
      covenants and agreements contained in the Guarantee Agreement which are
      required to be performed on or prior to the Closing Date;

            (i) the representations and warranties of Guarantor which are set
      forth in the Guarantee Agreement shall be true and correct as of the date
      of the Guarantee Agreement and as of the Closing Date, as if made at and
      as of such time (except to the extent expressly made as of an earlier
      date, in which case as of such date), except where the failure of such
      representations and warranties to be so true and correct (without giving
      effect to any limitation as to "materiality" or "Guarantor Material
      Adverse Effect" set forth therein) would not, individually or in the
      aggregate, create a Guarantor Material Adverse Effect (as defined
      therein);

            (j) Seller shall have received a certificate from an authorized
      officer of Guarantor, dated the Closing Date, to the effect that, to the
      best of such officer's knowledge, the conditions set forth in Sections
      8.03(h) and (i) have been satisfied; and

            (k) Seller shall have received an opinion substantially in the form
      of Exhibit L dated the Closing Date and from counsel reasonably acceptable
      to Seller.

                                   ARTICLE IX

                                Employee Matters

            SECTION 9.01. Employee Matters. (a) Buyer shall offer equivalent
employment at the Auctioned Assets to those employees of Seller regularly
assigned by Seller to work at the Auctioned Assets on the Closing Date in the
job titles and facilities listed in Schedule 9.01(a) (all such employees
described above and those individuals described in the following sentence being
hereinafter referred to as "Affected Employees"). Affected Employees include
each such
<PAGE>   64
                                                                              57

employee of Seller who is not actively at work on the Closing Date due solely to
a temporary short-term absence, whether paid or unpaid, in accordance with
applicable policies of Seller, including as a result of vacation, holiday,
personal time, leave of absence, union leave, short- or long-term disability
leave, military leave or jury duty. Affected Employees whether or not they
accept an offer of employment from Buyer shall cease to be employees of Seller
on the Closing Date and, to the extent they accept an offer of employment from
Buyer, their period of employment by Buyer shall begin on the Closing Date.
Seller shall be responsible for any obligation to provide employee benefits to
an Affected Employee prior to such employee's period of employment by Buyer.

            All such offers of employment will be made (x) in accordance with
all applicable laws and regulations, and (y) for employees represented by
Utility Workers' Union of America AFL-CIO and its Local Union 1-2 ("Local 1-2"),
in accordance with the Local 1-2 Collective Bargaining Agreement (as defined in
Schedule 9.01(b)). Each Affected Employee who becomes employed by Buyer pursuant
to this Section 9.01(a) shall be referred to herein as a "Continued Employee".

            Buyer may commence discussions concerning offers for employment
beginning on the Closing Date to Affected Employees at any time following the
date of this Agreement.

            Seller acknowledges and agrees that Buyer may discharge any of its
obligations under this Article IX through one of its Affiliates; provided,
however, that Buyer shall in no event be relieved from the full liabilities and
the full financial responsibility under this Article IX.

            (b) Schedule 9.01(b) sets forth the collective bargaining agreement,
and amendments thereto, to which Seller is a party in connection with the
Auctioned Assets (the "Collective Bargaining Agreement"). Affected Employees who
are included in the collective bargaining unit covered by the Collective
Bargaining Agreement are referred to herein as "Affected Union Employees". Each
Continued Employee who is an Affected Union Employee shall be referred to herein
as a "Continued Union Employee". On the Closing Date, Buyer will assume the
terms and conditions of the Collective Bargaining Agreement, except as set forth
in Section 9.02 (b) below, as it relates to Affected Union Employees until the
expiration date of the Collective Bargaining Agreement. Buyer will comply with
its legal obligations with respect to collective bargaining under Federal labor
law for the employees at the Auctioned Assets
<PAGE>   65
                                                                              58

in the job titles or related work responsibilities of the Affected Union
Employees, and Buyer will comply with all applicable obligations thereunder as
the new owner of the Auctioned Assets. Buyer shall recognize Local 1-2 as the
exclusive collective bargaining representative of the employees at the Auctioned
Assets in the job titles or related work responsibilities of the Affected Union
Employees and Buyer agrees that, should any other business entity (regardless of
its relationship to Buyer) acquire all or a portion of the Auctioned Assets from
Buyer prior to the expiration date of the Collective Bargaining Agreement, Buyer
will require such business entity to (i) offer employment to Affected Union
Employees employed by Buyer at the Auctioned Assets immediately prior to the
change in ownership, (ii) recognize Local 1-2 as the exclusive collective
bargaining representative of Buyer's employees at the Auctioned Assets in the
job titles and work responsibilities of the Affected Union Employees, and (iii)
assume the terms and conditions of the Collective Bargaining Agreement as they
relate to Affected Union Employees from the date of such acquisition through the
expiration date of the Collective Bargaining Agreement.

            SECTION 9.02. Continuation of Equivalent Benefit Plans/Credited
Service. (a) For not less than three years following the Closing Date, Buyer
shall maintain compensation (including base pay and bonus compensation) and
employee benefits and employee benefit plans and arrangements for each Continued
Employee who is not a Continued Union Employee (a "Continued Non-Union
Employee") which are at least equivalent to those provided pursuant to the
compensation, employee benefits and employee benefit plans and arrangements in
effect on the Closing Date for the Affected Employees who are not Affected Union
Employees. Such total compensation shall be based upon (x) such employee's
existing individual base pay, (y) such employee's authorized overtime, if
applicable, and (z) the average bonus and benefit component for such employee's
salary plan level, as consistently applied by Seller, apportioned according to
such employee's base pay. No provision of this Agreement shall affect any
Continued Non-Union Employee's status as an employee-at-will.

            (b) From the Closing Date until the expiration date of the
Collective Bargaining Agreement, Buyer shall provide to each Continued Union
Employee benefits and employee benefit plans and arrangements which are
equivalent to those provided under such Collective Bargaining Agreement. Such
benefits, plans and arrangements include the following: (i) hospital, medical,
dental, vision care and prescription drug benefits (including employee
<PAGE>   66
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contributions to be made on a pre-tax basis), (ii) health care and dependent
care flexible spending accounts; (iii) employer-provided basic group term life
and accidental death and dismemberment insurance; (iv) employee-paid group
universal life and spousal and dependent child life insurance; (v) sick
allowance (short term disability) and long term disability benefits; (vi)
business travel accident insurance and crime protection insurance; (vii)
occupational accidental death insurance; (viii) adoption benefits and child care
and elder care referral benefits; (ix) tuition aid benefits; (x) vacation and
holidays; (xi) employee stock purchase plan (including employer matching
contributions) and (xii) defined benefit pension and 401(k) plan benefits. In
providing such benefits, Buyer shall have the right, subject to any applicable
laws, to use different providers from those used by Seller and to establish
Buyer's own benefit plans or use Buyer's existing benefit plans. For purposes
hereof, except as provided in Section 9.04(b), Buyer shall have no obligation to
maintain a fund holding or measured by common stock of Seller's parent under any
of Buyer's plans or arrangements, notwithstanding any such fund maintained by
Seller under its plans and arrangements.

            (c) Continued Employees shall be given credit by Buyer for all
service with Seller and its Affiliates under all existing or future employee
benefit and fringe benefit plans, programs and arrangements of the Buyer ("Buyer
Benefit Plans") in which they become participants. The service credit given by
Buyer shall be for purposes of eligibility, vesting, eligibility for early
retirement and early retirement subsidies, benefit accrual and service-related
level of benefits. Buyer shall assume and honor all vacation, sick and personal
days accrued and unused by Continued Employees through the Closing Date in
accordance with Seller's applicable policies and arrangements.

            SECTION 9.03. Pension Plan. (a) Effective as of the Closing Date,
Buyer shall have in effect defined benefit pension plans ("Buyer's Pension
Plans") intended to be (i) qualified pursuant to Section 401(a) of the Code and
(ii) nonqualified, in order to provide for benefits which would otherwise be
payable under the applicable qualified plan but for the application of Sections
401(a)(17) and 415 of the Code, providing benefits as of the Closing Date
identical in all material respects (except for such changes as may be required
by law) to the benefits provided to them under Seller's Pension Plans (as
defined below), in particular (x) for Continued Non-Union Employees, such
Buyer's Pension Plans to provide benefits identical in all material respects to
those benefits provided under Seller's Retirement Plan for Management Employees
and Seller's
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                                                                              60

Supplemental Retirement Income Plan, and (y) for Continued Union Employees, such
Buyer's Pension Plans to provide benefits identical in all material respects to
those provided under Seller's Pension and Benefits Plan (collectively, "Seller's
Pension Plans"), in each case, as of the Closing Date. Buyer acknowledges and
agrees that one such material respect is to count age after termination of
employment for purposes of satisfying requirements for early retirement
eligibility and early retirement subsidies.

            (b) Continued Employees participating in Seller's Pension Plans
immediately prior to the Closing Date shall become participants in Buyer's
Pension Plans as of the Closing Date. Without limiting the generality of Section
9.02(c), Continued Employees shall receive credit for all compensation and
service with Seller (subject to the terms of Seller's Pension Plans) for
purposes of eligibility for participation, vesting, eligibility for early
retirement and early retirement subsidies and benefit accrual under Buyer's
Pension Plans. Seller shall be responsible for Continued Employees' pension
benefits accrued up to the Closing Date, and Buyer shall be responsible for
pension benefits accrued by such Continued Employees on and after the Closing
Date as provided herein. Buyer may offset against the accrued benefits
determined under Buyer's Pension Plans the accrued benefits determined under
Seller's Pension Plans. For the purpose of this Section 9.03(b), "accrued
benefit" means the amount that would be paid as a life annuity at normal
retirement age irrespective of the date of actual distribution from either
Seller's or Buyer's Pension Plans. Seller shall make pension distributions to
Continued Employees of the vested portion of their accrued benefits in
accordance with the terms of Seller's Pension Plans as in effect from time to
time. As soon as reasonably practicable following the Closing Date, Seller shall
provide Buyer a list showing, as of the Closing Date, the accrued benefit of
each Continued Employee under Seller's Pension Plans.

            (c) In the event that any other business entity (regardless of its
relationship to Buyer) acquires all or a portion of the Auctioned Assets from
Buyer at any time prior to the third anniversary of the Closing Date in the case
of Continued Non-Union Employees and prior to the expiration date of the
Collective Bargaining Agreement in the case of Continued Union Employees, Buyer
will require such entity to maintain the defined benefit plans, provide the
benefits and recognize compensation and service with Seller and Buyer to the
same extent as Buyer is required under Sections 9.03 (a) and (b) above.
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                                                                              61

            SECTION 9.04. 401(k) Plan. (a) Effective as of the Closing Date,
Buyer shall have in effect tax-qualified defined contribution plans that include
a qualified cash or deferred arrangement within the meaning of Section 401(k) of
the Code ("Buyer's 401(k) Plans") that will provide benefits that are identical
in all material respects (except for such changes as may be required by law) to
those provided by (i) Seller's Thrift Savings Plan for Management Employees, in
the case of Continued Non-Union Employees, and (ii) Seller's Retirement Income
Savings Plan for Weekly Employees, in the case of Continued Union Employees
(such Seller plans herein referred to collectively as "Seller's 401(k) Plans"),
in each case, as of the Closing Date. Each Continued Employee participating in
Seller's 401(k) Plans immediately prior to the Closing Date shall become a
participant in Buyer's 401(k) Plans as of the Closing Date. Continued Employees
shall receive credit for all service with Seller for purposes of eligibility and
vesting under Buyer's 401(k) Plans.

            (b) At such time after the Closing Date as Seller is reasonably
satisfied that Buyer's 401(k) Plans meet the requirements for qualification
under Section 401(a) of the Code, Seller shall cause to be transferred to
Buyer's 401(k) Plans in a trust-to-trust transfer in common stock of Seller's
parent (as provided in the following sentence) and cash (or other property
reasonably acceptable to Buyer) an amount equal to the value of the assets held
in the accounts of all Continued Employees (including any outstanding loan
balances of Continued Employees in Seller's 401(k) Plans), subject to any
qualified domestic relations orders. In connection therewith, Buyer shall
establish an investment fund under Buyer's 401(k) Plans to which shall be
transferred the shares of common stock of Seller's parent (or any successor
thereto) which, as of the date of transfer, are credited to the accounts of the
Continued Employees under Seller's 401(k) Plans. After the Closing Date and
prior to any such transfer, Buyer shall cooperate with Seller in the
administration of distributions to and loan repayments by Continued Employees.
Prior to such transfer of assets, Seller shall vest any unvested benefits of
Continued Employees under Seller's 401(k) Plans. Following any such transfer of
assets, Buyer shall assume all obligations and liabilities of Seller under
Seller's 401(k) Plans with respect to such Continued Employees, and Seller shall
have no further liability to Buyer or any Continued Employee with respect
thereto.

            SECTION 9.05. Welfare Plans. (a) Continued Employees and their
dependents who are eligible to participate in Seller's current welfare benefits
plans,
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                                                                              62

programs or arrangements shall be eligible to participate in the welfare
benefits plans, programs or arrangements maintained or established by Buyer
("Buyer's Welfare Plans"), effective as of the Closing Date. Effective as of the
Closing Date, any and all limitations as to pre-existing conditions and
actively-at-work exclusions and waiting periods under Buyer's Welfare Plans
shall be waived by Buyer with respect to Continued Employees and their eligible
dependents to the extent satisfied under Seller's applicable Welfare Plans. In
addition, effective as of the Closing Date, Buyer shall cause Buyer's Welfare
Plans to recognize any out-of-pocket health care expenses incurred by Continued
Employees and their eligible dependents prior to the Closing Date and during the
calendar year in which such Closing Date occurs for purposes of determining
their deductibles and out-of-pocket maximums under Buyer's Welfare Plans. Seller
shall retain responsibility under Seller's welfare plans for claims relating to
expenses incurred by Continued Employees and their eligible dependents prior to
the Closing Date. Buyer shall have responsibility under Buyer's Welfare Plans
for claims relating to expenses incurred by Continued Employees and their
eligible dependents on and after the Closing Date.

            (b) Effective as of the Closing Date, Buyer shall have in effect
health care and dependent care reimbursement account plans for the benefit of
each Continued Employee, the terms of which shall (i) be identical in all
material respects to the Flexible Reimbursement Account Plans for Management and
Weekly Employees of Seller ("Seller's Reimbursement Account Plans") as in effect
on the Closing Date and (ii) give full effect to, and continue in effect, salary
reduction elections made under Seller's Reimbursement Account Plans. Prior to
the Closing Date, Seller shall cause the accounts of Continued Employees under
Seller's Reimbursement Account Plans to be segregated into separate health care
and dependent care reimbursement accounts (the "Segregated Reimbursement
Accounts"), and such Segregated Reimbursement Accounts shall be transferred to
and assumed by Buyer as of the Closing Date.

            (c) Buyer shall, subject to any applicable laws, provide a retiree
health program identical in all material respects to Seller's retiree health
program as in effect on the Closing Date to each Continued Employee who
terminates his employment with Buyer within three years after the Closing Date,
in the case of a Continued Non-Union Employee, and on or prior to the expiration
date of the Collective Bargaining Agreement, in the case of a Continued Union
Employee, and, in each case, who at the time of such termination of employment
satisfies the eligibility
<PAGE>   70
                                                                              63

requirements for such retiree health program provided by Buyer; provided,
however, that Seller shall remain liable, pursuant to Seller's retiree health
program, for all Continued Employees who satisfy, as of the Closing Date, the
eligibility requirements then in effect for Seller's retiree health program.

            SECTION 9.06. Short- and Long-Term Disability. Effective as of the
Closing Date, Buyer shall have in effect short- and long-term disability plans
for the benefit of Continued Employees, the cost of which to Continued Employees
shall be the same as under, and the terms of which are identical in all material
respects to, Seller's applicable plans as in effect as of the Closing Date. Any
and all waiting periods and pre-existing condition clauses shall be waived under
Buyer's short- and long-term disability plans with respect to Continued
Employees.

            SECTION 9.07. Life Insurance and Accidental Death and Dismemberment
Insurance. Effective as of the Closing Date, Buyer shall have in effect group
term life insurance, group universal life insurance, accidental death and
dismemberment insurance, occupational accidental death insurance, business
travel accident insurance and crime protection insurance plans for the benefit
of Continued Employees, the cost of which to Continued Employees shall be the
same as under, and terms of which are identical in all material respects to,
Seller's applicable plans that provide such benefits to Continued Employees
immediately prior to the Closing Date.

            SECTION 9.08. Severance. (a) Effective as of the Closing Date, Buyer
shall have in effect a severance plan covering Continued Non-Union Employees
that contains terms identical in all material respects to those under Seller's
Severance Pay Plan for Management Employees as of the Closing Date.

            (b) Buyer shall, subject to any applicable laws, provide a special
separation allowance for any Continued Employee whose employment with Buyer is
terminated involuntarily by Buyer other than for cause on or prior to, in the
case of Continued Non-Union Employees, three years after the Closing Date and,
in the case of Continued Union Employees, the expiration date of the Collective
Bargaining Agreement. Such allowance shall be not less than the sum of four
weeks pay plus one week pay for each completed year of service (as determined by
aggregating each affected individual's respective service with Seller and Buyer)
and shall be payable by Buyer (to the extent not paid pursuant to any Buyer
severance plan referenced in Section 9.08 (a))
<PAGE>   71
                                                                              64

in a lump sum within 30 days after termination of employment. In addition, in
the case of each Continued Non-Union Employee described in the first sentence of
this Section 9.08(b), Buyer shall pay (to the extent not paid pursuant to any
Buyer severance plan referenced in Section 9.08 (a)) the Continued Non-Union
Employee a lump sum equal to the excess of (i) the actuarial equivalent of the
Employee's "potential benefit" under the applicable Buyer's Pension Plans, which
such Employee would receive if such Employee's employment continued until three
years after the Closing Date and such Employee's base and incentive compensation
for such deemed additional period was the same as in effect on the date of such
Employee's termination of employment with Buyer, over (ii) the actuarial
equivalent of such Employee's "actual benefit" under the applicable Buyer's
Pension Plans, as of the date of such Employee's termination of employment from
Buyer. For the purpose of the foregoing sentence, (i) the term "potential
benefit" shall refer to the monthly pension that would have been payable to the
applicable Employee commencing on the first day of the month following the
latest of (A) the last day of the deemed additional period, (B) Employee's
attainment of age 55, or (C) the earlier of (1) the first date as of which the
sum of such Employee's age and years of service, as taken into account in
determining the actuarial reduction for commencement prior to normal retirement
age that is to be applied to his accrued benefit under the applicable Buyer's
Pension Plans, equals 75 or (2) such Employee's attainment of age 65, (ii) the
term "actual benefit" shall refer to the monthly pension payable to such
Employee under the applicable Buyer's Pension Plans commencing as of the date
determined in accordance with clause (i) of this sentence, and (iii) the
actuarial equivalent of the "potential benefit" and the "actual benefit" shall
each be a lump sum payable as of the date of such Employee's termination of
employment from Buyer, determined on the basis of the interest rate used to
determine the amount of lump sum distributions and, to the extent applicable,
other actuarial assumptions then in effect under the applicable Buyer's Pension
Plans. Buyer shall also provide outplacement services to such terminated
Continued Non-Union Employee appropriate to the level of the Employee's position
and job responsibilities. Buyer shall also continue to provide or cause to be
provided to any such terminated Continued Employee health insurance coverage and
group term and universal life insurance coverage at the same rates as for active
Continued Employees for a period equal to the number of weeks of separation
allowance which any such terminated Continued Employee is entitled to from
Buyer. Buyer shall have the right to require a release in form reasonably
satisfactory to Buyer as a condition for
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                                                                              65

eligibility to receive such separation allowance. The allowance shall not apply
to Continued Employees whose employment is terminated due to death or expiration
of sick allowance or other authorized leave of absence or who terminate
employment voluntarily. If at any time during the three-year period following
the Closing Date, Buyer shall assign a Continued Non-Union Employee to work on a
regular basis at a location that is more than fifty miles from the location to
which such Employee is assigned as of the Closing Date, Buyer shall offer such
Employee the option to terminate employment and receive the severance benefits
set forth in this Section 9.08(b) in lieu of the reassignment.

            SECTION 9.09. Workers Compensation. Effective as of the Closing
Date, Buyer shall have in effect a workers compensation program for Continued
Employees that shall provide coverage identical in all material respects to
Seller's workers compensation program as of the Closing Date.

                                    ARTICLE X

                     Indemnification and Dispute Resolution

            SECTION 10.01. Indemnification. (a) Seller will indemnify and hold
harmless Buyer and its Affiliates and their respective directors, officers,
employees and agents (collectively with Buyer and its Affiliates, the "Buyer
Indemnitees") from and against any and all claims, demands or suits by any
person, and all losses, liabilities, damages, obligations, payments, costs and
expenses (including reasonable legal fees and expenses and including costs and
expenses incurred in connection with investigations and settlement proceedings)
(each, an "Indemnifiable Loss"), as incurred, asserted against or suffered by
any Buyer Indemnitee relating to, resulting from or arising out of:

            (i) any breach by Seller of any covenant or agreement of Seller
      contained in this Agreement or, prior to their expiration in accordance
      with Section 12.03, the representations and warranties contained in
      Sections 5.01, 5.02, 5.03 and 5.17;

            (ii) the Retained Liabilities;

            (iii) noncompliance by Seller with any bulk sales or transfer laws
      as provided in Section 7.07; or
<PAGE>   73
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            (iv) any breach by Seller of any Ancillary Agreement.

            (b) Buyer will indemnify and hold harmless Seller and its Affiliates
      and their respective directors, officers, trustees, employees and agents
      (collectively with Seller and its Affiliates, the "Seller Indemnitees")
      from and against any and all Indemnifiable Losses, as incurred, asserted
      against or suffered by any Seller Indemnitee relating to, resulting from
      or arising out of:

            (i) any breach by Buyer of any covenant or agreement of Buyer
      contained in this Agreement or, prior to their expiration in accordance
      with Section 12.03, the representations and warranties contained in
      Sections 601, 6.02, 6.03 and 6.05;

            (ii) the Assumed Obligations;

            (iii) any obligation resulting from any action or inaction of Buyer
      (A) under any Contract or warranty pursuant to Section 2.04(b) (whether
      acting as principal or representative and agent for Seller pursuant to
      Section 2.04(b) or otherwise), (B) pursuant to Section 2.05 or Section
      7.14 (in each case, whether acting as representative or agent for Seller
      or otherwise) or (C) pursuant to any Transferable Permit in respect of
      which Seller remains the holder of record after the Closing Date pursuant
      to Section 7.03(c); or

            (iv) any breach by Buyer of any Ancillary Agreement

            (c) The amount of any Indemnifiable Loss shall be reduced to the
extent that the relevant Buyer Indemnitee or Seller Indemnitee (each, an
"Indemnitee") receives any insurance proceeds with respect to an Indemnifiable
Loss and shall be (i) increased to take account of any Tax Cost incurred by the
Indemnitee arising from the receipt of indemnity payments hereunder (grossed up
for such increase) and (ii) reduced to take account of any Tax Benefit realized
by the Indemnitee arising from the incurrence or payment of any such
Indemnifiable Loss. If the amount of any Indemnifiable Loss, at any time
subsequent to the making of an indemnity payment in respect thereof, is reduced
by recovery, settlement or otherwise under or pursuant to any insurance
coverage, or pursuant to any claim, recovery, settlement or payment by or
against any other person, the amount of such reduction, less any costs, expenses
or premiums incurred in connection therewith, will promptly be
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repaid by the Indemnitee to the Party required to provide indemnification
hereunder (the "Indemnifying Party") with respect to such Indemnifiable Loss.

            (d) To the fullest extent permitted by law, neither Party nor any
Buyer Indemnitee or any Seller Indemnitee shall be liable to the other Party or
any other Buyer Indemnitee or Seller Indemnitee for any claims, demands or suits
for consequential, incidental, special, exemplary, punitive, indirect or
multiple damages connected with or resulting from any breach after the Closing
Date of this Agreement or the Ancillary Agreements (other than breach of this
Article X), or any actions undertaken in connection with or related hereto or
thereto, including any such damages which are based upon breach of contract,
tort (including negligence and misrepresentation), breach of warranty, strict
liability, statute, operation of law or any other theory of recovery.

            (e) The rights and remedies of Seller and Buyer under this Article X
are, solely as between Seller and Buyer, exclusive and in lieu of any and all
other rights and remedies which Seller and Buyer may have under this Agreement,
the Ancillary Agreements (except as expressly provided in any Continuing Site
Agreement or any Declaration of Easements Agreement) or otherwise for monetary
relief with respect to (i) any breach of, or failure to perform, any covenant or
agreement set forth in this Agreement or the Ancillary Agreements by Seller or
Buyer, (ii) any breach of any representation or warranty by Seller or Buyer,
(iii) the Assumed Obligations or the Retained Liabilities, (iv) noncompliance by
Seller with any bulk sales or transfer laws and (v) any obligation in respect of
Section 2.04, Section 2.05, Section 7.03 or Section 7.14. Each Party agrees that
the previous sentence shall not limit or otherwise affect any non-monetary right
or remedy which either Party may have under this Agreement or the Ancillary
Agreements or otherwise limit or affect either Party's right to seek equitable
relief, including the remedy of specific performance.

            (f) Buyer and Seller agree that, notwithstanding Section 10.01(e),
each Party shall retain, subject to the other provisions of this Agreement,
including Sections 10.01(d) and 12.03, all remedies at law or in equity with
respect to (i) fraud or wilful or intentional breaches of this Agreement or the
Ancillary Agreements and (ii) gross negligence or wilful or wanton acts or
omissions to act of any Indemnitee (or any contractor or subcontractor thereof)
on or after the Closing Date.
<PAGE>   75
                                                                              68

            SECTION 10.02. Third Party Claims Procedures. (a) If any Indemnitee
receives notice of the assertion of any claim or of the commencement of any
claim, action, or proceeding made or brought by any person who is not a Party or
an Affiliate of a Party (a "Third Party Claim") with respect to which
indemnification is to be sought from an Indemnifying Party, the Indemnitee will
give such Indemnifying Party reasonably prompt written notice thereof, but in
any event not later than 20 Business Days after the Indemnitee's receipt of
notice of such Third Party Claim; provided, however, that a failure to give
timely notice will not affect the rights or obligations of any Indemnitee except
if, and only to the extent that, as a result of such failure, the Indemnifying
Party was actually prejudiced. Such notice shall describe the nature of the
Third Party Claim in reasonable detail and will indicate the estimated amount,
if practicable, of the Indemnifiable Loss that has been or may be sustained by
the Indemnitee.

            (b) If a Third Party Claim is made against an Indemnitee, the
Indemnifying Party will be entitled to participate in the defense thereof and,
if it so chooses, to assume the defense thereof with counsel selected by the
Indemnifying Party; provided, however, that such counsel is not reasonably
objected to by the Indemnitee; and provided further that the Indemnifying Party
first admits in writing its liability to the Indemnitee with respect to all
material elements of such claim. Should the Indemnifying Party so elect to
assume the defense of a Third Party Claim, the Indemnifying Party will not be
liable to the Indemnitee for any legal expenses subsequently incurred by the
Indemnitee in connection with the defense thereof. If the Indemnifying Party
elects to assume the defense of a Third Party Claim, the Indemnitee will (i)
cooperate in all reasonable respects with the Indemnifying Party in connection
with such defense, (ii) not admit any liability with respect to, or settle,
compromise or discharge, any Third Party Claim without the Indemnifying Party's
prior written consent and (iii) agree to any settlement, compromise or discharge
of a Third Party Claim which the Indemnifying Party may recommend and which by
its terms obligates the Indemnifying Party to pay the full amount of the
liability in connection with such Third Party Claim and releases the Indemnitee
completely in connection with such Third Party Claim. In the event the
Indemnifying Party shall assume the defense of any Third Party Claim, the
Indemnitee shall be entitled to participate in (but not control) such defense
with its own counsel at its own expense. If the Indemnifying Party does not
assume the defense of any such Third Party Claim, the Indemnitee may defend the
same in such manner as it may deem appropriate, including settling such claim or
litigation
<PAGE>   76
                                                                              69

after giving notice to the Indemnifying Party of the terms of the proposed
settlement and the Indemnifying Party will promptly reimburse the Indemnitee
upon written request. Anything contained in this Agreement to the contrary
notwithstanding, no Indemnifying Party shall be entitled to assume the defense
of any Third Party Claim if such Third Party Claim seeks an order, injunction or
other equitable relief or relief for other than monetary damages against the
Indemnitee which, if successful, would materially adversely affect the business
of the Indemnitee; provided, however, that such Indemnifying Party shall
continue to be obligated to such Indemnitee pursuant to Section 10.01(a) or (b),
as the case may be, for all Indemnifiable Losses relating to, resulting from or
arising out of such Third Party Claim.

                                   ARTICLE XI

                                   Termination

            SECTION 11.01. Termination. (a) This Agreement may be terminated at
any time prior to the Closing by an instrument in writing signed on behalf of
each of the Parties.

            (b) This Agreement may be terminated by Seller or Buyer if the
Closing shall not have occurred on or before the date that is 12 months from the
date of this Agreement (the "Termination Date"); provided, however, that the
right to terminate this Agreement pursuant to this Section 11.01(b) shall not be
available to any Party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Closing to
occur on or before such date.

            (c) This Agreement may be terminated by either Seller or Buyer if
any Restraint having any of the effects set forth in Section 8.01(b) shall be in
effect and shall have become final and nonappealable; provided, however, that
the Party seeking to terminate this Agreement pursuant to this Section 11.01(c)
shall have used its reasonable best efforts to prevent the entry of and to
remove such Restraint.

                                   ARTICLE XII

                            Miscellaneous Provisions

            SECTION 12.01. Expenses. Except to the extent specifically provided
herein, all costs and expenses
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                                                                              70

incurred in connection with this Agreement and the transactions contemplated
hereby shall be borne by the Party incurring such costs and expenses, whether or
not the transactions contemplated hereby are consummated.

            SECTION 12.02. Amendment and Modification; Extension; Waiver. This
Agreement may be amended, modified or supplemented only by an instrument in
writing signed on behalf of each of the Parties. Either Party may (i) extend the
time for the performance of any of the obligations or other acts of the other
Party, (ii) waive any inaccuracies in the representations and warranties of the
other Party contained in this Agreement or (iii) waive compliance by the other
Party with any of the agreements or conditions contained in this Agreement. Any
agreement on the part of a Party to any such extension or waiver shall be valid
only if set forth in an instrument in writing signed on behalf of such Party.
The failure of a Party to this Agreement to assert any of its rights under this
Agreement or otherwise shall not constitute a waiver of such rights.

            SECTION 12.03. No Survival of Representations or Warranties. Each
and every representation and warranty contained in this Agreement, other than
the representations and warranties contained in Sections 5.01, 5.02, 5.03 and
5.17 and 6.01, 6.02, 6.03 and 6.05 (which representations and warranties shall
survive for 18 months from the Closing Date), shall expire with, and be
terminated and extinguished by the Closing and no such representation or
warranty shall survive the Closing Date. From and after the Closing Date, none
of Seller, Buyer or any officer, director, trustee or Affiliate of any of them
shall have any liability whatsoever with respect to any such representation or
warranty. The expiration of the representations and warranties contained in
Sections 5.01, 5.02, 5.03 and 5.17 and 6.01, 6.02, 6.03 and 6.05 shall not
affect the Parties' obligations under Article X if the Indemnitee provided the
Indemnifying Party with proper notice of the claim or event for which
indemnification is sought prior to such expiration.

            SECTION 12.04. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given (as of the time of
delivery or, in the case of a telecopied communication, of confirmation) if
delivered personally, telecopied (which is confirmed) or sent by overnight
courier (providing proof of delivery) to the
<PAGE>   78
                                                                              71

Parties at the following addresses (or at such other address for a Party as
shall be specified by like notice):

            if to Seller, to:

                  Consolidated Edison Company of New York, Inc.
                  4 Irving Place
                  New York, NY 10003
                  Telecopy No.: (212) 677-0601
                  Attention: General Counsel

            with a copy on or prior to the Closing Date to:

                  Cravath, Swaine & Moore
                  825 Eighth Avenue
                  New York, NY 10019
                  Telecopy No.: C212) 474-3700
                  Attention: George W. Bilicic, Jr., Esq.

            if to Buyer, to:

                  Astoria Generating Company, L.P.
                  c/o Orion Power Holdings, Inc.
                  111 Market Place
                  Suite 520
                  Baltimore, MD 21202
                  Telecopy No.: (410) 468-3699
                  Attention: General Counsel

            with a copy on or prior to the Closing Date to:

                  Thelen Reid & Priest LLP
                  Two Embarcadero Center
                  Suite 2100
                  San Francisco, CA 94111
                  Telecopy No.: (415) 421-1068
                  Attention: Thomas B. Glascock, Esq.

            SECTION 12.05. Assignment; No Third Party Beneficiaries. (a) This
Agreement and all of the provisions hereof shall be binding upon and inure to
the benefit of the Parties and their respective successors and permitted
assigns, but neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any Party, including by operation of
law, without the prior written consent of the other Party, except (i) in the
case of Seller (A) to an Affiliate of Seller or a third party in connection with
the transfer of the Transmission System to such Affiliate or third party or (B)
to a lending institution or trustee in connection with a pledge or granting of a
security interest in all or any part of the
<PAGE>   79
                                                                              72

Transmission System and this Agreement and (ii) in the case of Buyer (A) to an
Affiliate of Buyer in connection with the transfer of the Auctioned Assets to
such Affiliate and (B) to a lending institution or trustee in connection with a
pledge or granting of a security interest in the Auctioned Assets and this
Agreement; provided, however that no assignment or transfer of rights or
obligations by either Party shall relieve it from the full liabilities and the
full financial responsibility, as provided for under this Agreement, unless and
until the transferee or assignee shall agree in writing to assume such
obligations and duties and the other Party has consented in writing to such
assumption.

            (b) Nothing in this Agreement is intended to confer upon any other
person except the Parties any rights or remedies hereunder or shall create any
third party beneficiary rights in any person, including, with respect to
continued or resumed employment, any employee or former employee of Seller
(including any beneficiary or dependent thereof). No provision of this Agreement
shall create any rights in any such persons in respect of any benefits that may
be provided, directly or indirectly, under any employee benefit plan or
arrangement except as expressly provided for thereunder.

            SECTION 12.06. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York (regardless
of the laws that might otherwise govern under applicable principles of conflicts
of law).

            SECTION 12.07. Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.

            SECTION 12.08. Interpretation. When a reference is made in this
Agreement to an Article, Section, Schedule or Exhibit, such reference shall be
to an Article or Section of, or Schedule or Exhibit to, this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include",
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation" or equivalent words. The words
"hereof", "herein" and "hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement. All terms defined in this Agreement shall
<PAGE>   80
                                                                              73

have the defined meanings when used in the Ancillary Agreements and any
certificate or other document made or delivered pursuant hereto or thereto
unless otherwise defined therein. The definitions contained in this Agreement
are applicable to the singular as well as the plural forms of such terms and to
the masculine as well as to the feminine and neuter genders of such term. Any
agreement, instrument, statute, regulation, rule or order defined or referred to
herein or in any agreement or instrument that is referred to herein means such
agreement, instrument, statute, regulation, rule or order as from time to time
amended, modified or supplemented, including (in the case of agreements or
instruments) by waiver or consent and (in the case of statutes, regulations,
rules or orders) by succession of comparable successor statutes, regulations,
rules or orders and references to all attachments thereto and instruments
incorporated therein. References to a person are also to its permitted
successors and assigns.

            SECTION 12.09. Jurisdiction and Enforcement. (a) Each of the Parties
irrevocably submits to the exclusive jurisdiction of (i) the Supreme Court of
the State of New York, New York County and (ii) the United States District Court
for the Southern District of New York, for the purposes of any suit, action or
other proceeding arising out of this Agreement or any transaction contemplated
hereby. Each of the Parties agrees to commence any action, suit or proceeding
relating hereto either in the United States District Court for the Southern
District of New York or, if such suit, action or proceeding may not be brought
in such court for jurisdictional reasons, in the Supreme Court of the State of
New York, New York County. Each of the Parties further agrees that service of
process, summons, notice or document by hand delivery or U.S. registered mail at
the address specified for such Party in Section 12.04 (or such other address
specified by such Party from time to time pursuant to Section 12.04) shall be
effective service of process for any action, suit or proceeding brought against
such Party in any such court. Each of the Parties irrevocably and
unconditionally waives any objection to the laying of venue of any action, suit
or proceeding arising out of this Agreement or the transactions contemplated
hereby in (i) the Supreme Court of the State of New York, New York County, or
(ii) the United States District Court for the Southern District of New York, and
hereby further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such action, suit or proceeding brought in any
such court has been brought in an inconvenient forum.
<PAGE>   81
                                                                              74

            (b) The Parties agree that irreparable damage would occur in the
event that any of the provisions of this Agreement or any Ancillary Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the Parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement or any Ancillary
Agreement and to enforce specifically the terms and provisions of this Agreement
or any Ancillary Agreement, this being in addition to any other remedy to which
they are entitled at law or in equity.

            SECTION 12.10. Entire Agreement. This Agreement, the Confidentiality
Agreement and the Ancillary Agreements including the Exhibits, Schedules,
documents, certificates and instruments referred to herein or therein and other
contracts, agreements and instruments contemplated hereby or thereby, embody the
entire agreement and understanding of the Parties in respect of the transactions
contemplated by this Agreement. There are no restrictions, promises,
representations, warranties, covenants or undertakings other than those
expressly set forth or referred to herein or therein. This Agreement and the
Ancillary Agreements supersede all prior agreements' and understandings between
the Parties with respect to the transactions contemplated by this Agreement
other than the Confidentiality Agreement.

            SECTION 12.11. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
Parties shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the Parties as closely as possible to the fullest extent
permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
<PAGE>   82
                                                                              75

            SECTION 12.12. Conflicts. Except as expressly otherwise provided
herein or therein, in the event of any conflict or inconsistency between the
terms of this Agreement and the terms of any Ancillary Agreement, the terms of
this Agreement shall prevail.

            IN WITNESS WHEREOF, Seller and Buyer have caused this Agreement to
be signed by their respective duly authorized officers as of the date first
above written.

                                     CONSOLIDATED EDISON COMPANY OF
                                     NEW YORK, INC.,

                                       by
                                          /s/ Joan S. Freilich
                                          --------------------------------
                                          Name: Joan S. Freilich
                                          Title: Executive Vice President

                                     ASTORIA GENERATING COMPANY,

                                       BY: ORION POWER NEW YORK GP II, INC.,

                                       by
                                          /s/ Jack A. Fusco
                                          --------------------------------
                                          Name: Jack A. Fusco
                                          Title: President
<PAGE>   83
STATE OF NEW YORK    )
                     )   SS.:
COUNTY OF NEW YORK   )

            On this 2nd day of March 1999, before me personally appeared Joan S.
Freilich, personally known to me or proved to me on the basis of satisfactory
evidence to be the individual whose name is subscribed to the within instrument
and acknowledged to me that he executed the same in his capacity, and that his
signature on the instrument, the individual, or the corporation upon behalf of
which the individual acted, executed the instrument.

                                               /s/ Carole Sobin
                                             --------------------
                                                 NOTARY PUBLIC
<PAGE>   84

STATE OF NEW YORK    )
                     )   SS.:
COUNTY OF NEW YORK   )

            On this 2 day of March 1999, before me personally appeared Jack A.
Fusco, personally known to me or proved to me on the basis of satisfactory
evidence to be the individual whose name is subscribed to the within instrument
and acknowledged to me that he executed the same in his capacity, and that his
signature on the instrument, the individual, or the corporation upon behalf of
which the individual acted, executed the instrument.

                                             /s/ Graceanne T. Favara
                                           ---------------------------
                                                  NOTARY PUBLIC
<PAGE>   85

                                    EXHIBITS

                                       TO

                                GENERATING PLANT
                                 AND GAS TURBINE
                        ASSET PURCHASE AND SALE AGREEMENT

                                       FOR

                            ASTORIA GENERATING PLANTS

                   LOCATED AT ASTORIA, QUEENS COUNTY, NEW YORK

                              GOWANUS GAS TURBINES

                   LOCATED AT BROOKLYN, KINGS COUNTY, NEW YORK

                                       AND

                              NARROWS GAS TURBINES

                   LOCATED AT BROOKLYN, KINGS COUNTY, NEW YORK

                                                                     EXHIBIT A-1

                               ASTORIA ZONING LOT
                              DEVELOPMENT AGREEMENT

                                 By and Between

                           CONSOLIDATED EDISON COMPANY
                                OF NEW YORK, INC.

                                       and

 The land affected by the within instrument lies in Block 850, Lots 1, 50, 200,
         300 on the Tax Map of the City of New York, County of Queens.

                                    Address:

                              Record and Return to:

                               Robert Selya, Esq.
                  Consolidated Edison Company of New York, Inc.
                                 4 Irving Place
                            New York, New York 10003
<PAGE>   86

                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----

ARTICLE I. EXISTING DEVELOPMENT RIGHTS ...................................   -3-

ARTICLE II. REQUIREMENTS FOR DEVELOPMENT ON THE ZONING LOT ...............   -5-

ARTICLE III. ENLARGING OR DIMINISHING THE ZONING LOT .....................  -10-

ARTICLE IV. CONVEYANCE OF PORTIONS OF THE ZONING LOT .....................  -14-

ARTICLE V. VIOLATIONS/REAL ESTATE TAXES ..................................  -15-

ARTICLE VI. BINDING EFFECT ...............................................  -17-

ARTICLE VII. MISCELLANEOUS ...............................................  -19-

SCHEDULE I ...............................................................  -30-

SCHEDULE II ..............................................................  -31-

SCHEDULE III .............................................................  -32-

SCHEDULE IV ..............................................................  -33-
<PAGE>   87

                    ASTORIA ZONING LOT DEVELOPMENT AGREEMENT
                        [Arthur Kill Bundle Closes First]

            AGREEMENT dated as of __________, 1999, by and between CONSOLIDATED
EDISON COMPANY OF NEW YORK, INC., a New York corporation ("Grantor"), and
___________, a ___________ corporation ("Grantee") ("Grantor" and "Grantee"
collectively referred to as the "Parties").

                                   WITNESSETH

            WHEREAS, Grantee (also the "Lot 1 Owner") is acquiring title in fee
to the real property ("Lot 1") together with any buildings and improvements
located thereon ("Lot 1 Buildings") in the City of New York, located in the
Borough of Queens, County of Queens, designated as Block 850, Lot 200 in the Tax
Map of the City of New York and known as the Astoria Gas Turbines, and more
particularly described in Schedule I annexed hereto and made a part hereof (Lot
1 and the Lot 1 Buildings being hereinafter collectively referred to as the "Lot
1 Premises"); and

            WHEREAS. Grantor (also the "Lot 2 Owner") owns certain real property
("Lot 2") together with any buildings and improvements located thereon ("Lot 2
Buildings") in the City of New York, located in the Borough of Queens, County of
Queens, designated as Block 850, Lot 50 in the Tax Map of the City of New York
and known as the Astoria Generating Station, and more particularly described in
Schedule II annexed hereto and made a part hereof (Lot 2 and the Lot 2 Buildings
being hereinafter collectively referred to as the "Lot 2 Premises"), which it
intends to sell; and
<PAGE>   88

            WHEREAS, Grantor (also the "Lot 3 Owner") owns certain real property
("Lot 3") together with the buildings and improvements located thereon ("Lot 3
Buildings") in the City of New York, located in the Borough of Queens, County of
Queens, designated as Block 850, Lot 300 in the Tax Map of the City of New York
and known as the Astoria Tank Farm, and more particularly described in Schedule
III annexed hereto and made a part hereof (Lot 3 and the Lot 3 Buildings being
hereinafter collectively referred to as the "Lot 3 Premises"), which it intends
to sell; and

            WHEREAS, Grantor (also the "Lot 4 Owner") owns certain real property
("Lot 4") together with the buildings and improvements located thereon ("Lot 4
Buildings") in the City of New York, located in the Borough of Queens, County of
Queens, designated as Block 850, Lot 1 in the Tax Map of the City of New York,
and more particularly described in Schedule IV annexed hereto and made a part
hereof (Lot 4 and the Lot 4 Buildings being hereinafter collectively referred to
as the "Lot 4 Premises") which it will retain after selling Lots 1, 2 and 3 (Lot
1 Owner, Lot 2 Owner, Lot 3 Owner and Lot 4 Owner collectively referred to as
the "Owners" or the "Parties", individually as an "Owner"; Lot 1 Buildings, Lot
2 Buildings, Lot 3 Buildings and Lot 4 Buildings collectively referred to as the
"Buildings"; and Lot 1 Premises, Lot 2 Premises. Lot 3 Premises and Lot 4
Premises collectively referred to as the "Premises"); and

            WHEREAS, Lot 1, Lot 2, Lot 3 and Lot 4 (collectively, the "Lots,"
each a "Lot") are located on the same zoning lot (the "Zoning Lot") as that term
is defined in Section 12-10 of the Zoning Resolution of the City of New York,
effective December 15, 1961, as amended from time to time (the "Zoning
Resolution"); and

                                      -2-
<PAGE>   89

            WHEREAS, the Power Authority of the State of New York owns certain
real property in the City of New York, located in the Borough of Queens, County
of Queens, designated as Block 850, Lot 100 in the Tax Map of the City of New
York, which is or may be located on the Zoning Lot; and

            WHEREAS, the Parties wish to define their continuing obligations and
responsibilities with respect to their respective Premises located on the Zoning
Lot.

            NOW THEREFORE, in consideration of the foregoing, the Parties hereby
agree as follows:

                     ARTICLE I. EXISTING DEVELOPMENT RIGHTS

            Section 1.1. Owners' Development Rights.

      (A) Each Owner covenants to the other Owners, their successors and assigns
for the benefit of and as an appurtenance to their respective Lots that from and
after the date hereof, no building, structure, equipment or other improvement on
its Lot, or combination of improvements, including any addition to or extension
of its Buildings, shall be erected or installed or allowed or suffered to exist
on its Lot, and no repair, alteration, reconstruction or rebuilding of its
Buildings (following a casualty or otherwise) shall be made or allowed or
suffered to be made:

            (i) having a total Floor Area, as defined in the Zoning Resolution,
in excess of the greater of (x) the amount of Floor Area that would be available
to its Lot under the Zoning Resolution if its Lot were considered to be a
separate zoning lot and (y) the amount of Floor Area existing on the Owner's Lot
on the date of this Agreement (the "Owner Lot Maximum Floor Area"), or

                                      -3-
<PAGE>   90

            (ii) resulting in the creation on its Lot of (x) a new use that does
not conform to the use regulations in the Zoning Resolution, (y) a failure of
any building or structure on its Lot to comply with any provision of the Zoning
Resolution, including without limitation coverage, yard and bulk requirements,
or (z) an increase in the degree to which any such structure or building fails
to comply with the Zoning Resolution, in each case treating its Lot as if it
were a separate zoning lot.

      (B) Subject to applicable laws, rules and regulations, each Owner shall
have the absolute right to construct replacement buildings on its Lot not
violative of the restrictions set forth in subsection (A) of this Section 1.1;
provided however, that if as a result of any amendment or change in the Zoning
Resolution, the Zoning Lot shall become entitled to fewer development rights in
the future, then each Owner shall have the right to construct replacement
buildings or other improvements on its Lot with a Floor Area equal to the lesser
of (i) the amount of Floor Area that would be available to its Lot under the
Zoning Resolution, as amended, if its Lot were considered to be a separate
zoning lot, (ii) the amount of permissible Floor Area remaining on its Lot,
taking into account the existing Floor Area on the other Lots, and (iii) its
proportionate share of the permissible Floor Area available on all the Lots
combined based on the proportion that its Lot area bears to the aggregate area
of all the Lots; and, provided further, that if as a result of any amendment or
change in the Zoning Resolution, the Zoning Lot shall become entitled to
additional development rights in the future, then each Owner shall have the
right to enlarge the existing improvements or construct new improvements on its
Lot to the extent that would be permitted by the Zoning Resolution, treating all
the Lots as if they were separate zoning lots, and

                                      -4-
<PAGE>   91

subject to all applicable provisions of the Zoning Resolution, provided such
enlargement or new construction shall not reduce the Floor Area available for
use on the other Owners' Lots.

           ARTICLE II. REQUIREMENTS FOR DEVELOPMENT ON THE ZONING LOT

            Section 2.1. The Owners hereby agree that construction plans and
specifications for, and applications to, the New York City Department of
Buildings or the New York City Department of Business Services, or such other
governmental agency with jurisdiction over the permitting process for
demolition, alteration and construction of buildings or structures (each a
"Permitting Agency"), for or in connection with any building or structure on
their respective Lots, shall be separate and independent from one another and
shall be filed with the applicable Permitting Agency so as to obtain separate
"new building" and/or "alteration" treatment and numbers and separate
certificates of occupancy, as applicable, each to the extent allowed by law.

            Section 2.2. No Owner shall make any application, or any amendment,
modification, supplement or withdrawal relating thereto (collectively the
"Applications", individually an "Application") to any Permitting Agency for any
construction of or alteration, reconstruction or other similar work in any
building or other structure on its Lot, respectively, which could in any way,
except as set forth herein, restrict the rights of any other Owner with respect
to use of Floor Area on such Owner's Lot.

            Section 2.3. Floor Area Survey. The first Owner who shall file with
any Permitting Agency a permit for work that would result in increased Floor
Area on such Owner's Lot (for purposes of this Section 2.3, the "Commissioning
Party") shall commission a floor area survey of the Lots and, if possible, the
entire Zoning Lot (the "Floor Area Survey"), which may

                                      -5-
<PAGE>   92

also contain the lot owned by the Power Authority of the State of New York. Such
survey shall be performed by an appropriately licensed professional satisfactory
to all the Owners and the cost of such survey shall be borne by the
Commissioning Party. The Commissioning Party shall submit the Floor Area Survey
to the other Owners for their review and approval, which review shall be
completed within thirty (30) days of each such Owner's receipt of such Survey
and which approval shall not be unreasonably withheld. Any disagreements
regarding the Survey shall be resolved in the best professional judgement of the
licensed professional performing the work. If the Commissioning Party does not
receive comments during such thirty (30) day period, the Floor Area Survey shall
be deemed approved.

            Section 2.4. Cooperation.

      (A) The Owners shall cooperate with one another in all reasonable respects
in connection with Applications, if any, required to be made by any Owner to any
Permitting Agency for permits or approvals for alteration, reconstruction or
replacement of that Owner's Buildings or for new structures on that Owner's Lot,
and shall execute any such properly prepared Application at the request of that
Owner (for purposes of this Section 2.4, the "Requesting Party"), provided that
any building or other structure to be erected on that Owner's Lot shall be built
in accordance with applicable law and shall conform to the requirements set
forth in Section 1.1(A) herein. No less than thirty (30) days prior to the
Requesting Party's intended submission of an executed Application to a
Permitting Agency, however, it shall submit to the other Owners (i) a
certification prepared by the architect of record demonstrating that the
Application being filed is consistent with the requirements set forth in Section
1.1.(A) herein, (ii) a copy of any completed Application, in a form suitable for
submission to such Permitting Agency, and (iii) a copy of any

                                      -6-
<PAGE>   93

plans and specifications relating to the work described in the application, in a
form suitable for submission to such Permitting Agency. The Requesting Party
shall be responsible for the professional fees incurred by the other Party in
reviewing the Application and related materials.

      (B) Such cooperation shall include granting access to the professional
performing the Floor Area Survey, in accordance with Section 2.3. herein, but
shall not include any action which would create any rights of access to the
other Owners' Lots or Buildings or grant to the Requesting Party any rights
relating to such Lots or Buildings which are not expressly stated herein or in
any other agreement between the Owners or binding upon the Zoning Lot. All
Applications shall be made in accordance with all applicable laws. The right of
any Owner to alter, reconstruct or replace its Buildings shall in such cases be
subject to the restrictions and/or benefits of the Zoning Resolution and other
provisions of law as same may hereafter be amended or enacted and in effect at
the time that such Applications are made.

      (C) Each Owner covenants and agrees to file a copy of this Agreement
together with any Application for a permit submitted to any Permitting Agency,
and to deliver to the other Owners copies of any Applications for building and
other permits and any plans and specifications submitted to any Permitting
Agency, in each case except permits for interior work, maintenance and repair
that have no effect on Floor Area.

            Section 2.5. Performance of Work.

      (A) All work to be performed under this Agreement by an Owner (for
purposes of this section, the "Entering Party") affecting its Premises (i) shall
not impair the structural integrity of any Building situated on any other Lot;
(ii) shall not be undertaken until the Entering Party shall have procured and
paid for all required permits; (iii) except for routine maintenance activity,

                                      -7-
<PAGE>   94

shall not be undertaken until the Entering Party shall have submitted to the
other Owners all applicable documents, plans and specifications; (iv) shall be
performed in accordance with good industry practice and in compliance with all
applicable laws, ordinances, orders, codes, rules and regulations; (v) shall be
performed by the Entering Party's employees or by contractors fully insured,
licensed (to the extent required by applicable law) and competent to do the work
being undertaken; (vi) shall be performed in a manner that does not materially
adversely affect or substantially interfere with the use and enjoyment by any
Owner of its Premises, except (if at all) temporarily, and then only to the
extent necessary to do the work, and (vii) shall be diligently prosecuted to
completion. During any construction or reconstruction work, the construction
site shall be kept in an orderly, clean and safe condition.

      (B) The Entering Party shall pay when due all claims for labor performed
or material furnished and not permit any lien of mechanics or materialmen to
attach, and if any such liens do attach, the Entering Party shall not permit
such liens to unreasonably interfere with any other Owner's financing
arrangements or work. The Entering Party shall also be responsible for the
professional fees incurred any other Owner in reviewing the Entering Party's
plans and specifications.

      (C) The review of or comments on any documents, drawings, plans,
specifications or other documentation provided by the Entering Party shall not
relieve the Entering Party of, or affect in any way, its responsibility for the
correctness and adequacy of the work to be performed. The other Owners shall
have no liability whatsoever with respect to any review or non-review of any
documentation submitted to it by the Entering Party.

            Section 2.6. Performance of Work in Exercising Self-Help Rights.

                                      -8-
<PAGE>   95

      (A) All work to be performed under this Agreement by an Owner (for
purposes of this Section 2.6, the "Curing Party") affecting any other Owner's
Premises in accordance with Article IV hereof, (i) shall not impair the
structural integrity or operation of any Building situated on any other Owner's
Lot; (ii) shall not be undertaken until the Curing Party shall have procured and
paid for all required permits; (iii) except for routine maintenance activity,
shall not be undertaken until the Curing Party shall have submitted to the other
Owners all applicable documents, plans and specifications; (iv) shall be
performed in accordance with good industry practice and in compliance with all
applicable laws, ordinances, orders, codes, rules and regulations; (v) shall be
performed by the Curing Party's employees or by contractors fully insured,
licensed (to the extent required by applicable law) and competent to do the work
being undertaken; (vi) shall be performed in a manner that does not materially
adversely affect or substantially interfere with the use and enjoyment by any
Owner of its Premises, except (if at all) temporarily, and then only to the
extent necessary to do the work, and (vii) shall be diligently prosecuted to
completion. During any construction or reconstruction work, the construction
site shall be kept in an orderly, clean and safe condition.

      (B) The Curing Party shall pay when due all claims for labor performed or
material furnished and not permit any lien of mechanics or materialmen to
attach, and if any such liens do attach, the Curing Party shall not permit such
liens to unreasonably interfere with any other Owner's financing arrangements or
work. The Curing Party shall not be responsible for the professional fees
incurred by the other Owners in reviewing the Curing Party's plans and
specifications.

                                      -9-
<PAGE>   96

      (C) The review of or comments on any documents, drawings, plans,
specifications or other documentation provided by the Curing Party shall not
relieve the Curing Party of, or affect (in any way, its responsibility for the
correctness and adequacy of the work to be performed. The other Owners shall
have no liability whatsoever with respect to any review or non-review of any
documentation submitted to them by the Curing Party.

      (D) Whenever the Curing Party shall intend to enter upon the Premises of
another Owner to perform any work in exercising its Self-Help Rights as defined
in Article IV hereof, the Curing Party shall give the affected Owner (i) at
least twenty-four (24) hours' prior written notice or (ii) immediate verbal
notification followed by written notice in the case of any emergency.

      (E) Notwithstanding the provisions of this Article II, any work to be
performed by a Curing Party affecting the easement and license areas governed by
the Astoria Declaration of Subdivision Easements and the Astoria Declaration of
Easements made by Grantor shall be governed by the requirements contained in
such agreements.

              ARTICLE III. ENLARGING OR DIMINISHING THE ZONING LOT

            Section 3.1. If requested by an Owner (for purposes of this Section
3.1, the "Requesting Party"), each other Owner shall execute, acknowledge and
deliver a Declaration of Zoning Lot Restrictions, any such other necessary
documents, and amendments to this Agreement for the purpose of enlarging the
Zoning Lot so as to include one or more additional parcels; provided that (i)
the execution of the Declaration of Zoning Lot Restrictions, any such other
documents, and any such amendment to this Agreement does not increase the
responsibilities or liabilities or reduce the rights of any other Owner, (ii)
any action requested of

                                      -10-
<PAGE>   97

any Owner by the Requesting Party pursuant to this Section 3.1 shall be without
cost or recourse to any such Owner, and (iii) such Declaration of Zoning Lot
Restrictions, any such other documents, and any such amendment to this Agreement
shall not grant to the Requesting Party any rights relating to an Owner's
Premises which are not expressly stated herein. The Requesting Party shall
promptly pay, or reimburse any Owner for, any cost or expenses incurred by such
Owner arising under this Section 3.1.

            Section 3.2. In the event that the Lot 4 Owner shall seek to
effectuate a zoning lot subdivision which would remove Lot 4, or any other
parcel of land which is part of the Zoning Lot, from the Zoning Lot, whether or
not in conjunction with any other Lot being subdivided from the Zoning Lot
simultaneously therewith, each Owner shall use its best efforts to assist the
Lot 4 Owner in accomplishing said subdivision in the most expeditious manner
possible. Such cooperation shall include completing such Applications, executing
such documents and performing such work as may be necessary to meet the
requirements of the Permitting Agency or Agencies overseeing the zoning lot
subdivision process.

            Each Owner shall bear a portion of the aggregate costs related to
the zoning lot subdivision process, including without limitation (x) utility
separation work and associated costs and (y) administrative expenses
(collectively, "Aggregate Zoning Lot Subdivision Costs"), in the proportion that
the area of each Owner's Lot bears to the combined area of the Lots.
Notwithstanding the foregoing, Aggregate Zoning Lot Subdivision Costs shall
exclude the costs of bringing each Owner's Buildings into compliance with the
standards necessary to effectuate a zoning lot subdivision ("Compliance Costs").
Each Owner's Compliance Costs shall be borne exclusively by such Owner.

                                      -11-
<PAGE>   98

            Upon final zoning lot subdivision approval by the Permitting
Agency(ies), the Aggregate Zoning Lot Subdivision Costs shall be computed by
adding the costs incurred by each Owner ("Actual Subdivision Costs"). Each Owner
shall keep records of all its expenditures and make available to the other
Owners copies of all such records evidencing its Actual Subdivision Costs. If,
after computation of the Aggregate Zoning Lot Subdivision Costs, an Owner's
Actual Subdivision Costs exceeds its proportionate share of the Aggregate Zoning
Lot Subdivision Costs, then that Owner shall be reimbursed for any such excess
by the Owner(s) whose Actual Subdivision Costs are lower than their respective
share(s) of the Aggregate Zoning Lot Subdivision Costs, in order that each Owner
shall bear its proportionate share of the Aggregate Zoning Lot Subdivision
Costs.

            Section 3.3. Each Owner (for purposes of this Section 3.3, the
"Agreeing Party") agrees and consents that any other Owner or Owners may execute
any Declaration of Zoning Lot Restrictions, any such other necessary documents,
and any amendment of this Agreement that is entered into for the purpose of
enlarging the Zoning Lot as provided above in Section 3.1 above, without its
joinder, waiver, consent or other act of such Agreeing Party, provided that such
agreement, document or amendment (i) only increases the size of the Zoning Lot,
(ii) only affects the rights of parties other than such Agreeing Party in and to
said Zoning Lot and (iii) does not otherwise adversely affect the rights of such
Agreeing Party in and to said Zoning Lot. Notwithstanding that any such
Declaration of Zoning Lot Restrictions, other necessary documents, or amendment
to this Agreement may be executed without the joinder, waiver, consent or other
act of such Agreeing Party, each Agreeing Party agrees, upon demand of an Owner,
to execute, acknowledge and deliver any such agreement, other document or
amendment

                                      -12-
<PAGE>   99

or deliver any requested waiver or consent, and to use commercially reasonable
efforts to cause any parties-in-interest, as such term is defined in connection
with the definition of zoning lot in Section 12-10 of the Zoning Resolution of
the City of New York, effective December 15, 1961, as amended from time to time
("Parties-in-Interest"), on the enlarged Zoning Lot to waive each of their
rights to execute the Declaration of Zoning Lot Restrictions or any such other
documents.

            Section 3.4. Each Owner (for purposes of this Section 3.4, the
"Agreeing Party") agrees and consents that the Lot 4 Owner may execute any
Declaration of Zoning Lot Restrictions, any other such necessary documents, and
any amendment of this Agreement that is entered into for the purpose of
diminishing the Zoning Lot as provided above in Section 3.2 above, without its
joinder, waiver, consent or other act of such Agreeing Party, provided that such
agreement, document or amendment (i) only diminishes the size of the Zoning Lot,
(ii) only affects the rights of parties other than such Agreeing Party in and to
said Zoning Lot and (iii) does not otherwise adversely affect the rights of such
Agreeing Party in and to said Zoning Lot. Notwithstanding that any such
Declaration of Zoning Lot Restrictions, other necessary documents, or amendment
to this Agreement may be executed without the joinder, waiver, consent or other
act of such Agreeing Party, each Agreeing Party agrees, upon demand of the Lot 4
Owner, to execute, acknowledge and deliver any such agreement, other document or
amendment or deliver any requested waiver or consent, and to use commercially
reasonable efforts to cause any Parties-in-Interest on the diminished Zoning Lot
to waive each of their rights to execute the Declaration of Zoning Lot
Restrictions or any such other documents.

            Section 3.5. Each Owner acknowledges that the owners of other
properties which may hereafter be merged into the Zoning Lot by any other Owner
may have reserved or retained

                                      -13-
<PAGE>   100

certain development rights attributable to their properties, and each Owner (for
purposes of this Section 3.5, a "Covenanting Party") covenants and agrees not to
(i) utilize, or attempt to utilize, all or any portion of any such reserved or
retained floor area or zoning and development rights in any future development
or alteration of its Premises or (ii) make any application to any Permitting
Agency to incorporate all or any portion of any such reserved or retained floor
area or zoning and development rights into its Premises. The provisions of this
Section 3.5 shall inure to the benefit of each Owner and each owner of
properties hereafter merged into the Zoning Lot and shall be enforceable by each
of them directly against each Covenanting Party in the event of a breach thereof
by such Covenanting Party.

            Section 3.6. Each Owner agrees that in the event of an enlargement
of the Zoning Lot by an Owner, prior to recording any Declaration of Zoning Lot
Restrictions, this Agreement shall be amended to reflect the enlargement of the
Zoning Lot and the owner of the parcel being merged into the Zoning Lot shall
execute the amended Agreement and subject its property to the terms hereof.

              ARTICLE IV. CONVEYANCE OF PORTIONS OF THE ZONING LOT

            Section 4.1. Notwithstanding anything to the contrary contained in
this Agreement, either Party (for purposes of this Section 4.1, a "Conveying
Party") may from time to time convey unimproved portions of its Lot without the
consent of the other Party (the "Non-Conveying Party"); provided, however, that
such conveyance(s) shall not create a non-conforming use or non-compliance for
any zoning lot containing the Non-Conveying Party's Lot or any building thereon,
or result in an increase in any existing non-compliance or non-

                                      -14-
<PAGE>   101

conformity on any such zoning lot, or in any way reduce the floor area allowable
or restrict the uses permissible in any building thereon. The Non-Conveying
Party hereby agrees to execute and deliver, and to use best efforts to cause the
same to be done by all other parties in interest in respect of its Lot, any
documents that the Conveying Party may reasonably deem necessary in connection
with the conveyance of any unimproved portion of its Lot, provided all documents
shall be in form and content reasonably satisfactory to the Non-Conveying Party.
Upon said conveyance, the remaining portion of the Conveying Party's Lot and the
conveyed portion of said Lot shall be treated as separate zoning lots for
purposes of determining the development rights on their Lots under this
Agreement.

                     ARTICLE V. VIOLATIONS/REAL ESTATE TAXES

            Section 5.1. Each Party covenants and agrees to cure and remove of
record with diligence any and all violations, the circumstances or conditions of
which arise after the date of this Agreement, of the Zoning Resolution, any
building code, fire code, or other law, ordinance, regulation or requirement of
record or issued by any municipal, state or federal agency, hereafter in force
and effect with respect to its Premises ("Violations") which may in any manner
adversely affect the other Party's Premises or any actions which the other Party
may wish to undertake with respect thereto pursuant to and consistent with this
Agreement. If each such Party (for purposes of this Section 5.1, a "Violating
Party") has not, within thirty (30) days after it receives notice of each
Violation, cured such Violation, or if not susceptible of being cured within
such thirty (30) day period, if such Violating Party has not commenced
diligently to prosecute a cure of such Violation until completion, or, in the
case of an emergency immediately

                                      -15-
<PAGE>   102

by verbal notice followed by written notice, the other Party shall have the
right, at the Violating Party's expense, to cure said Violation ("Self Help
Rights") and such Violating Party hereby grants to the other Party the right of
access to such Violating Party's Premises for such purpose. Each such Violating
Party shall pay to the other Party on demand sums equal to all costs incurred by
each such Party as a result of the failure by such Violating Party to cure its
Violations, including all fines, penalties and expenses and reasonable
attorneys' fees and disbursements.

            Section 5.2. The Parties acknowledge that their separate interests
require that tax assessments concerning their respective Premises be separate
and independent and that each Party shall be responsible for the payment of the
real estate taxes owing on its respective Premises. Each Party agrees, that in
the event the Department of Finance of the City of New York (the "Department of
Finance") has not issued permanent tax lot numbers for the Lots as of the
Closing Date effectuating such separate and independent treatment, it shall
promptly perform such acts and execute and deliver such documents as may
reasonably be required in support of separate tax lot treatment. In the
intervening period following the Closing Date but prior to the issuance of a tax
bill reflecting the issuance of permanent tax lot numbers, the Parties shall use
best efforts to obtain an apportionment by the Department of Finance of real
property tax assessments and real property tax liens among the Premises and
shall pay their respective proportionate shares of the real estate taxes prior
to the date upon which such taxes would become delinquent. If the Parties are
unable to obtain such an apportionment from the Department of Finance, they
shall apportion the real estate taxes attributable to the Buildings. structures
and equipment on their respective Lots based on the most recent tax bill or, if
such breakdown by structures and equipment is not available, based on the
original book cost as of the

                                      -16-
<PAGE>   103

last calendar year end preceding the taxable status date. The taxes attributable
to land would be allocated among the Parties based on the relative land area of
their Lots. Upon the issuance of permanent tax lot numbers for each such Lot and
for so long as the properties remain as separate and independent tax lots, each
such Party shall be free to institute tax certiorari proceedings with respect to
its Premises. At any time prior to the issuance by the Department of Finance of
separate, final tax lot numbers as aforesaid, the Parties shall cooperate with
each other in deciding whether to carry out and in instituting such certiorari
proceedings.

                           ARTICLE VI. BINDING EFFECT

            Section 6.1. Covenants Running with the Land. The benefits and
burdens, rights and obligations created by this Agreement shall be appurtenant
to and run with and burden and be binding upon the Lots, and shall inure to the
benefit of and be binding upon the Parties and those claiming by, through, or
under them until this Agreement shall terminate. The covenants, agreements,
terms, provisions and conditions of this Agreement shall bind and benefit the
successors in interest (as owners of the Lots, whether by sale, foreclosure or
otherwise) of the Parties, any party who joins in a Declaration of Zoning Lot
Restrictions for the purpose of enlarging or diminishing the Zoning Lot in
accordance with Article III hereof, and any such party's successors and assigns,
as the case may be, with the same effect as if mentioned in each instance when a
Party is named or referred to, it being understood and agreed that upon any
transfer of ownership (whether by sale, foreclosure or otherwise) of all or any
part of the Lots, each such successor in interest shall, without the requirement
of any further documentation, thereupon and thereafter assume, and perform and
observe, any and all of the obligations of its

                                      -17-
<PAGE>   104

predecessors in interest under this Agreement with respect to such Lot (or
portion thereof). Notwithstanding the foregoing, each Party shall use reasonable
efforts to cause any such successor in interest to execute an agreement in
recordable form pursuant to which such successor in interest shall assume any
and all obligations of its predecessors in interest under this Agreement;
provided, however, that the failure to obtain any such agreement shall not
detract from the provisions of the previous sentence.

            Section 6.2. Assignment. Neither this Agreement nor any of the
rights, interests and obligations hereunder shall be assigned by any Party,
except (1) to a party acquiring all or any portion of a Lot and this Agreement
or (2) to a lending institution or trustee in connection with a pledge or
granting of a security interest in all or any part of a lot and this Agreement,
without the prior written consent of the other Party; and provided further, that
no assignment or transfer of rights or obligations by a Party shall release it
from the full liabilities and full financial responsibility, as provided for
under this Agreement, unless and until (x) the transferee or assignee shall
agree in writing to assume such obligations and duties, (y) the other Party has
consented in writing to such release, and (z) a counterpart of that assumption
agreement has been duly recorded in the Office of the City Register for the
County in which the Lots are located. To the extent that rights hereunder are
assigned to the holder of any mortgage encumbering any of the Premises, or any
interest therein, they shall be enforceable by any such assignee after default
under any such mortgage.

            Section 6.3. Zoning Lot Subdivision. Upon final approval by the
applicable Permitting Agency of the zoning lot subdivision separating Lot 4 or
any other Lots from the

                                      -18-
<PAGE>   105

Zoning Lot, Lot 4 and any such other Lots shall no longer be subject to this
Agreement. If the applicable Permitting Agency shall finally approve a zoning
lot subdivision separating all the Lots from one another, this Agreement shall
thereupon terminate. Notwithstanding the above, each Party's rights and
obligations arising prior to said termination shall survive the termination of
this Agreement.

                           ARTICLE VII. MISCELLANEOUS

            Section 7.1. Force Majeure.

      (A) Notwithstanding anything in this Agreement to the contrary, no Party
shall have any liability or be otherwise responsible to the other for its
failure to carry out its obligations, with the exception of any obligation to
pay money, under this Agreement if and only to the extent that it becomes
impossible for either Party to so perform as a result of any occurrence or event
which is beyond the reasonable control, and does not result from any fault or
negligence, of the Party affected (each a "Force Majeure Event"), including any
act of God, strike or other labor disturbance, act of a public enemy, war, act
of terrorism, riot, any other civil disturbance, fire, storm, lightning, flood,
earthquake, any other natural disasters, explosion, materials shortage. breakage
or accident to machinery or equipment, any order or regulation or restriction
imposed by any court, administrative or regulatory agency or commission or other
governmental entity or instrumentality, domestic, foreign or supranational or
any department thereof (each a "Governmental Authority"), failure of a
contractor or subcontractor cause by a Force Majeure Event and transportation
delays and stoppages.

                                      -19-
<PAGE>   106

      (B) If a Party shall rely on the occurrence of a Force Majeure Event as a
basis for being excused from performance of its obligations under this
Agreement, then the Party relying on such occurrence shall (i) provide prompt
written notice of such Force Majeure Event to the other Party(ies) giving an
estimate of its expected duration and the probable impact on the performance of
its obligations hereunder, (ii) exercise its reasonable best efforts to continue
to perform its obligations under this Agreement, (iii) expeditiously take action
to correct or cure the Force Majeure Event (provided that settlement of strikes
or any other labor dispute will be completely within the sole discretion of the
Party affected by such strike or labor dispute), (iv) exercise its reasonable
best efforts to mitigate or limit damages to the other Party and (v) provide
prompt notice to the other Party(ies) of the cessation of the Force Majeure
Event.

            Section 7.2. Default and Remedies. In the event that a Party
defaults, breaches or otherwise fails to perform any obligation of such Party
under this Agreement, the other Party shall have the right to all remedies
available at law or in equity, including the right to injunctive relief and the
right to exercise its Self-Help Rights (and shall be entitled to correlative
reimbursement in connection therewith) without any requirement to pursue or
exhaust any other remedies available to such Party under any other agreement.
All such remedies shall be cumulative and not exclusive. A Party shall have the
right, following notice to the other Party, to take such action as it may deem
necessary or advisable, including payment of any delinquent taxes, to prevent a
foreclosure for nonpayment of taxes or other action by a Governmental Authority
that might affect its rights and interests hereunder and any such action shall
be deemed an exercise of Self-Help Rights (and, accordingly, give rise to
correlative reimbursement rights). The right to reimbursement shall not include
the right to recover punitive or consequential

                                      -20-
<PAGE>   107

damages. In the event a Party is entitled to reimbursement hereunder and same is
not satisfied within thirty (30) days after written demand by the Party entitled
to same, the unpaid obligations shall constitute a lien against the defaulting
Party's Lot; provided, however, that the payment of any monetary obligations
which become due and payable by a Party after recordation of a mortgage on such
Party's Lot granted to an independent third party regularly engaged in the
business of making mortgage loans shall be subordinate to the payment of the
obligations secured by such mortgage.

            Section 7.3. Recording. Grantee shall record this Agreement
immediately after the execution of this Agreement and the acquisition of its
Lots and shall bear the costs of recording.

            Section 7.4. Notices. All notices, demands, requests and other
communications required hereunder shall be in writing and shall be deemed to
have been given (as of the time of delivery or, in the case of a telecopied
communication, of confirmation) if delivered personally, telecopied (which is
confirmed) or sent by overnight courier (providing proof of delivery) to the
Parties at the following addresses (or at such other addresses for a Party as
shall be specified by like notice):

            To Grantee:

            with a copy to:

                                      -21-
<PAGE>   108

            To Grantor:

            Consolidated Edison Company of New York, Inc.
            4 Irving Place
            New York, New York 10003
            Attn: Director of Real Estate

            with a copy to:

            Consolidated Edison Company of New York, Inc.
            4 Irving Place
            New York, New York 10003
            Attn: Senior Vice President and General Counsel

or at such other address in the United States of America as may be designated by
any of the Parties in a written notice given in accordance with the provisions
of this Section 7.4. The attorney for any Party may send notices on that Party's
behalf.

            Section 7.5. Estoppel Certificate. Each Party agrees, within ten
(10) day's after written request by the other, to execute, acknowledge and
deliver to and in favor of any present or proposed lender, Mortgagee, ground
lessor, purchaser, tenant or the like of all or any part of the other Party's
Lot, an estoppel certificate, in a form reasonably satisfactory to such lender,
Mortgagee, ground lessor, purchaser, tenant or the like, stating, among other
things: (i) whether this Agreement is in full force and effect; (ii) whether
this Agreement has been modified or amended and, if so, identifying and
describing any such modification or amendment; (iii) whether there are any sums
then due and owing under this Agreement from either Party to the other, and if
so, specifying the amount thereof and reason therefor; and (iv) whether the
Party giving such certificate knows of any default (or event which, with the
passage of time, the giving of notice, or both, would constitute a default) on
the part of the other Party, or has any

                                      -22-
<PAGE>   109

outstanding claim against the other Party arising under this Agreement and, if
so, specifying the nature of such default or claim.

            Section 7.6. Waivers by Subsequent Parties-in-Interest. If an
interest attaches to either Party's Premises subsequent to the date hereof which
would otherwise confer upon the holder of such interest the status of a
Party-in-Interest, any modification, amendment or termination of this Agreement
that is entered into for the purpose of enlarging or subdividing the Zoning Lot
or for the purpose of modifying or terminating the provisions of this Agreement
as they affect the Zoning Lot, as it may be enlarged or diminished, may be
executed without the joinder, waiver, consent or other act of the holder of such
interest. Notwithstanding the foregoing, the affected Party shall obtain from
such holder a waiver of execution of any subsequent amendments to this Agreement
and to subordinate its interest to such Agreement, as it may be amended.

            Section 7.7. Mortgagees' Status. Except as set forth in Section 7.2
hereof, the Parties intend that this Agreement be superior to any mortgages or
other instruments evidencing security for indebtedness granted by either Party
from time to time with respect to its Lot. Accordingly, each Party agrees to
obtain and deliver to the other Party such documents and instruments, in
recordable form, as may be reasonably necessary or requested by the other Party
to evidence and confirm the subordination of any such mortgages or other
security instruments to the provisions of this Agreement.

            Section 7.8. Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same original, and the

                                      -23-
<PAGE>   110

execution of separate counterparts by either Party shall bind the Parties as if
they had each executed the same counterpart.

            Section 7.9. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York (regardless of
the laws that might otherwise govern under applicable principles of conflicts of
law).

            Section 7.10. Extension; Waiver. Any Party may extend the time for
performance of any of the obligations or other acts of the other Party or waive
compliance by the other Party with any of the agreements or conditions contained
in this Agreement. Any agreement on the part of a Party to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such Party. The failure of a Party to this Agreement to assert any of
its rights under this Agreement or otherwise shall not constitute a waiver of
such rights.

            Section 7.11. No Third Party Beneficiaries. Nothing in this
Agreement is intended to confer upon any other person except the Parties any
rights or remedies hereunder or shall create any third party beneficiary rights
in any person.

            Section 7.12. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
Parties shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the Parties as closely as possible to the fullest extent
permitted by applicable

                                      -24-
<PAGE>   111

law in an acceptable manner to the end that the transactions contemplated hereby
are fulfilled to the extent possible.

            Section 7.13. Amendment and Modification. This Agreement may be
amended, modified or supplemented only by an instrument in writing signed on
behalf of the owners from time to time of each Lot.

            Section 7.14. Jurisdiction and Enforcement.

      (A) Each of the Parties irrevocably submits to the exclusive jurisdiction
of (i) the Supreme Court of the State of New York, New York County and (ii) the
United States District Court for the Southern District of New York, for the
purposes of any suit, action or other proceeding arising out of this Agreement
or any transaction contemplated hereby. Each of the Parties agrees to commence
any action, suit or proceeding relating hereto either in the United States
District Court for the Southern District of New York or, if such suit, action or
proceeding may not be brought in such court for jurisdictional reasons, in the
Supreme Court of the State of New York, New York County. Each of the Parties
further agrees that service of process, summons, notice or document by hand
delivery or U.S. registered mail at the address specified for such Party in
Section 7.4 (or such other address specified by such Party from time to time
pursuant to Section 7.4) shall be effective service of process for any action,
suit or proceeding brought against such Party in any such court. Each of the
Parties irrevocably and unconditionally waives any objection to the laying of
venue of any action, suit or proceeding arising out of this Agreement or the
transactions contemplated hereby in (i) the Supreme Court of the State of New
York, New York County or (ii) the United States District Court for the Southern
District of New York, and hereby further irrevocably and unconditionally waives
and agrees not to plead or claim

                                      -25-
<PAGE>   112

in any such court that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient forum.

      (B) The Parties agree that irreparable damage would occur in the event
that any of the provisions of this Agreement were not performed in accordance
with their specific terms or otherwise breached. It is accordingly agreed that
the Parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
of this Agreement, this being in addition to any other remedy to which they are
entitled at law or in equity.

            Section 7.15. Interpretation. When a reference is made in this
Agreement to an Article, Section, Schedule or Exhibit, such reference shall be
to an Article or Section of, or Schedule or Exhibit to, this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include",
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation". The words "hereof", "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement. All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant hereto
unless otherwise defined therein. The definitions contained in this Agreement
are applicable to the singular as well as the plural forms of such terms and to
the masculine as well as to the feminine and neuter genders of such term. Any
agreement, instrument, statute, regulation, rule or order defined or referred to
herein or in any agreement or instrument that is referred to herein

                                      -26-
<PAGE>   113

means such agreement, instrument, statute, regulation, rule or order as from
time to time amended, modified or supplemented, including (in the case of
agreements or instruments) by waiver or consent and (in the case of statutes,
regulations, rules or orders) by succession of comparable successor statutes,
regulations, rules or orders and references to all attachments thereto and
instruments incorporated therein. References to a person are also to its
permitted successors and assigns.

            Section 7.16. Avoidance of Duplication. In the event that a Party
owns more than one Lot, when the Agreement requires that certain actions be
taken or not taken with respect to each Lot, the Party with more than one Lot
shall comply with respect to all of its Lots, each taken individually; provided,
however, that a Party with more than one Lot shall not be required

                                      -27-
<PAGE>   114

to notify itself of actions, submit plans for its own review, make payments to
itself, or take such

            IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement.

                                        CONSOLIDATED EDISON COMPANY
                                        OF NEW YORK, INC.

                                        By:_______________________
                                         Name:
                                         Title:

                                        Grantee

                                        By:_____________________
                                         Name:
                                         Title:

                                      -28-
<PAGE>   115

STATE OF NEW YORK    )
                     ) SS:
COUNTY OF NEW YORK   )

            On this __ day of_______ 199_, before me personally appeared
_____________, personally known to me or proved to me on the basis of
satisfactory evidence to be the individual whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in his
capacity, and that his signature on the instrument, the individual, or the
corporation upon behalf of which the individual acted, executed the instrument.

                                            ____________________________
                                                  NOTARY PUBLIC

STATE OF NEW YORK    )
                     ) SS:
COUNTY OF NEW YORK   )

On this __ day of ________ 199_, before me personally appeared _______________,
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his capacity, and that his
signature on the instrument, the individual, or the corporation upon behalf of
which the individual acted, executed the instrument.

                                            ____________________________
                                                  NOTARY PUBLIC

                                      -29-
<PAGE>   116

                                                                     EXHIBIT A-2

                               ASTORIA ZONING LOT

                              DEVELOPMENT AGREEMENT

                                 By and Between

                           CONSOLIDATED EDISON COMPANY
                                OF NEW YORK, INC.

                                       and

                        ASTORIA GENERATING COMPANY, L.P.

 The land affected by the within instrument lies in Block 850, Lots 1, 50, 200,
          300 on the Tax Map of the City of New York, County of Queens

                                    Address:

                              Record and Return to:

                               Robert Selya, Esq.
                  Consolidated Edison Company of New York, Inc.
                                 4 Irving Place
                            New York, New York 10003
<PAGE>   117

                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----

ARTICLE I. EXISTING DEVELOPMENT RIGHTS ...................................   -3-

ARTICLE II. REQUIREMENTS FOR DEVELOPMENT ON THE ZONING LOT ...............   -5-

ARTICLE III. ENLARGING OR DIMINISHING THE ZONING LOT .....................  -10-

ARTICLE IV. CONVEYANCE OF PORTIONS OF THE ZONING LOT .....................  -14-

ARTICLE V. VIOLATIONS/REAL ESTATE TAXES ..................................  -15-

ARTICLE VI. BINDING EFFECT ...............................................  -17-

ARTICLE VII. MISCELLANEOUS ...............................................  -19-

SCHEDULE I ...............................................................  -30-

SCHEDULE II ..............................................................  -31-

SCHEDULE III .............................................................  -32-

SCHEDULE IV ..............................................................  -33-
<PAGE>   118

                    ASTORIA ZONING LOT DEVELOPMENT AGREEMENT
                          [Astoria Bundle Closes First]

            AGREEMENT dated as of ____________________, 1999, by and between
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC., a New York corporation
("Grantor"), and ASTORIA GENERATING COMPANY, L.P., a Delaware limited
partnership ("Grantee") ("Grantor" and "Grantee" collectively referred to as the
"Parties").

                                   WITNESSETH:

            WHEREAS, Grantee (also the "Lot 1 Owner") is acquiring title in fee
to the real property ("Lot 1") together with any buildings and improvements
located thereon ("Lot 1 Buildings") in the City of New York, located in the
Borough of Queens, County of Queens, designated as Block 850, Lot 50 in the Tax
Map of the City of New York and known as the Astoria Generating Station, and
more particularly described in Schedule I annexed hereto and made a part hereof
(Lot 1 and the Lot 1 Buildings being hereinafter collectively referred to as the
"Lot I Premises"); and

            WHEREAS, Grantee (also the "Lot 2 Owner") is also acquiring title in
fee to the real property ("Lot 2") together with any buildings and improvements
located thereon ("Lot 2 Buildings") in the City of New York, located in the
Borough of Queens, County of Queens, designated as Block 850, Lot 300 in the Tax
Map of the City of New York and known as the Astoria Tank Farm, and more
particularly described in Schedule II annexed hereto and made a part hereof (Lot
2 and the Lot 2 Buildings being hereinafter collectively referred to as the "Lot
2 Premises"); and
<PAGE>   119

            WHEREAS, Grantor (also the "Lot 3 Owner") owns certain real property
("Lot 3") together with the buildings and improvements located thereon ("Lot 3
Buildings") in the City of New York, located in the Borough of Queens, County of
Queens, designated as Block 850, Lot 200 in the Tax Map of the City of New York
and known as the Astoria Gas Turbines, and more particularly described in
Schedule III annexed hereto and made a part hereof (Lot 3 and the Lot 3
Buildings being hereinafter collectively referred to as the "Lot 3 Premises"),
which it intends to sell; and

            WHEREAS, Grantor (also the "Lot 4 Owner") owns certain real property
("Lot 4") together with the buildings and improvements located thereon ("Lot 4
Buildings") in the City of New York, located in the Borough of Queens, County of
Queens, designated as Block 850, Lot 1 in the Tax Map of the City of New York,
and more particularly described in Schedule IV annexed hereto and made a part
hereof (Lot 4 and the Lot 4 Buildings being hereinafter collectively referred to
as the "Lot 4 Premises") which it will retain after selling Lots 1, 2 and 3 (Lot
1 Owner, Lot 2 Owner, Lot 3 Owner and Lot 4 Owner collectively referred to as
the "Owners" or the "Parties", individually as an "Owner"; Lot 1 Buildings, Lot
2 Buildings, Lot 3 Buildings and Lot 4 Buildings collectively referred to as the
"Buildings"; and Lot 1 Premises, Lot 2 Premises, Lot 3 Premises and Lot 4
Premises collectively referred to as the "Premises"); and

            WHEREAS, Lot 1, Lot 2, Lot 3 and Lot 4 (collectively, the "Lots,"
each a "Lot") are located on the same zoning lot (the "Zoning Lot") as that term
is defined in Section 12-10 of the Zoning Resolution of the City of New York,
effective December 15, 1961, as amended from time to time (the "Zoning
Resolution"); and

                                      -2-
<PAGE>   120

            WHEREAS, the Power Authority of the State of New York owns certain
real property in the City of New York, located in the Borough of Queens, County
of Queens, designated as Block 850, Lot 100 in the Tax Map of the City of New
York, which is or may be located on the Zoning Lot; and

            WHEREAS, the Parties wish to define their continuing obligations and
responsibilities with respect to their respective Premises located on the Zoning
Lot.

            NOW THEREFORE, in consideration of the foregoing, the Parties hereby
agree as follows:

                     ARTICLE I. EXISTING DEVELOPMENT RIGHTS

            Section 1.1. Owners' Development Rights.

      (A) Each Owner covenants to the other Owners, their successors and assigns
for the benefit of and as an appurtenance to their respective Lots that from and
after the date hereof, no building, structure, equipment or other improvement on
its Lot, or combination of improvements, including any addition to or extension
of its Buildings, shall be erected or installed or allowed or suffered to exist
on its Lot, and no repair, alteration, reconstruction or rebuilding of its
Buildings (following a casualty or otherwise) shall be made or allowed or
suffered to be made:

            (i) having a total Floor Area, as defined in the Zoning Resolution,
in excess of the greater of (x) the amount of Floor Area that would be available
to its Lot under the Zoning Resolution if its Lot were considered to be a
separate zoning lot and (y) the amount of Floor Area existing on the Owner's Lot
on the date of this Agreement (the "Owner Lot Maximum Floor Area"), or

                                      -3-
<PAGE>   121

            (ii) resulting in the creation on its Lot of (x) a new use that does
not conform to the use regulations in the Zoning Resolution, (y) a failure of
any building or structure on its Lot to comply with any provision of the Zoning
Resolution, including without limitation coverage, yard and bulk requirements,
or (z) an increase in the degree to which any such structure or building fails
to comply with the Zoning Resolution, in each case treating its Lot as if it
were a separate zoning lot.

      (B) Subject to applicable laws, rules and regulations, each Owner shall
have the absolute right to construct replacement buildings on its Lot not
violative of the restrictions set forth in subsection (A) of this Section 1.1;
provided however, that if as a result of any amendment or change in the Zoning
Resolution, the Zoning Lot shall become entitled to fewer development rights in
the future, then each Owner shall have the right to construct replacement
buildings or other improvements on its Lot with a Floor Area equal to the lesser
of (i) the amount of Floor Area that would be available to its Lot under the
Zoning Resolution, as amended, if its Lot were considered to be a separate
zoning lot, (ii) the amount of permissible Floor Area remaining on its Lot,
taking into account the existing Floor Area on the other Lots, and (iii) its
proportionate share of the permissible Floor Area available on all the Lots
combined based on the proportion that its Lot area bears to the aggregate area
of all the Lots; and, provided further, that if as a result of any amendment or
change in the Zoning Resolution, the Zoning Lot shall become entitled to
additional development rights in the future, then each Owner shall have the
right to enlarge the existing improvements or construct new improvements on its
Lot to the extent that would be permitted by the Zoning Resolution, treating all
the Lots as if they were separate zoning lots, and

                                      -4-
<PAGE>   122

subject to all applicable provisions of the Zoning Resolution, provided such
enlargement or new construction shall not reduce the Floor Area available for
use on the other Owners' Lots.

           ARTICLE II. REQUIREMENTS FOR DEVELOPMENT ON THE ZONING LOT

            Section 2.1. The Owners hereby agree that construction plans and
specifications for, and applications to, the New York City Department of
Buildings or the New York City Department of Business Services, or such other
governmental agency with jurisdiction over the permitting process for
demolition, alteration and construction of buildings or structures (each a
"Permitting Agency"), for or in connection with any building or structure on
their respective Lots, shall be separate and independent from one another and
shall be filed with the applicable Permitting Agency so as to obtain separate
"new building" and/or "alteration" treatment and numbers and separate
certificates of occupancy, as applicable, each to the extent allowed by law.

            Section 2.2. No Owner shall make any application, or any amendment,
modification, supplement or withdrawal relating thereto (collectively the
"Applications", individually an "Application") to any Permitting Agency for any
construction of or alteration, reconstruction or other similar work in any
building or other structure on its Lot, respectively, which could in any way,
except as set forth herein, restrict the rights of any other Owner with respect
to use of Floor Area on such Owner's Lot.

            Section 2.3. Floor Area Survey. The first Owner who shall file with
any Permitting Agency a permit for work that would result in increased Floor
Area on such Owner's Lot (for purposes of this Section 2.3, the "Commissioning
Party") shall commission a floor area survey of the Lots and, if possible, the
entire Zoning Lot (the "Floor Area Survey"), which may

                                      -5-
<PAGE>   123

also contain the lot owned by the Power Authority of the State of New York. Such
survey shall be performed by an appropriately licensed professional satisfactory
to all the Owners and the cost of such survey shall be borne by the
Commissioning Party. The Commissioning Party shall submit the Floor Area Survey
to the other Owners for their review and approval, which review shall be
completed within thirty (30) days of each such Owner's receipt of such Survey
and which approval shall not be unreasonably withheld. Any disagreements
regarding the Survey shall be resolved in the best professional judgement of the
licensed professional performing the work. If the Commissioning Party does not
receive comments during such thirty (30) day period, the Floor Area Survey shall
be deemed approved.

            Section 2.4. Cooperation.

      (A) The Owners shall cooperate with one another in all reasonable respects
in connection with Applications, if any, required to be made by any Owner to any
Permitting Agency for permits or approvals for alteration, reconstruction or
replacement of that Owner's Buildings or for new structures on that Owner's Lot,
and shall execute any such properly prepared Application at the request of that
Owner (for purposes of this Section 2.4. the "Requesting Party"), provided that
any building or other structure to be erected on that Owner's Lot shall be built
in accordance with applicable law and shall conform to the requirements set
forth in Section 1.1(A) herein. No less than thirty (30) days prior to the
Requesting Party's intended submission of an executed Application to a
Permitting Agency, however, it shall submit to the other Owners (i) a
certification prepared by the architect of record demonstrating that the
Application being filed is consistent with the requirements set forth in Section
1.1.(A) herein, (ii) a copy of any completed Application, in a form suitable for
submission to such Permitting Agency, and (iii) a copy of any

                                      -6-
<PAGE>   124

plans and specifications relating to the work described in the application, in a
form suitable for submission to such Permitting Agency. The Requesting Party
shall be responsible for the professional fees incurred by the other Party in
reviewing the Application and related materials.

      (B) Such cooperation shall include granting access to the professional
performing the Floor Area Survey, in accordance with Section 2.3. herein, but
shall not include any action which would create any rights of access to the
other Owners' Lots or Buildings or grant to the Requesting Party any rights
relating to such Lots or Buildings which are not expressly stated herein or in
any other agreement between the Owners or binding upon the Zoning Lot. All
Applications shall be made in accordance with all applicable laws. The right of
any Owner to alter, reconstruct or replace its Buildings shall in such cases be
subject to the restrictions and/or benefits of the Zoning Resolution and other
provisions of law as same may hereafter be amended or enacted and in effect at
the time that such Applications are made.

      (C) Each Owner covenants and agrees to file a copy of this Agreement
together with any Application for a permit submitted to any Permitting Agency,
and to deliver to the other Owners copies of any Applications for building and
other permits and any plans and specifications submitted to any Permitting
Agency, in each case except permits for interior work, maintenance and repair
that have no effect on Floor Area.

            Section 2.5. Performance of Work.

      (A) All work to be performed under this Agreement by an Owner (for
purposes of this section, the "Entering Party") affecting its Premises (i) shall
not impair the structural integrity of any Building situated on any other Lot;
(ii) shall not be undertaken until the Entering Party shall have procured and
paid for all required permits; (iii) except for routine maintenance activity,

                                      -7-
<PAGE>   125

shall not be undertaken until the Entering Party shall have submitted to the
other Owners all applicable documents, plans and specifications; (iv) shall be
performed in accordance with good industry practice and in compliance with all
applicable laws, ordinances, orders, codes, rules and regulations; (v) shall be
performed by the Entering Party's employees or by contractors fully insured,
licensed (to the extent required by applicable law) and competent to do the work
being undertaken; (vi) shall be performed in a manner that does not materially
adversely affect or substantially interfere with the use and enjoyment by any
Owner of its Premises, except (if at all) temporarily, and then only to the
extent necessary to do the work, and (vii) shall be diligently prosecuted to
completion. During any construction or reconstruction work, the construction
site shall be kept in an orderly, clean and safe condition.

      (B) The Entering Party shall pay when due all claims for labor performed
or material furnished and not permit any lien of mechanics or materialmen to
attach, and if any such liens do attach, the Entering Party shall not permit
such liens to unreasonably interfere with any other Owner's financing
arrangements or work. The Entering Party shall also be responsible for the
professional fees incurred any other Owner in reviewing the Entering Party's
plans and specifications.

      (C) The review of or comments on any documents, drawings, plans,
specifications or other documentation provided by the Entering Party shall not
relieve the Entering Party of, or affect in any way, its responsibility for the
correctness and adequacy of the work to be performed. The other Owners shall
have no liability whatsoever with respect to any review or non-review of any
documentation submitted to it by the Entering Party.

            Section 2.6. Performance of Work in Exercising Self-Help Rights.

                                      -8-
<PAGE>   126

      (A) All work to be performed under this Agreement by an Owner (for
purposes of this section, the "Curing Party") affecting any other Owner's
Premises in accordance with Article IV hereof, (i) shall not impair the
structural integrity or operation of any Building situated on any other Owner's
Lot; (ii) shall not be undertaken until the Curing Party shall have procured and
paid for all required permits; (iii) except for routine maintenance activity,
shall not be undertaken until the Curing Party shall have submitted to the other
Owners all applicable documents, plans and specifications; (iv) shall be
performed in accordance with good industry practice and in compliance with all
applicable laws, ordinances, orders, codes, rules and regulations; (v) shall be
performed by the Curing Party's employees or by contractors fully insured,
licensed (to the extent required by applicable law) and competent to do the work
being undertaken; (vi) shall be performed in a manner that does not materially
adversely affect or substantially interfere with the use and enjoyment by any
Owner of its Premises, except (if at all) temporarily, and then only to the
extent necessary to do the work, and (vii) shall be diligently prosecuted to
completion. During any construction or reconstruction work, the construction
site shall be kept in an orderly, clean and safe condition.

      (B) The Curing Party shall pay when due all claims for labor performed or
material furnished and not permit any lien of mechanics or materialmen to
attach, and if any such liens do attach, the Curing Party shall not permit such
liens to unreasonably interfere with any other Owner's financing arrangements or
work. The Curing Party shall not be responsible for the professional fees
incurred by the other Owners in reviewing the Curing Party's plans and
specifications.

                                      -9-
<PAGE>   127

      (C) The review of or comments on any documents, drawings, plans,
specifications or other documentation provided by the Curing Party shall not
relieve the Curing Party of, or affect (in any way, its responsibility for the
correctness and adequacy of the work to be performed. The other Owners shall
have no liability whatsoever with respect to any review or non-review of any
documentation submitted to them by the Curing Party.

      (D) Whenever the Curing Party shall intend to enter upon the Premises of
another Owner to perform any work in exercising its Self-Help Rights as defined
in Article IV hereof, the Curing Party shall give the affected Owner (i) at
least twenty-four (24) hours' prior written notice or (ii) immediate verbal
notification followed by written notice in the case of any emergency.

      (E) Notwithstanding the provisions of this Article II, any work to be
performed by a Curing Party affecting the easement and license areas governed by
the Astoria Declaration of Subdivision Easements and the Astoria Declaration of
Easements made by Grantor shall be governed by the requirements contained in
such agreements pertaining thereto.

              ARTICLE III. ENLARGING OR DIMINISHING THE ZONING LOT

            Section 3.1. If requested by an Owner (for purposes of this Section
3.1, the "Requesting Party"), each other Owner shall execute, acknowledge and
deliver a Declaration of Zoning Lot Restrictions, any such other necessary
documents, and amendments to this Agreement for the purpose of enlarging the
Zoning Lot so as to include one or more additional parcels; provided that (i)
the execution of the Declaration of Zoning Lot Restrictions, any such other
documents, and any such amendment to this Agreement does not increase the
responsibilities or liabilities or reduce the rights of any other Owner, (ii)
any action requested of

                                      -10-
<PAGE>   128

any Owner by the Requesting Party pursuant to this Section 3.1 shall be without
cost or recourse to any such Owner, and (iii) such Declaration of Zoning Lot
Restrictions, any such other documents, and any such amendment to this Agreement
shall not grant to the Requesting Party any rights relating to an Owner's
Premises which are not expressly stated herein. The Requesting Party shall
promptly pay, or reimburse any Owner for, any cost or expenses incurred by such
Owner arising under this Section 3.1.

            Section 3.2. In the event that the Lot 4 Owner shall seek to
effectuate a zoning lot subdivision which would remove Lot 4, or any other
parcel of land which is part of the Zoning Lot, from the Zoning Lot, whether or
not in conjunction with any other Lot being subdivided from the Zoning Lot
simultaneously therewith, each Owner shall use its best efforts to assist the
Lot 4 Owner in accomplishing said subdivision in the most expeditious manner
possible. Such cooperation shall include completing such Applications, executing
such documents and performing such work as may be necessary to meet the
requirements of the Permitting Agency or Agencies overseeing the zoning lot
subdivision process.

            Each Owner shall bear a portion of the aggregate costs related to
the zoning lot subdivision process, including without limitation (x) utility
separation work and associated costs and (y) administrative expenses
(collectively, "Aggregate Zoning Lot Subdivision Costs"), in the proportion that
the area of each Owner's Lot bears to the combined area of the Lots.
Notwithstanding the foregoing, Aggregate Zoning Lot Subdivision Costs shall
exclude the costs of bringing each Owner's Buildings into compliance with the
standards necessary to effectuate a zoning lot subdivision ("Compliance Costs").
Each Owner's Compliance Costs shall be borne exclusively by such Owner.

                                      -11-
<PAGE>   129

            Upon final zoning lot subdivision approval by the Permitting
Agency(ies), the, Aggregate Zoning Lot Subdivision Costs shall be computed by
adding the costs incurred by each Owner ("Actual Subdivision Costs"). Each Owner
shall keep records of all its expenditures and make available to the other
Owners copies of all such records evidencing its Actual Subdivision Costs. If,
after computation of the Aggregate Zoning Lot Subdivision Costs, an Owner's
Actual Subdivision Costs exceeds its proportionate share of the Aggregate Zoning
Lot Subdivision Costs, then that Owner shall be reimbursed for any such excess
by the Owner(s) whose Actual Subdivision Costs are lower than their respective
share(s) of the Aggregate Zoning Lot Subdivision Costs, in order that each Owner
shall bear its proportionate share of the Aggregate Zoning Lot Subdivision
Costs.

            Section 3.3. Each Owner (for purposes of this Section 3.3, the
"Agreeing Party") agrees and consents that any other Owner or Owners may execute
any Declaration of Zoning Lot Restrictions, any such other necessary documents,
and any amendment of this Agreement that is entered into for the purpose of
enlarging the Zoning Lot as provided above in Section 3.1 above, without its
joinder, waiver, consent or other act of such Agreeing Party, provided that such
agreement, document or amendment (i) only increases the size of the Zoning Lot,
(ii) only affects the rights of parties other than such Agreeing Party in and to
said Zoning Lot and (iii) does not otherwise adversely affect the rights of such
Agreeing Party in and to said Zoning Lot. Notwithstanding that any such
Declaration of Zoning Lot Restrictions, other necessary documents, or amendment
to this Agreement may be executed without the joinder, waiver, consent or other
act of such Agreeing Party, each Agreeing Party agrees, upon demand of an Owner,
to execute, acknowledge and deliver any such agreement, other document or
amendment

                                      -12-
<PAGE>   130

or deliver any requested waiver or consent, and to use commercially reasonable
efforts to cause any parties-in-interest, as such term is defined in connection
with the definition of zoning lot in Section 12-10 of the Zoning Resolution of
the City of New York, effective December 15, 1961, as amended from time to time
("Parties-in-Interest"), on the enlarged Zoning Lot to waive each of their
rights to execute the Declaration of Zoning Lot Restrictions or any such other
documents.

            Section 3.4. Each Owner (for purposes of this Section 3.4, the
"Agreeing Party") agrees and consents that the Lot 4 Owner may execute any
Declaration of Zoning Lot Restrictions, any other such necessary documents, and
any amendment of this Agreement that is entered into for the purpose of
diminishing the Zoning Lot as provided above in Section 3.2 above, without its
joinder, waiver, consent or other act of such Agreeing Party, provided that such
agreement, document or amendment (i) only diminishes the size of the Zoning Lot,
(ii) only affects the rights of parties other than such Agreeing Party in and to
said Zoning Lot and (iii) does not otherwise adversely affect the rights of such
Agreeing Party in and to said Zoning Lot. Notwithstanding that any such
Declaration of Zoning Lot Restrictions, other necessary documents, or amendment
to this Agreement may be executed without the joinder, waiver, consent or other
act of such Agreeing Party, each Agreeing Party agrees, upon demand of the Lot 4
Owner, to execute, acknowledge and deliver any such agreement, other document or
amendment or deliver any requested waiver or consent, and to use commercially
reasonable efforts to cause any Parties-in-Interest on the diminished Zoning Lot
to waive each of their rights to execute the Declaration of Zoning Lot
Restrictions or any such other documents.

            Section 3.5. Each Owner acknowledges that the owners of other
properties which may hereafter be merged into the Zoning Lot by any other Owner
may have reserved or retained

                                      -13-
<PAGE>   131

certain development rights attributable to their properties, and each Owner (for
purposes of this Section 3.5, a "Covenanting Party") covenants and agrees not to
(i) utilize, or attempt to utilize, all or any portion of any such reserved or
retained floor area or zoning and development rights in any future development
or alteration of its Premises or (ii) make any application to any Permitting
Agency to incorporate all or any portion of any such reserved or retained floor
area or zoning and development rights into its Premises. The provisions of this
Section 3.5 shall inure to the benefit of each Owner and each owner of
properties hereafter merged into the Zoning Lot and shall be enforceable by each
of them directly against each Covenanting Party in the event of a breach thereof
by such Covenanting Party.

            Section 3.6. Each Owner agrees that in the event of an enlargement
of the Zoning Lot by an Owner, prior to recording any Declaration of Zoning Lot
Restrictions, this Agreement shall be amended to reflect the enlargement of the
Zoning Lot and the owner of the parcel being merged into the Zoning Lot shall
execute the amended Agreement and subject its property to the terms hereof.

                                   ARTICLE IV.

                    CONVEYANCE OF PORTIONS OF THE ZONING LOT

            Section 4.1. Notwithstanding anything to the contrary contained in
this Agreement, either Party (for purposes of this Section 4.1, a "Conveying
Party") may from time to time convey unimproved portions of its Lot without the
consent of the other Party (the "Non-Conveying Party"); provided, however, that
such conveyance(s) shall not create a non-conforming use or non-compliance for
any zoning lot containing the Non-Conveying Party's Lot or any building thereon,
or result in an increase in any existing non-compliance or non-

                                      -14-
<PAGE>   132

conformity on any such zoning lot, or in any way reduce the floor area allowable
or restrict the uses permissible in any building thereon. The Non-Conveying
Party hereby agrees to execute and deliver, and to use best efforts to cause the
same to be done by all other parties in interest in respect of its Lot, any
documents that the Conveying Party may reasonably deem necessary in connection
with the conveyance of any unimproved portion of its Lot, provided all documents
shall be in form and content reasonably satisfactory to the Non-Conveying Party.
Upon said conveyance, the remaining portion of the Conveying Party's Lot and the
conveyed portion of said Lot shall be treated as separate zoning lots for
purposes of determining the development rights on their Lots under this
Agreement.

                     ARTICLE V. VIOLATIONS/REAL ESTATE TAXES

            Section 5.1. Each Party covenants and agrees to cure and remove of
record with diligence any and all violations, the circumstances or conditions of
which arise after the date of this Agreement, of the Zoning Resolution, any
building code, fire code, or other law, ordinance, regulation or requirement of
record or issued by any municipal, state or federal agency, hereafter in force
and effect with respect to its Premises ("Violations") which may in any manner
adversely affect the other Party's Premises or any actions which the other Party
may wish to undertake with respect thereto pursuant to and consistent with this
Agreement. If each such Party (for purposes of this Section 5.1, a "Violating
Party") has not, within thirty (30) days after it receives notice of each
Violation, cured such Violation, or if not susceptible of being cured within
such thirty (30) day period, if such Violating Party has not commenced
diligently to

                                      -15-
<PAGE>   133

prosecute a cure of such Violation until completion, or, in the case of an
emergency immediately by verbal notice followed by written notice, the other
Party shall have the right, at the Violating Party's expense, to cure said
Violation ("Self Help Rights") and such Violating Party hereby grants to the
other Party the right of access to such Violating Party's Premises for such
purpose. Each such Violating Party shall pay to the other Party on demand sums
equal to all costs incurred by each such Party as a result of the failure by
such Violating Party to cure its Violations, including all fines, penalties and
expenses and reasonable attorneys' fees and disbursements.

            Section 5.2. The Parties acknowledge that their separate interests
require that tax assessments concerning their respective Premises be separate
and independent and that each Party shall be responsible for the payment of the
real estate taxes owing on its respective Premises. Each Party agrees, that in
the event the Department of Finance of the City of New York (the "Department of
Finance") has not issued permanent tax lot numbers for the Lots as of the
Closing Date effectuating such separate and independent treatment, it shall
promptly perform such acts and execute and deliver such documents as may
reasonably be required in support of separate tax lot treatment. In the
intervening period following the Closing Date but prior to the issuance of a tax
bill reflecting the issuance of permanent tax lot numbers, the Parties shall use
best efforts to obtain an apportionment by the Department of Finance of real
property tax assessments and real property tax liens among the Premises and
shall pay their respective proportionate shares of the real estate taxes prior
to the date upon which such taxes would become delinquent. If the Parties are
unable to obtain such an apportionment from the Department of Finance, they
shall apportion the real estate taxes attributable to the Buildings, structures
and equipment on their respective Lots based on the most recent tax bill or, if
such

                                      -16-
<PAGE>   134

breakdown by structures and equipment is not available, based on the original
book cost as of the last calendar year end preceding the taxable status date.
The taxes attributable to land would be allocated among the Parties based on the
relative land area of their Lots. Upon the issuance of permanent tax lot numbers
for each such Lot and so long as the properties remain as separate and
independent tax lots, each such Party shall be free to institute tax certiorari
proceedings with respect to its Premises. At any time prior to the issuance by
the Department of Finance of separate, final tax lot numbers as aforesaid, the
Parties shall cooperate with each other in deciding whether to carry out and in
instituting such certiorari proceedings.

                           ARTICLE VI. BINDING EFFECT

            Section 6.1. Covenants Running with the Land. The benefits and
burdens, rights and obligations created by this Agreement shall be appurtenant
to and run with and burden and be binding upon the Lots, and shall inure to the
benefit of and be binding upon the Parties and those claiming by, through, or
under them until this Agreement shall terminate. The covenants, agreements,
terms, provisions and conditions of this Agreement shall bind and benefit the
successors in interest (as owners of the Lots, whether by sale, foreclosure or
otherwise) of the Parties, any party who joins in a Declaration of Zoning Lot
Restrictions for the purpose of enlarging or diminishing the Zoning Lot in
accordance with Article III hereof, and any such party's successors and assigns,
as the case may be, with the same effect as if mentioned in each instance when a
Party is named or referred to, it being understood and agreed that upon any
transfer of ownership (whether by sale, foreclosure or otherwise) of all or any
part of the Lots, each such successor in interest shall, without the requirement
of any further documentation,

                                      -17-
<PAGE>   135

thereupon and thereafter assume, and perform and observe, any and all of the
obligations of its predecessors in interest under this Agreement with respect to
such Lot (or portion thereof). Notwithstanding the foregoing, each Party shall
use reasonable efforts to cause any such successor in interest to execute an
agreement in recordable form pursuant to which such successor in interest shall
assume any and all obligations of its predecessors in interest under this
Agreement; provided, however, that the failure to obtain any such agreement
shall not detract from the provisions of the previous sentence.

            Section 6.2. Assignment. Neither this Agreement nor any of the
rights, interests and obligations hereunder shall be assigned by any Party,
except (1) to a party acquiring all or any portion of a Lot and this Agreement
or (2) to a lending institution or trustee in connection with a pledge or
granting of a security interest in all or any part of a Lot and this Agreement,
without the prior written consent of the other Party; and provided further, that
no assignment or transfer of rights or obligations by a Party shall release it
from the full liabilities and full financial responsibility, as provided for
under this Agreement, unless and until (x) the transferee or assignee shall
agree in writing to assume such obligations and duties, (y) the other Party has
consented in writing to such release, and (z) a counterpart of that assumption
agreement has been duly recorded in the Office of the City Register for the
County in which the Lots are located. To the extent that rights hereunder are
assigned to the holder of any mortgage encumbering any of the Premises, or any
interest therein, they shall be enforceable by any such assignee after default
under any such mortgage.

                                      -18-
<PAGE>   136

            Section 6.3. Zoning Lot Subdivision. Upon final approval by the
applicable Permitting Agency of the zoning lot subdivision separating Lot 4 or
any other Lots from the Zoning Lot, Lot 4 and any such other Lots shall no
longer be subject to this Agreement. If the applicable Permitting Agency shall
finally approve a zoning lot subdivision separating all the Lots from one
another, this Agreement shall thereupon terminate. Notwithstanding the above,
each Party's rights and obligations arising prior to said termination shall
survive the termination of this Agreement.

                           ARTICLE VII. MISCELLANEOUS

            Section 7.1. Force Majeure.

      (A) Notwithstanding anything in this Agreement to the contrary, no Party
shall have any liability or be otherwise responsible to the other for its
failure to carry out its obligations, with the exception of any obligation to
pay money, under this Agreement if and only to the extent that it becomes
impossible for either Party to so perform as a result of any occurrence or event
which is beyond the reasonable control, and does not result from any fault or
negligence, of the Party affected (each a "Force Majeure Event"), including any
act of God, strike or other labor disturbance, act of a public enemy, war, act
of terrorism, riot, any other civil disturbance, fire, storm, lightning, flood,
earthquake, any other natural disasters, explosion, materials shortage, breakage
or accident to machinery or equipment, any order or regulation or restriction
imposed by any court, administrative or regulatory agency or commission or other
governmental entity or instrumentality, domestic, foreign or supranational or
any department thereof (each a

                                      -19-
<PAGE>   137

"Governmental Authority"), failure of a contractor or subcontractor cause by a
Force Majeure Event and transportation delays and stoppages.

      (B) If a Party shall rely on the occurrence of a Force Majeure Event as a
basis for being excused from performance of its obligations under this
Agreement, then the Party relying on such occurrence shall (i) provide prompt
written notice of such Force Majeure Event to the other Party(ies) giving an
estimate of its expected duration and the probable impact on the performance of
its obligations hereunder, (ii) exercise its reasonable best efforts to continue
to perform its obligations under this Agreement, (iii) expeditiously take action
to correct or cure the Force Majeure Event (provided that settlement of strikes
or any other labor dispute will be completely within the sole discretion of the
Party affected by such strike or labor dispute), (iv) exercise its reasonable
best efforts to mitigate or limit damages to the other Party and (v) provide
prompt notice to the other Party(ies) of the cessation of the Force Majeure
Event.

            Section 7.2. Default and Remedies. In the event that a Party
defaults, breaches or otherwise fails to perform any obligation of such Party
under this Agreement, the other Party shall have the right to all remedies
available at law or in equity, including the right to injunctive relief and the
right to exercise its Self-Help Rights (and shall be entitled to correlative
reimbursement in connection therewith) without any requirement to pursue or
exhaust any other remedies available to such Party under any other agreement.
All such remedies shall be cumulative and not exclusive. A Party shall have the
right, following notice to the other Party, to take such action as it may deem
necessary or advisable, including payment of any delinquent taxes, to prevent a
foreclosure for nonpayment of taxes or other action by a Governmental Authority
that might affect its rights and interests hereunder and any such action shall
be deemed

                                      -20-
<PAGE>   138

an exercise of Self-Help Rights (and, accordingly, give rise to correlative
reimbursement rights). The right to reimbursement shall not include the right to
recover punitive or consequential damages. In the event a Party is entitled to
reimbursement hereunder and same is not satisfied within thirty (30) days after
written demand by the Party entitled to same, the unpaid obligations shall
constitute a lien against the defaulting Party's Lot; provided, however, that
the payment of any monetary obligations which become due and payable by a Party
after recordation of a mortgage on such Party's Lot granted to an independent
third party regularly engaged in the business of making mortgage loans shall be
subordinate to the payment of the obligations secured by such mortgage.

            Section 7.3. Recording. Grantee shall record this Agreement
immediately after the execution of this Agreement and the acquisition of its
Lots and shall bear the costs of recording.

            Section 7.4. Notices. All notices, demands, requests and other
communications required hereunder shall be in writing and shall be deemed to
have been given (as of the time of delivery or, in the case of a telecopied
communication, of confirmation) if delivered personally, telecopied (which is
confirmed) or sent by overnight courier (providing proof of delivery) to the
Parties at the following addresses (or at such other addresses for a Party as
shall be specified by like notice):

                                      -21-
<PAGE>   139

            To Grantee:

            Astoria Generating Company, L.P.
            c/o Orion Power New York GP II, Inc.
            111 Market Place
            Suite 520
            Baltimore, MD 21202
            Telecopy No.: (410) 468-3699
            Attention: General Counsel

            with a copy to:

            Thelen Reid & Priest LLP
            Two Embarcadero Center
            Suite 2100
            San Francisco, CA 94111
            Telecopy No.: (415) 421-1068
            Attention: Thomas B. Glascock, Esq.

            To Grantor:

            Consolidated Edison Company of New York, Inc.
            4 Irving Place
            New York, New York 10003
            Attn: Director of Real Estate

            with a copy to:

            Consolidated Edison Company of New York, Inc.
            4 Irving Place
            New York, New York 10003
            Attn: Senior Vice President and General Counsel

or at such other address in the United States of America as may be designated by
any of the Parties in a written notice given in accordance with the provisions
of this Section 7.4. The attorney for any Party may send notices on that Party's
behalf.

            Section 7.5. Estoppel Certificate. Each Party agrees, within ten
(10) days after written request by the other, to execute, acknowledge and
deliver to and in favor of any present

                                      -22-
<PAGE>   140

or proposed lender, Mortgagee, ground lessor, purchaser, tenant or the like of
all or any part of the other Party's Lot, an estoppel certificate, in a form
reasonably satisfactory to such lender, Mortgagee, ground lessor, purchaser,
tenant or the like, stating, among other things: (i) whether this Agreement is
in full force and effect; (ii) whether this Agreement has been modified or
amended and, if so, identifying and describing any such modification or
amendment; (iii) whether there are any sums then due and owing under this
Agreement from either Party to the other, and if so, specifying the amount
thereof and reason therefor; and (iv) whether the Party giving such certificate
knows of any default (or event which, with the passage of time, the giving of
notice, or both, would constitute a default) on the part of the other Party, or
has any outstanding claim against the other Party arising under this Agreement
and, if so, specifying the nature of such default or claim.

            Section 7.6. Waivers by Subsequent Parties-in-Interest. If an
interest attaches to either Party's Premises subsequent to the date hereof which
would otherwise confer upon the holder of such interest the status of a
Party-in-Interest, any modification, amendment or termination of this Agreement
that is entered into for the purpose of enlarging or subdividing the Zoning Lot
or for the purpose of modifying or terminating the provisions of this Agreement
as they affect the Zoning Lot, as it may be enlarged or diminished, may be
executed without the joinder, waiver, consent or other act of the holder of such
interest. Notwithstanding the foregoing, the affected Party shall obtain from
such holder a waiver of execution of any subsequent amendments to this Agreement
and to subordinate its interest to such Agreement, as it may be amended.

                                      -23-
<PAGE>   141

            Section 7.7. Mortgagees' Status. Except as set forth in Section 7.2
hereof, the Parties intend that this Agreement be superior to any mortgages or
other instruments evidencing security for indebtedness granted by either Party
from time to time with respect to its Lot. Accordingly, each Party agrees to
obtain and deliver to the other Party such documents and instruments, in
recordable form, as may be reasonably necessary or requested by the other Party
to evidence and confirm the subordination of any such mortgages or other
security instruments to the provisions of this Agreement.

            Section 7.8. Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same original, and the execution of separate counterparts by either Party shall
bind the Parties as if they had each executed the same counterpart.

            Section 7.9. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York (regardless of
the laws that might otherwise govern under applicable principles of conflicts of
law).

            Section 7.10. Extension; Waiver. Any Party may extend the time for
performance of any of the obligations or other acts of the other Party or waive
compliance by the other Party with any of the agreements or conditions contained
in this Agreement. Any agreement on the part of a Party to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such Party. The failure of a Party to this Agreement to assert any of
its rights under this Agreement or otherwise shall not constitute a waiver of
such rights.

                                      -24-
<PAGE>   142

            Section 7.11. No Third Party Beneficiaries. Nothing in this
Agreement is intended to confer upon any other person except the Parties any
rights or remedies hereunder or shall create any third party beneficiary rights
in any person.

            Section 7.12. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
Parties shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the Parties as closely as possible to the fullest extent
permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.

            Section 7.13. Amendment and Modification. This Agreement may be
amended, modified or supplemented only by an instrument in writing signed on
behalf of the owners from time to time of each Lot.

            Section 7.14. Jurisdiction and Enforcement.

      (A) Each of the Parties irrevocably submits to the exclusive jurisdiction
of (i) the Supreme Court of the State of New York, New York County and (ii) the
United States District Court for the Southern District of New York, for the
purposes of any suit, action or other proceeding arising out of this Agreement
or any transaction contemplated hereby. Each of the Parties agrees to commence
any action, suit or proceeding relating hereto either in the United States
District Court for the Southern District of New York or, if such suit, action or
proceeding may not be brought in such court for jurisdictional reasons, in the
Supreme Court of the State of

                                      -25-
<PAGE>   143

New York, New York County. Each of the Parties further agrees that service of
process, summons, notice or document by hand delivery or U.S. registered mail at
the address specified for such Party in Section 7.4 (or such other address
specified by such Party from time to time pursuant to Section 7.4) shall be
effective service of process for any action, suit or proceeding brought against
such Party in any such court. Each of the Parties irrevocably and
unconditionally waives any objection to the laying of venue of any action, suit
or proceeding arising out of this Agreement or the transactions contemplated
hereby in (i) the Supreme Court of the State of New York, New York County or
(ii) the United States District Court for the Southern District of New York, and
hereby further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such action, suit or proceeding brought in any
such court has been brought in an inconvenient forum.

      (B) The Parties agree that irreparable damage would occur in the event
that any of the provisions of this Agreement were not performed in accordance
with their specific terms or otherwise breached. It is accordingly agreed that
the Parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
of this Agreement, this being in addition to any other remedy to which they are
entitled at law or in equity.

            Section 7.15. Interpretation. When a reference is made in this
Agreement to an Article, Section, Schedule or Exhibit, such reference shall be
to an Article or Section of, or Schedule or Exhibit to, this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include",
"includes"

                                      -26-
<PAGE>   144

or "including" are used in this Agreement, they shall be deemed to be followed
by the words "without limitation". The words "hereof", "herein" and "hereunder"
and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement. All
terms defined in this Agreement shall have the defined meanings when used in any
certificate or other document made or delivered pursuant hereto unless otherwise
defined therein. The definitions contained in this Agreement are applicable to
the singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such term. Any agreement,
instrument, statute, regulation, rule or order defined or referred to herein or
in any agreement or instrument that is referred to herein means such agreement,
instrument, statute, regulation, rule or order as from time to time amended,
modified or supplemented, including (in the case of agreements or instruments)
by waiver or consent and (in the case of statutes, regulations, rules or orders)
by succession of comparable successor statutes, regulations, rules or orders and
references to all attachments thereto and instruments incorporated therein.
References to a person are also to its permitted successors and assigns.

            Section 7.16. Avoidance of Duplication. In the event that a Party
owns more than one Lot, when the Agreement requires that certain actions be
taken or not taken with respect to each Lot, the Party with more than one Lot
shall comply with respect to all of its Lots, each taken individually; provided,
however, that a Party with more than one Lot shall not be required to notify
itself of actions, submit plans for its own review, make payments to itself, or
take such other similar duplicative actions that may arise hereunder.

                                      -27-
<PAGE>   145

            IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement.

                                 CONSOLIDATED EDISON COMPANY
                                 OF NEW YORK, INC.,

                                 By: _______________________________
                                     Name: Joan S. Freilich
                                     Title: Executive Vice President
                                                 and CFO

                                 ASTORIA GENERATING COMPANY, L.P.,

                                     By: ORION POWER NEW YORK GP
                                         II, INC.,

                                         By: __________________________
                                             Name:
                                             Title:

                                      -28-
<PAGE>   146

STATE OF NEW YORK    )
                     ) SS.:
COUNTY OF NEW YORK   )

            On this __ day of_______ 199_, before me personally appeared Joan S.
Freilich, personally known to me or proved to me on the basis of satisfactory
evidence to be the individual whose name is subscribed to the within instrument
and acknowledged to me that he executed the same in his capacity, and that his
signature on the instrument, the individual, or the corporation upon behalf of
which the individual acted, executed the instrument.

                                             ________________________________
                                                      NOTARY PUBLIC

STATE OF NEW YORK   )
                    ) SS.:
COUNTY OF NEW YORK  )

On this __ day of ________ 199_, before me personally appeared ______________,
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his capacity, and that his
signature on the instrument, the individual, or the corporation upon behalf of
which the individual acted, executed the instrument.

                                             ________________________________
                                                      NOTARY PUBLIC

                                      -29-
<PAGE>   147

                                                                     EXHIBIT A-3

                               GOWANUS ZONING LOT
                              DEVELOPMENT AGREEMENT

                                 By and Between

                           CONSOLIDATED EDISON COMPANY
                                OF NEW YORK, INC.

                                       and

                        ASTORIA GENERATING COMPANY, L.P.

       The land affected by the within instrument lies in Block 653, Lots
            3 and 7 on the Tax Map of the City of New York, County of
                                     Kings.

                                    Address:

                              Record and Return to:

                               Robert Selya, Esq.
                  Consolidated Edison Company of New York, Inc.
                                 4 Irving Place
                            New York, New York 10003
<PAGE>   148

                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----

ARTICLE I.   EXISTING DEVELOPMENT RIGHTS .................................   -2-

ARTICLE II.  REQUIREMENTS FOR DEVELOPMENT ON THE ZONING LOT ..............   -5-

ARTICLE III. ENLARGING OR DIMINISHING THE ZONING LOT .....................  -11-

ARTICLE IV.  CONVEYANCE OF PORTIONS OF THE ZONING LOT ....................  -16-

ARTICLE V.   VIOLATIONS/REAL ESTATE TAXES ................................  -17-

ARTICLE VI.  BINDING EFFECT ..............................................  -20-

ARTICLE VII. MISCELLANEOUS ...............................................  -22-

SCHEDULE I ...............................................................  -32-

SCHEDULE II ..............................................................  -33-
<PAGE>   149

                                     GOWANUS
                        ZONING LOT DEVELOPMENT AGREEMENT

            AGREEMENT dated as of ____________,199_, by and between CONSOLIDATED
EDISON COMPANY OF NEW YORK, INC., a New York corporation ("Grantor") and ASTORIA
GENERATING COMPANY, L.P., a Delaware limited partnership ("Grantee") ("Grantee"
and "Grantor" collectively referred to as the "Parties").

                                   WITNESSETH:

            WHEREAS, Grantee, on the date hereof, is acquiring title in fee to a
portion of the real property ("Grantee's Lot") together with the buildings and
improvements located thereon ("Grantee's Buildings") owned by Grantor in the
City of New York, located in the Borough of Queens, County of Kings, designated
in the Tax Map of the City of New York as Block 653, Lot 7, known as the Gowanus
Gas Turbines, as such Grantee's Lot is more particularly described in Schedule I
annexed hereto and made a part hereof (Grantee's Lot and Grantee's Buildings
being hereinafter collectively referred to as the "Grantee's Premises"); and

            WHEREAS, Grantor, as of the date hereof, will continue to own
certain real property ("Grantor's Lot") together with the buildings and
improvements located thereon ("Grantor's Buildings") in the City of New York,
located in the Borough of Brooklyn, County of Kings, designated as Block 653,
Lot 3, known as the Gowanus Substation, as such Grantor's Lot is more
particularly described in Schedule II annexed hereto and made a part hereof
(Grantor's Lot and Grantor's Buildings being hereinafter collectively referred
to as the "Grantor's Premises"); and
<PAGE>   150

            WHEREAS, Grantor's Lot and Grantee's Lot are located on the same
zoning lot (the "Zoning Lot") as that term is defined in Section 12-10 of the
Zoning Resolution of the City of New York , effective December 15, 1961, as
amended from time to time (the "Zoning Resolution") (Grantee's Lot and Grantor's
Lot are sometimes hereinafter referred to as a "Lot" or the "Lots," Grantee's
Buildings and Grantor's Buildings as a "Building" or the "Buildings," and
Grantee's Premises and Grantor's Premises as the "Premises"); and

            WHEREAS, Grantor and Grantee wish to define their continuing
obligations and responsibilities with respect to their respective Premises
located on the Zoning Lot.

            NOW THEREFORE, in consideration of the foregoing, Grantor and
Grantee hereby agree as follows:

                     ARTICLE I. EXISTING DEVELOPMENT RIGHTS

            Section 1.1 Grantee's Development Rights

      (A) Grantee hereby covenants to Grantor, its successors and assigns for
the benefit of and as an appurtenance to Grantor's Lot, that from and after the
date hereof, no building, structure, equipment or other improvement on Grantee's
Lot, or combination of improvements, including any addition to or extension of
Grantee's Buildings, shall be erected or installed or allowed or suffered to
exist on Grantee's Lot, and no repair, alteration, reconstruction or rebuilding
of Grantee's Buildings (following a casualty or otherwise) shall be made or
allowed or suffered to be made:

            (i) having a total Floor Area, as defined in the Zoning Resolution,
in excess of the greater of (x) the amount of Floor Area that would be available
to Grantee's Lot under the

                                      -2-
<PAGE>   151

Zoning Resolution if Grantee's Lot were considered a separate zoning lot and (y)
the amount of Floor Area existing on the Grantee's Lot on the date of this
Agreement (the "Grantee Maximum Floor Area"); or

            (ii) resulting in the creation on Grantee's Lot of (x) a new use
that does not conform to the use regulations in the Zoning Resolution, (y) a
failure of any building or structure on Grantee's Lot to comply with any
provision of the Zoning Resolution, including without limitation coverage, yard
and bulk requirements, or (z) an increase in the degree to which any such
structure or building fails to comply with the Zoning Resolution, in each case
treating Grantee's Lot as if it were a separate zoning lot.

      (B) Subject to applicable laws, rules and regulations, Grantee shall have
the absolute right to construct replacement buildings on Grantee's Lot not
violative of the restrictions set forth in subsection (A) of this Section 1.1;
provided however, that if as a result of any amendment or change in the Zoning
Resolution, the Zoning Lot shall become entitled to fewer development rights in
the future, then Grantee shall have the right to construct replacement buildings
or other improvements on its Lot with a Floor Area equal to the lesser of (i)
the amount of Floor Area that would be available to its Lot under the Zoning
Resolution, as amended, if its Lot were considered to be a separate zoning lot,
(ii) the amount of permissible Floor Area remaining on its Lot, taking into
account the existing Floor Area on Grantor's Lot, and (iii) its proportionate
share of the permissible Floor Area available on both Lots combined based on the
proportion that its Lot area bears to the aggregate area of both Lots; and,
provided further, that if as a result of any amendment or change in the Zoning
Resolution, the Zoning Lot shall become entitled to additional development
rights in the future, then Grantee shall have the right to enlarge the

                                      -3-
<PAGE>   152

existing improvements or construct new improvements on Grantee's Lot to the
extent that would be permitted by the Zoning Resolution, if Grantee's Lot were
considered to be a separate zoning lot, provided such enlargement or new
construction shall not reduce the Floor Area available for use on Grantor's Lot.

            Section 1.2. Grantor's Development Rights

      (A) Grantor hereby covenants to Grantee, its successors and assigns for
the benefit of and as an appurtenance to Grantee's Lot, that from and after the
date hereof, no building, structure, equipment or other improvement on Grantor's
Lot, or combination of improvements, including any addition to or extension of
Grantor's Buildings, shall be erected or installed or allowed or suffered to
exist on Grantor's Lot, and no repair, alteration, reconstruction or rebuilding
of Grantor's Buildings (following a casualty or otherwise) shall be made or
allowed or suffered to be made:

            (i) having a total Floor Area, as defined in the Zoning Resolution,
in excess of the greater of (x) the amount of Floor Area that would be available
to Grantor's Lot under the Zoning Resolution if Grantor's Lot were considered a
separate zoning lot and (y) the amount of Floor Area existing on the Grantor's
Lot on the date of this Agreement (the "Grantor Maximum Floor Area"); or

            (ii) resulting in the creation on Grantor's Lot of (x) a new use
that does not conform to the use regulations in the Zoning Resolution, (y) a
failure of any building or structure on Grantor's Lot to comply with any
provision of the Zoning Resolution, including without limitation coverage, yard
and bulk requirements, or (z) an increase in the degree to which any

                                      -4-
<PAGE>   153

such structure or building fails to comply with the Zoning Resolution, in each
case treating Grantor's Lot as if it were a separate zoning lot.

      (B) Subject to applicable laws, rules and regulations, Grantor shall have
the absolute right to construct replacement buildings on Grantor's Lot not
violative of the restrictions set forth in subsection (A) of this Section 1.2;
provided however, that if as a result of any amendment or change in the Zoning
Resolution, the Zoning Lot shall become entitled to fewer development rights in
the future, then Grantor shall have the right to construct replacement buildings
or other improvements on its Lot with a Floor Area equal to the lesser of (i)
the amount of Floor Area that would be available to its Lot under the Zoning
Resolution, as amended, if its Lot were considered to be a separate zoning lot,
(ii) the amount of permissible Floor Area remaining on its Lot, taking into
account the existing Floor Area on Grantee's Lot, and (iii) its proportionate
share of the permissible Floor Area available on both Lots combined based on the
proportion that its Lot area bears to the aggregate area of both Lots; and,
provided further, that if as a result of any amendment or change in the Zoning
Resolution, Grantor shall become entitled to additional development rights in
the future, then Grantor shall have the right to enlarge the existing
improvements or construct new improvements on Grantor's Lot to the extent that
would be permitted by the Zoning Resolution if Grantor's Lot were considered to
be a separate zoning lot, provided such enlargement or new construction shall
not reduce the Floor Area available for use on Grantee's Lot.

           ARTICLE II. REQUIREMENTS FOR DEVELOPMENT ON THE ZONING LOT

            Section 2.1. Grantee and Grantor each agree that construction plans
and specifications for, and applications to, the New York City Department of
Buildings or the New

                                      -5-
<PAGE>   154

York City Department of Business Services, or such other governmental agency
with jurisdiction over the permitting process for demolition, alteration and
construction of buildings or structures (each a "Permitting Agency"), for or in
connection with any building or structure on Grantee's Lot or Grantor's Lot,
respectively, shall be separate and independent from one another and shall be
filed with the applicable Permitting Agency so as to obtain separate "new
building" and/or "alteration" treatment and numbers and separate certificates of
occupancy, as applicable, each to the extent allowed by law.

            Section 2.2. Neither Grantee nor Grantor shall make any application,
or any amendment, modification, supplement or withdrawal relating thereto
(collectively an "Applications", individually an "Application"), to any
Permitting Agency for any construction of or alteration, reconstruction or other
similar work in any building or other structure on Grantee's Lot or Grantor's
Lot, respectively, which could in any way, except as set forth herein, restrict
the rights of the other Party with respect to use of Floor Area on their
respective Lots.

            Section 2.3. Floor Area Survey. The first Party who shall file with
any Permitting Agency a permit for work that would result in increased Floor
Area on such Party's Lot (the "Commissioning Party") shall commission a floor
area survey of the entire Zoning Lot (the "Floor Area Survey"). Such survey
shall be performed by an appropriately licensed professional satisfactory to
both Parties and the cost of such survey shall be borne by the Commissioning
Party. The Commissioning Party shall submit the Floor Area Survey to the other
Party for its review and approval, which review shall be completed within thirty
(30) days of such Party's receipt of such Survey and which approval shall not be
unreasonably withheld. Any disagreements regarding the Survey shall be resolved
in the best professional judgement of the

                                      -6-
<PAGE>   155

licensed professional performing the work. If the Commissioning Party does not
receive comments during such thirty (30) day review period, the Floor Area
Survey shall be deemed approved.

            Section 2.4. Cooperation.

      (A) The Parties shall cooperate with one another in all reasonable
respects in connection with Applications, if any, required to be made by either
Party to any Permitting Agency for permits or approvals for alteration,
reconstruction or replacement of Grantor's Buildings or Grantee's Buildings or
for new structures on Grantee's Lot or Grantor's Lot, and shall execute any such
properly prepared Application at the request of the other Party (for purposes of
this Section 2.4, the "Requesting Party"), provided that any building or other
structure to be erected on Grantee's Lot or Grantor's Lot shall be built in
accordance with applicable law and conform to the requirements set forth in
Sections 1.1.(A) and 1.2(A), respectively. No less than thirty (30) days prior
to the Requesting Party's intended submission of an executed Application to a
Permitting Agency, it shall submit to the other Party (i) a certification
prepared by the architect of record demonstrating that the Application being
filed is consistent with the requirements of Sections 1.1(A) or 1.2(A), as
applicable, (ii) a copy of any completed Application, in a form suitable for
submission to such Permitting Agency, and (iii) a copy of any plans and
specifications relating to the work described in the Application, in a form
suitable for submission to such Permitting Agency. The Requesting Party shall be
responsible for the professional fees incurred by the other Party in reviewing
the Application and related materials.(1)

----------
(1)   Con Edison is willing to consider proposals for more specific provisions
      relating to Application approvals.

                                      -7-
<PAGE>   156

      (B) Such cooperation shall include granting access to the professional
performing the Floor Area Survey, in accordance with Section 2.3. herein, but
shall not include any action which would create any rights of access to the
other Party's Lot or Buildings or grant to such Party any rights relating to
such Lot or Buildings which are not expressly stated herein or in any other
agreement between the Parties or binding upon the Zoning Lot. All Applications
shall be made in accordance with all applicable laws. The right of either Party
to alter, reconstruct or replace its Buildings shall in such cases be subject to
the restrictions and/or benefits of the Zoning Resolution and other provisions
of law as same may hereafter be amended or enacted and in effect at the time
that such Applications are made.

      (C) Each Party covenants and agrees to file a copy of this Agreement
together with any Application for a permit submitted to any Permitting Agency,
and to deliver to the other Party copies of any Applications for building and
other permits and any plans and specifications submitted to any Permitting
Agency, in each case except permits for interior work, maintenance and repair
that have no effect on Floor Area.

            Section 2.5. Performance of Work.

      (A) All work to be performed under this Agreement by a Party (for purposes
of this section, the "Entering Party") affecting its Premises (i) shall not
impair the structural integrity of any Building situated on any other Lot; (ii)
shall not be undertaken until the Entering Party shall have procured and paid
for all required permits; (iii) except for routine maintenance activity, shall
not be undertaken until the Entering Party shall have submitted to the other
Party all applicable documents, plans and specifications; (iv) shall be
performed in accordance with good industry practice and in compliance with all
applicable laws, ordinances, orders, codes, rules and

                                      -8-
<PAGE>   157

regulations; (v) shall be performed by the Entering Party's employees or by
contractors fully insured, licensed (to the extent required by applicable law)
and competent to do the work being undertaken; (vi) shall be performed in a
manner that does not materially adversely affect or substantially interfere with
the use and enjoyment by any Party of its Premises, except (if at all)
temporarily, and then only to the extent necessary to do the work, and (vii)
shall be diligently prosecuted to completion. During any construction or
reconstruction work, the construction site shall be kept in an orderly, clean
and safe condition.

      (B) The Entering Party shall pay when due all claims for labor performed
or material furnished and not permit any lien of mechanics or materialmen to
attach, and if any such liens do attach, the Entering Party shall not permit
such liens to unreasonably interfere with any other Owner's financing
arrangements or work. The Entering Party shall also be responsible for the
professional fees incurred by the other Party in reviewing the Entering Party's
plans and specifications.

      (C) The review of or comments on any documents, drawings, plans,
specifications or other documentation provided by the Entering Party shall not
relieve the Entering Party of, or affect in any way, its responsibility for the
correctness and adequacy of the work to be performed. The other Party shall have
no liability whatsoever with respect to any review or non-review of any
documentation submitted to it by the Entering Party.

            Section 2.6. Performance of Work in Exercising Self-Help Rights.

      (A) All work to be performed under this Agreement by a Party (for purposes
of this section, the "Curing Party") affecting the other Party's Premises in
accordance with Article IV hereof, (i) shall not impair the structural integrity
or operation of any Building situated on that

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<PAGE>   158

Party's Lot; (ii) shall not be undertaken until the Curing Party shall have
procured and paid for all required permits; (iii) except for routine maintenance
activity, shall not be undertaken until the Curing Party shall have submitted to
the other Party all applicable documents, plans and specifications; (iv) shall
be performed in accordance with good industry practice and in compliance with
all applicable laws, ordinances, orders, codes, rules and regulations; (v) shall
be performed by the Curing Party's employees or by contractors fully insured,
licensed (to the extent required by applicable law) and competent to do the work
being undertaken; (vi) shall be performed in a manner that does not materially
adversely affect or substantially interfere with the use and enjoyment by the
other Party of its Premises, except (if at all) temporarily, and then only to
the extent necessary to do the work, and (vii) shall be diligently prosecuted to
completion. During any construction or reconstruction work, the construction
site shall be kept in an orderly, clean and safe condition.

      (B) The Curing Party shall pay when due all claims for labor performed or
material furnished and not permit any lien of mechanics or materialmen to
attach, and if any such liens do attach, the Curing Party shall not permit such
liens to unreasonably interfere with any other Owner's financing arrangements or
work. The Curing Party shall not be responsible for the professional fees
incurred by the other Party in reviewing the Curing Party's plans and
specifications.

      (C) The review of or comments on any documents, drawings, plans,
specifications or other documentation provided by the Curing Party shall not
relieve the Curing Party of, or affect in any way, its responsibility for the
correctness and adequacy of the work to be performed. The

                                      -10-
<PAGE>   159

other Party shall have no liability whatsoever with respect to any review or
non-review of any documentation submitted to it by the Curing Party.

      (D) Whenever the Curing Party shall intend to enter upon the Premises of
the other Party to perform any work in exercising its Self-Help Rights as
defined in Article IV hereof, the Curing Party shall give the affected Party (i)
at least twenty-four (24) hours' prior written notice or (ii) immediate verbal
notification followed by written notice in the case of any emergency.

      (E) Notwithstanding the provisions of this Article II, any work to be
performed by a Curing Party affecting the easement and license areas governed by
the Gowanus Declaration of Subdivision Easements made by Grantor and the Gowanus
Declaration of Easements Agreement between the Parties shall be governed by the
requirements contained in such agreements.

              ARTICLE III. ENLARGING OR DIMINISHING THE ZONING LOT

            Section 3.1. If requested by Grantor, Grantee shall execute,
acknowledge and deliver a Declaration of Zoning Lot Restrictions, any such other
necessary documents, and amendments to this Agreement for the purpose of
enlarging the Zoning Lot so as to include one or more additional parcels;
provided that (i) the execution of the Declaration of Zoning Lot Restrictions,
any such other documents and any such amendment to this Agreement does not
increase the responsibilities or liabilities or reduce the rights of Grantee,
(ii) any action requested of Grantee by Grantor pursuant to this Section 3.1
shall be without cost or recourse to Grantee and (iii) such Declaration of
Zoning Lot Restrictions, any such other documents and any such amendment to this
Agreement shall not grant to Grantor any rights relating to Grantee's Premises

                                      -11-
<PAGE>   160

which are not expressly stated herein. Grantor shall promptly pay, or reimburse
Grantee for, any costs or expenses incurred by Grantee arising under this
Section 3.1.

            Section 3.2. If requested by Grantee, Grantor shall execute,
acknowledge and deliver a Declaration of Zoning Lot Restrictions, any such other
necessary documents, and amendments to this Agreement for the purpose of
enlarging the Zoning Lot so as to include one or more additional parcels;
provided that (i) the execution of the Declaration of Zoning Lot Restrictions,
any such other documents and any such amendment to this Agreement does not
increase the responsibilities or liabilities or reduce the rights of Grantor,
(ii) any action requested of Grantor by Grantee pursuant to this Section 3.2
shall be without cost or recourse to Grantor and (iii) such Declaration of
Zoning Lot Restrictions, any such other documents and any such amendment to this
Agreement shall not grant to Grantee any rights relating to Grantor's Premises
which are not expressly stated herein. Grantee shall pay, or reimburse Grantor
for, any costs or expenses incurred by Grantor arising under this Section 3.2.

            Section 3.3. In the event that Grantor shall seek to effectuate a
zoning lot subdivision which would remove Grantor's Lot, or any other parcel of
land which is part of the Zoning Lot, from the Zoning Lot, Grantee shall use its
best efforts to assist Grantor in accomplishing said subdivision in the most
expeditious manner possible. Such cooperation shall include completing such
applications, executing such documents and performing such work as may be
necessary to meet the requirements of the Permitting Agency or Agencies
overseeing the zoning lot subdivision process.

            Each Party shall bear a portion of the aggregate costs related to
the zoning lot subdivision process, including without limitation (x) utility
separation work and associated costs

                                      -12-
<PAGE>   161

and (y) administrative expenses (collectively, "Aggregate Zoning Lot Subdivision
Costs"), in the proportion that the area of Grantee's Lot or Grantor's Lot, as
the case may be, bears to the area of the Zoning Lot as a whole. Notwithstanding
the foregoing, Aggregate Zoning Lot Subdivision Costs shall exclude the costs of
bringing Grantee's Buildings and Grantor's Buildings into compliance with the
standards necessary to effectuate a zoning lot subdivision ("Grantee Compliance
Costs" and "Grantor Compliance Costs," respectively). Grantee Compliance Costs
shall be borne exclusively by the Grantee and Grantor Compliance Costs shall be
borne exclusively by the Grantor.

            Upon final zoning lot subdivision approval by the Permitting
Agency(ies), the Aggregate Zoning Lot Subdivision Costs shall be computed by
adding the costs incurred by each Party ("Actual Grantee Subdivision Costs" and
"Actual Grantor Subdivision Costs," respectively). Each Party shall keep records
of all its expenditures and make available to the other copies of all such
records evidencing the Actual Grantee Subdivision Costs and Actual Grantor
Subdivision Costs. If, after computation of the Aggregate Zoning Lot Subdivision
Costs, the Actual Grantee Subdivision Costs exceed Grantee's proportion of the
Aggregate Zoning Lot Subdivision Costs, then Grantor shall reimburse Grantee for
any such excess. Conversely, if the Actual Grantor Subdivision Costs exceed
Grantor's proportion of the Aggregate Zoning Lot Subdivision Costs, then Grantee
shall reimburse Grantor for any such excess.

            Section 3.4. Grantee hereby agrees and consents that Grantor may
execute any Declaration of Zoning Lot Restrictions, any other necessary
documents and any amendment of this Agreement that is entered into for the
purpose of enlarging or diminishing the Zoning Lot as

                                      -13-
<PAGE>   162

provided above in Sections 3.1, 3.2 and 3.3, without the joinder, waiver,
consent or other act of Grantee, provided that such agreement or amendment (i)
only reduces or increases the size of the Zoning Lot, (ii) only affects the
rights of parties other than Grantee in and to said Zoning Lot and (iii) does
not otherwise adversely affect the rights of Grantee in and to said Zoning Lot.
Notwithstanding that any such Declaration of Zoning Lot Restrictions, any such
other documents or amendment to this Agreement may be executed without the
joinder, waiver, consent or other act of Grantee, Grantee agrees, upon demand of
Grantor, to execute, acknowledge and deliver any such agreement or amendment or
deliver any requested waiver or consent, and to use commercially reasonable
efforts to cause any parties-in-interest, as such term is defined in connection
with the applicable definition of zoning lot in Section 12-10 of the Zoning
Resolution of the City of New York, effective December 15, 1961, as amended from
time to time ("Parties-in-Interest"), on the enlarged or diminished Zoning Lot
to waive each of their rights to execute the Declaration of Zoning Lot
Restrictions, or any such other documents.

            Section 3.5. Grantor hereby agrees and consents that Grantee may
execute any Declaration of Zoning Lot Restrictions, any other necessary
documents and any amendment of this Agreement that is entered into for the
purpose of enlarging the Zoning Lot as provided above in Sections 3.1 and 3.2,
without the joinder, waiver, consent or other act of Grantor, provided that such
agreement or amendment (i) only increases the size of the Zoning Lot, (ii) only
affects the rights of parties other than Grantor in and to said Zoning Lot and
(iii) does not otherwise adversely affect the rights of Grantor in and to said
Zoning Lot. Notwithstanding that any such Declaration of Zoning Lot
Restrictions, any other such documents or amendment to this Agreement may be
executed without the joinder, waiver, consent or other act of Grantor, Grantor

                                      -14-
<PAGE>   163

agrees, upon demand of Grantee, to execute, acknowledge and deliver any such
agreement, document or amendment or deliver any requested waiver or consent, and
to use commercially reasonable efforts to cause any Parties-in-Interest on the
enlarged Zoning Lot to waive each of their rights to execute the Declaration of
Zoning Lot Restrictions.

            Section 3.6. Grantee acknowledges that the owners of other
properties which may hereafter be merged into the Zoning Lot by Grantor may have
reserved or retained certain floor area and zoning and development rights
attributable to their properties, and Grantee covenants and agrees not to (i)
utilize, or attempt to utilize, all or any portion of any such reserved or
retained floor area or zoning and development rights in any future development
or alteration of Grantee's Premises or (ii)make any application to any
Permitting Agency to incorporate all or any portion of any such reserved or
retained floor area or zoning and development rights into Grantee's Premises.
The provisions of this Section 3.6 shall inure to the benefit of each of the
owners of the properties now or hereafter constituting the Zoning Lot and shall
be enforceable by said owners directly against Grantee in the event of a breach
thereof by Grantee.

            Section 3.7. Grantor acknowledges that the owners of other
properties which may hereafter be merged into the Zoning Lot by Grantee may have
reserved or retained certain floor area and zoning and development rights
attributable to their properties, and the Grantor covenants and agrees not to
(i) utilize, or attempt to utilize, all or any portion of any such reserved or
retained floor area or zoning and development rights in any future development
or alteration of the Grantor's Premises or (ii)make any application to any
Permitting Agency to incorporate all or any portion of any such reserved or
retained floor area or zoning and

                                      -15-
<PAGE>   164

development rights into the Grantor's Premises. The provisions of this Section
3.7 shall inure to the benefit of each of the owners of the properties now or
hereafter constituting the Zoning Lot and shall be enforceable by said owners
directly against Grantor in the event of a breach thereof by Grantor.

            Section 3.8. Each Party agrees that in the event of an enlargement
of the Zoning Lot by either Party, prior to recording any Declaration of Zoning
Lot Restrictions, this Agreement shall be amended to reflect the enlargement of
the Zoning Lot and the owner of the parcel being merged into the Zoning Lot
shall execute the amended Agreement and subject its property to the terms
hereof.

                                   ARTICLE IV.

                    CONVEYANCE OF PORTIONS OF THE ZONING LOT

            Section 4.1. Notwithstanding anything to the contrary contained in
this Agreement, Grantor may from time to time convey unimproved portions of its
Lot without the consent of Grantee; provided, however, that such conveyance(s)
shall not create a non-conforming use or non-compliance for any zoning lot
containing Grantee's Lot or any building thereon, or result in an increase in
any existing non-compliance or nonconformity on any such zoning lot, or in any
way reduce the floor area allowable or restrict the uses permissible in any
building thereon. Grantee hereby agrees to execute and deliver, and to use best
efforts to cause the same to be done by all other parties in interest in respect
of its Lot, any documents that Grantor may reasonably deem necessary in
connection with the conveyance of any unimproved portion of its Lot, provided
all documents shall be in form and content reasonably satisfactory to Grantee.
Upon said conveyance, the remaining portion of Grantor's Lot and the conveyed

                                      -16-
<PAGE>   165

portion of said Lot shall be treated as separate zoning lots for purposes of
determining the development rights on their Lots under this Agreement.

            Section 4.2. Notwithstanding anything to the contrary contained in
this Agreement, Grantee may from time to time convey unimproved portions of its
Lot without the consent of Grantor; provided, however, that such conveyance(s)
shall not create a non-conforming use or non-compliance for any zoning lot
containing Grantor's Lot or any building thereon, or result in an increase in
any existing non-compliance or nonconformity on any such zoning lot, or in any
way reduce the floor area allowable or restrict the uses permissible in any
building thereon. Grantor hereby agrees to execute and deliver, and to use best
efforts to cause the same to be done by all other parties in interest in respect
of its Lot, any documents that Grantee may reasonably deem necessary in
connection with the conveyance of any unimproved portion of its Lot, provided
all documents shall be in form and content reasonably satisfactory to Grantor.
Upon said conveyance, the remaining portion of Grantee's Lot and the conveyed
portion of said Lot shall be treated as separate zoning lots for purposes of
determining the development rights on their Lots under this Agreement.

                     ARTICLE V. VIOLATIONS/REAL ESTATE TAXES

            Section 5.1. Grantee covenants and agrees to cure and remove of
record with diligence any and all violations, the circumstances or conditions of
which arise after the date of this Agreement, of the Zoning Resolution, any
building code, fire code, or other law, ordinance, regulation or requirement of
record or issued by any municipal, state or federal agency, hereafter in force
and effect with respect to Grantee's Premises (collectively "Grantee's
Violations" and

                                      -17-
<PAGE>   166

individually, a "Grantee's Violation") which may in any manner adversely affect
Grantor's Premises or any actions which Grantor may wish to undertake with
respect thereto pursuant to and consistent with this Agreement. If Grantee has
not, within thirty (30) days after it receives notice of each such Grantee's
Violation, cured such Grantee's Violation, or if not susceptible of being cured
within such thirty (30) day period, if Grantee has not commenced diligently to
prosecute a cure of such Grantee's Violation and/or does not diligently
prosecute such cure until completion, or, in the case of an emergency
immediately by verbal notice followed by written notice, Grantor shall have the
right, at Grantee's expense, to cure said Grantee's Violation ("Self Help
Rights") and Grantee hereby grants to Grantor the right of access to Grantee's
Premises for such purpose. Grantee shall pay to Grantor on demand sums equal to
all costs incurred by Grantor as a result of the failure by Grantee to cure
Grantee's Violations, including all fines, penalties and expenses and reasonable
attorneys' fees and disbursements.

            Section 5.2. Grantor covenants and agrees to cure and remove of
record with diligence any and all violations, the circumstances or conditions of
which arise after the date of this Agreement, of any building code, fire code,
or other law, ordinance, regulation or requirement of record or issued by any
municipal, state or federal agency, hereafter in force and effect with respect
to Grantor's Premises (collectively "Grantor's Violations" and individually a
"Grantor's Violation") which may in any manner adversely affect Grantee's
Premises or any actions which Grantee may wish to undertake with respect thereto
pursuant to this Agreement. If Grantor has not, within thirty (30) days after it
receives notice of each such Grantor's Violation, cured such Grantor's
Violation, or if not susceptible of being cured within such thirty (30) day
period, if Grantor has not commenced diligently to prosecute a cure of such
Grantor's Violation

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<PAGE>   167

and/or does not diligently prosecute such cure until completion, or, in the case
of an emergency immediately by verbal notice followed by written notice, Grantee
shall have the right, at Grantor's expense, to cure said Grantor's Violation
("Self Help Rights") and Grantor hereby grants to Grantee the right of access to
Grantor's Premises for such purpose. Grantor shall pay to Grantee on demand sums
equal to all costs incurred by Grantee as a result of the failure by Grantor to
cure Grantor's Violations, including all fines, penalties and expenses and
reasonable attorneys' fees and disbursements.

            Section 5.3. The Parties acknowledge that their separate interests
require that tax assessments concerning their respective Premises be separate
and independent and that each Party shall be responsible for the payment of the
real estate taxes owing on their respective Premises. Each Party agrees, that in
the event the Department of Finance of the City of New York (the "Department of
Finance") has not issued permanent tax lot numbers for Grantor's Lot and
Grantee's Lot as of the Closing Date effectuating such separate and independent
treatment, it shall promptly perform such acts and execute and deliver such
documents as may reasonably be required in support of separate tax lot
treatment. In the intervening period following the Closing Date but prior to the
issuance of a tax bill reflecting the issuance of permanent tax lot numbers, the
Parties shall use best efforts to obtain an apportionment by the Department of
Finance of real property tax assessments and real property tax liens among
Grantee's Premises and Grantor's Premises and shall pay their respective
proportionate shares of the real estate taxes prior to the date upon which such
taxes would become delinquent. If the Parties are unable to obtain such an
apportionment from the Department of Finance, they shall apportion the real
estate taxes attributable to the Buildings, structures and equipment on their
respective Lots based on the most

                                      -19-
<PAGE>   168

recent tax bill or, if such breakdown by structures and equipment is not
available, based on the original book cost as of the last calendar year end
preceding the taxable status date. The taxes attributable to land would be
allocated among the Parties based on the relative land area of their Lots. Upon
the issuance of permanent tax lot numbers for Grantee's Lot and Grantor's Lot
and for so long as the Lots remain as separate and independent tax lots, each
Party shall be free to institute tax certiorari proceedings with respect to its
Premises. At any time prior to the issuance by the Department of Finance of
separate, final tax lot numbers as aforesaid, the Parties shall cooperate with
each other in deciding whether to carry out and in instituting any such
certiorari proceedings.

                           ARTICLE VI. BINDING EFFECT

            Section 6.1. Covenants Running with the Land. The benefits and
burdens, rights and obligations created by this Agreement shall be appurtenant
to and run with and burden and be binding upon the Lots, and shall inure to the
benefit of and be binding upon the Parties and those claiming by, through, or
under them until this Agreement shall terminate. The covenants, agreements,
terms, provisions and conditions of this Agreement shall bind and benefit the
successors in interest (as owners of the Lots, whether by sale, foreclosure or
otherwise) of the Parties, any party who joins in a Declaration of Zoning Lot
Restrictions for the purpose of enlarging or diminishing the Zoning Lot in
accordance with Article III hereof, and any such party's successors and assigns,
as the case may be, with the same effect as if mentioned in each instance when a
Party is named or referred to, it being understood and agreed that upon any
transfer of ownership (whether by sale, foreclosure or otherwise) of all or any
part of the Lots, each such successor in interest shall, without the requirement
of any further documentation,

                                      -20-
<PAGE>   169

thereupon and thereafter assume, and perform and observe, any and all of the
obligations of its predecessors in interest under this Agreement with respect to
such Lot (or portion thereof). Notwithstanding the foregoing, each Party shall
use reasonable efforts to cause any such successor in interest to execute an
agreement in recordable form pursuant to which such successor in interest shall
assume any and all obligations of its predecessors in interest under this
Agreement; provided, however, that the failure to obtain any such agreement
shall not detract from the provisions of the previous sentence.

            Section 6.2. Assignment. Neither this Agreement nor any of the
rights, interests and obligations hereunder shall be assigned by Grantee or
Grantor, except (1) to a party acquiring all or any portion of a Lot and this
Agreement or (2) to a lending institution or trustee in connection with a pledge
or granting of a security interest in all or any part of a Lot and this
Agreement, without the prior written consent of the other Party; and provided
further, that no assignment or transfer of rights or obligations by either Party
shall release it from the full liabilities and full financial responsibility, as
provided for under this Agreement, unless and until (x) the transferee or
assignee shall agree in writing to assume such obligations and duties, (y) the
other Party has consented in writing to such release, and (z) a counterpart of
the assumption agreement has been duly recorded in the Office of the New York
City Register for the County in which the Lots are located. To the extent that
rights hereunder are assigned to the holder of any mortgage encumbering the
Grantor's Premises, the Grantee's Premises, or any interest therein, they shall
be enforceable by any such assignee after default under any such mortgage.

            Section 6.3. Zoning Lot Subdivision. Upon final approval by the
applicable Permitting Agency of the zoning lot subdivision separating Grantor's
Lot from the Zoning Lot,

                                      -21-
<PAGE>   170

neither Grantee's Lot nor Grantor's Lot shall be subject to this Agreement,
which shall thereupon terminate. Notwithstanding the above, the rights and
obligations of Grantee and Grantor arising prior to said termination shall
survive the termination of this Agreement.

                           ARTICLE VII. MISCELLANEOUS

            Section 7.1. Force Majeure.

      (A) Notwithstanding anything in this Agreement to the contrary, no Party
shall have any liability or be otherwise responsible to the other for its
failure to carry out its obligations, with the exception of any obligation to
pay money, under this Agreement if and only to the extent that it becomes
impossible for either Party to so perform as a result of any occurrence or event
which is beyond the reasonable control, and does not result from any fault or
negligence, of the Party affected (each a "Force Majeure Event"), including any
act of God, strike or other labor disturbance, act of a public enemy, war, act
of terrorism, riot, any other civil disturbance, fire, storm, lightning, flood,
earthquake, any other natural disasters, explosion, materials shortage, breakage
or accident to machinery or equipment, any order or regulation or restriction
imposed by any court, administrative or regulatory agency or commission or other
governmental entity or instrumentality, domestic, foreign or supranational or
any department thereof (each a "Governmental Authority"), failure of a
contractor or subcontractor cause by a Force Majeure Event and transportation
delays and stoppages.

      (B) If a Party shall rely on the occurrence of a Force Majeure Event as a
basis for being excused from performance of its obligations under this
Agreement, then the Party relying on such occurrence shall (i) provide prompt
written notice of such Force Majeure Event to the other

                                      -22-
<PAGE>   171

Party(ies) giving an estimate of its expected duration and the probable impact
on the performance of its obligations hereunder, (ii) exercise its reasonable
best efforts to continue to perform its obligations under this Agreement, (iii)
expeditiously take action to correct or cure the Force Majeure Event (provided
that settlement of strikes or any other labor dispute will be completely within
the sole discretion of the Party affected by such strike or labor dispute), (iv)
exercise its reasonable best efforts to mitigate or limit damages to the other
Party and (v) provide prompt notice to the other Party(ies) of the cessation of
the Force Majeure Event.

            Section 7.2. Default and Remedies. In the event that a Party
defaults, breaches or otherwise fails to perform any obligation of such Party
under this Agreement, the other Party shall have the right to all remedies
available at law or in equity, including the right to injunctive relief and the
right to exercise its Self-Help Rights (and shall be entitled to correlative
reimbursement in connection therewith) without any requirement to pursue or
exhaust any other remedies available to such Party under any other agreement.
All such remedies shall be cumulative and not exclusive. A Party shall have the
right, following notice to the other Party, to take such action as it may deem
necessary or advisable, including payment of any delinquent taxes, to prevent a
foreclosure for nonpayment of taxes or other action by a Governmental Authority
that might affect its rights and interests hereunder and any such action shall
be deemed an exercise of Self-Help Rights (and, accordingly, give rise to
correlative reimbursement rights). The right to reimbursement shall not include
the right to recover punitive or consequential damages. In the event a Party is
entitled to reimbursement hereunder and same is not satisfied within thirty (30)
days after written demand by the Party entitled to same, the unpaid obligations
shall constitute a lien against the defaulting Party's Lot; provided, however,
that the payment of

                                      -23-
<PAGE>   172

any monetary obligations which become due and payable by a Party after
recordation of a mortgage on such Party's Lot granted to an independent third
party regularly engaged in the business of making mortgage loans shall be
subordinate to the payment of the obligations secured by such mortgage.

            Section 7.3. Recording. Grantee shall record this Agreement
immediately after the execution of this Agreement and Grantee's acquisition of
Grantee's Lot and shall bear the costs of recording.

            Section 7.4. Notices. All notices, demands, requests and other
communications required hereunder shall be in writing and shall be deemed to
have been given (as of the time of delivery or, in the case of a telecopied
communication, of confirmation) if delivered personally, telecopied (which is
confirmed) or sent by overnight courier (providing proof of delivery) to the
Parties at the following addresses (or at such other addresses for a Party as
shall be specified by like notice):

                  To Grantee:

                  Astoria Generating Company, L.P.
                  c/o Orion Power New York GP II, Inc.
                  111 Market Place
                  Suite 520
                  Baltimore, MD 21202
                  Telecopy No.: (410) 468-3699
                  Attention: General Counsel

                                      -24-
<PAGE>   173

                  with a copy to:

                  Thelen Reid & Priest LLP
                  Two Embarcadero Center
                  Suite 2100
                  San Francisco, CA 94111
                  Telecopy No.: (415) 421-1068
                  Attention: Thomas B. Glascock, Esq.

                  To Grantor:

                  Consolidated Edison Company of New York, Inc.
                  4 Irving Place
                  New York, New York 10003
                  Attn: Director of Real Estate

                  with a copy to:

                  Consolidated Edison Company of New York, Inc.
                  4 Irving Place
                  New York, New York 10003
                  Attn: Senior Vice President and General Counsel

or at such other address in the United States of America as may be designated by
any of the Parties in a written notice given in accordance with the provisions
of this Section 7.4. The attorney for any Party may send notices on that Party's
behalf.

            Section 7.5. Estoppel Certificate. Each Party agrees, within ten
(10) days after written request by the other, to execute, acknowledge and
deliver to and in favor of any present or proposed lender, Mortgagee, ground
lessor, purchaser, tenant or the like of all or any part of the other Party's
Lot, an estoppel certificate, in a form reasonably satisfactory to such lender,
Mortgagee, ground lessor, purchaser, tenant or the like, stating, among other
things: (i) whether this Agreement is in full force and effect; (ii) whether
this Agreement has been modified or amended and, if so, identifying and
describing any such modification or amendment;

                                      -25-
<PAGE>   174

(iii) whether there are any sums then due and owing under this Agreement from
either Party to the other, and if so, specifying the amount thereof and reason
therefor; and (iv) whether the Party giving such certificate knows of any
default (or event which, with the passage of time, the giving of notice, or
both, would constitute a default) on the part of the other Party, or has any
outstanding claim against the other Party arising under this Agreement and, if
so, specifying the nature of such default or claim.

            Section 7.6. Waivers by Subsequent Parties-in-Interest. If an
interest attaches to either Party's Premises subsequent to the date hereof which
would otherwise confer upon the holder of such interest the status of a
Party-in-Interest, any modification, amendment or termination of this Agreement
that is entered into for the purpose of enlarging or subdividing the Zoning Lot
or for the purpose of modifying or terminating the provisions of this Agreement
as they affect the Zoning Lot, as it may be enlarged or diminished, may be
executed without the joinder, waiver, consent or other act of the holder of such
interest. Notwithstanding the foregoing, the affected Party shall obtain from
such holder a waiver of execution of any subsequent amendments to this Agreement
and to subordinate its interest to such Agreement, as it may be amended.

            Section 7.7. Mortgagees' Status. Except as set forth in Section 7.2
hereof, the Parties intend that this Agreement be superior to any mortgages or
other instruments evidencing security for indebtedness granted by either Party
from time to time with respect to its Lot. Accordingly, each Party agrees to
obtain and deliver to the other Party such documents and instruments, in
recordable form, as may be reasonably necessary or requested by the other Party

                                      -26-
<PAGE>   175

to evidence and confirm the subordination of any such mortgages or other
security instruments to the provisions of this Agreement.

            Section 7.8. Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same original, and the execution of separate counterparts by either Grantee or
Grantor shall bind Grantee and Grantor as if they had each executed the same
counterpart.

            Section 7.9. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York (regardless of
the laws that might otherwise govern under applicable principles of conflicts of
law).

            Section 7.10. Extension; Waiver. Any Party may extend the time for
performance of any of the obligations or other acts of the other Party or waive
compliance by the other Party with any of the agreements or conditions contained
in this Agreement. Any agreement on the part of a Party to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such Party. The failure of a Party to this Agreement to assert any of
its rights under this Agreement or otherwise shall not constitute a waiver of
such rights.

            Section 7.11. No Third Party Beneficiaries. Nothing in this
Agreement is intended to confer upon any other person except the Parties any
rights or remedies hereunder or shall create any third party beneficiary rights
in any person.

            Section 7.12. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect.

                                      -27-
<PAGE>   176

Upon such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the Parties shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the Parties as closely as
possible to the fullest extent permitted by applicable law in an acceptable
manner to the end that the transactions contemplated hereby are fulfilled to the
extent possible.

            Section 7.13. Amendment and Modification. This Agreement may be
amended, modified or supplemented only by an instrument in writing signed on
behalf of the owners from time to time of each Lot.

            Section 7.14. Jurisdiction and Enforcement.

      (A) Each of the Parties irrevocably submits to the exclusive jurisdiction
of (i) the Supreme Court of the State of New York, New York County and (ii) the
United States District Court for the Southern District of New York, for the
purposes of any suit, action or other proceeding arising out of this Agreement
or any transaction contemplated hereby. Each of the Parties agrees to commence
any action, suit or proceeding relating hereto either in the United States
District Court for the Southern District of New York or, if such suit, action or
proceeding may not be brought in such court for jurisdictional reasons, in the
Supreme Court of the State of New York, New York County. Each of the Parties
further agrees that service of process, summons, notice or document by hand
delivery or U.S. registered mail at the address specified for such Party in
Section 7.4 (or such other address specified by such Party from time to time
pursuant to Section 7.4) shall be effective service of process for any action,
suit or proceeding brought against such Party in any such court. Each of the
Parties irrevocably and unconditionally waives any objection to the laying of
venue of any action, suit or proceeding arising out of this

                                      -28-
<PAGE>   177

Agreement or the transactions contemplated hereby in (i) the Supreme Court of
the State of New York, New York County or (ii) the United States District Court
for the Southern District of New York, and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such action, suit or proceeding brought in any such court has been brought
in an inconvenient forum.

      (B) The Parties agree that irreparable damage would occur in the event
that any of the provisions of this Agreement were not performed in accordance
with their specific terms or otherwise breached. It is accordingly agreed that
the Parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
of this Agreement, this being in addition to any other remedy to which they are
entitled at law or in equity.

            Section 7.15. Interpretation. When a reference is made in this
Agreement to an Article, Section, Schedule or Exhibit, such reference shall be
to an Article or Section of, or Schedule or Exhibit to, this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include",
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation". The words "hereof, "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement. All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant hereto
unless otherwise defined therein. The definitions contained in this Agreement
are applicable to

                                      -29-
<PAGE>   178

the singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such term. Any agreement,
instrument, statute, regulation, rule or order defined or referred to herein or
in any agreement or instrument that is referred to herein means such agreement,
instrument, statute, regulation, rule or order as from time to time amended,
modified or supplemented, including (in the case of agreements or instruments)
by waiver or consent and (in the case of statutes, regulations, rules or orders)
by succession of comparable successor statutes, regulations, rules or orders and
references to all attachments thereto and instruments incorporated therein.
References to a person are also to its permitted successors and assigns.

            IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement.

                              CONSOLIDATED EDISON COMPANY
                              OF NEW YORK, INC.,

                              By: _______________________________
                                  Name:  Joan S. Freilich
                                  Title: Executive Vice President
                                         and CFO

                              ASTORIA GENERATING COMPANY, L.P.,

                                  By: ORION POWER NEW YORK GP II, INC.,

                                      By: ___________________________
                                          Name:
                                          Title:

                                      -30-
<PAGE>   179

STATE OF NEW YORK  )
                   ) SS.:
COUNTY OF NEW YORK )

            On this __ day of _______ 1999, before me personally appeared Joan
S. Freilich, personally known to me or proved to me on the basis of satisfactory
evidence to be the individual whose name is subscribed to the within instrument
and acknowledged to me that he executed the same in his capacity, and that his
signature on the instrument, the individual, or the corporation upon behalf of
which the individual acted, executed the instrument.

                                      ________________________________
                                               NOTARY PUBLIC

STATE OF NEW YORK  )
                   ) SS.:
COUNTY OF NEW YORK )

On this __ day of ________ 1999, before me personally appeared ______________,
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his capacity, and that his
signature on the instrument, the individual, or the corporation upon behalf of
which the individual acted, executed the instrument.

                                      ________________________________
                                               NOTARY PUBLIC

                                      -31-
<PAGE>   180

                                                                     EXHIBIT B-1

                          [ASTORIA GENERATING STATION]

Form 3264 Standard N Y S T U  Form 8001 -Bargain and Sale Deed, without Covenant
against Grantor's Acts-Individual or Corporate (Single Sheet)
CONSULT YOUR LAWYER BEFORE SIGNING THIS INSTRUMENT--THIS INSTRUMENT SHOULD BE
USED BY LAWYERS ONLY.

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

THIS INDENTURE, made the     day of           , 1999

BETWEEN

CONSOLIDATED EDISON COMPANY OF NEW YORK, INC., a New York corporation, having an
address at 4 Irving Place, New York, New York 10003.

party of the first part, and

[PURCHASER OF BUNDLE 3], a __________________, having an address at
__________________.

party of the second part,

WITNESSETH, that the party of the first part, in consideration of ten ($10)
dollars and other valuable consideration paid by the party of the second part,
does hereby grant and release unto the party of the second part, the heirs or
successors and assigns of the party of the second part forever,

ALL that certain plot, piece or parcel of land, with the buildings and
improvements thereon erected, situate, lying and being in the County of Queens,
in the City and State of New York, as more fully described in the attached
Exhibit A.

TOGETHER with all right, title and interest, if any, of the party of the first
part in and to any streets and roads abutting the above described premises to
the center lines thereof; TOGETHER with the appurtenances and all the estate and
rights of the party of the first part in and to said premises: TO HAVE AND TO
HOLD the premises herein granted unto the party of the second part, the heirs or
successors and assigns of the party of the second part forever.

AND the party of the first part, in compliance with Section 13 of the Lien Law,
covenants that the party of the first part will receive the consideration for
this conveyance and will hold the right to receive such consideration as a trust
fund to be applied first for the purpose of paying the cost of the improvement
and will apply the same first to the payment of the cost of the improvement
before using any part of the total of the same for any other purpose. The word
"party" shall be construed as if it read "parties" whenever the sense of this
indenture so requires.

IN WITNESS WHEREOF, the party of the first part has duly executed this deed the
day and year first above written.

IN PRESENCE OF:

                                        CONSOLIDATED EDISON COMPANY
                                        OF NEW YORK, INC.

                                        By: ____________________________________
                                            Name:
                                            Title
<PAGE>   181

STATE OF NEW YORK, COUNTY OF      ss:  STATE OF NEW YORK, COUNTY OF      ss:

On the    day of         19  , before  On the    day of         19  , before
me personally came                     me personally came

to me known to be the individual       to me known to be the individual
       described in and who executed          described in and who executed
the foregoing instrument, and          the foregoing instrument, and
acknowledged that     executed the     acknowledged that     executed the
same.                                  same.
                 ____________________
                                                        ____________________

STATE OF NEW YORK, COUNTY OF      ss:  STATE OF NEW YORK, COUNTY OF      ss:

On the    day of         19  , before  On the    day of         19  , before
me personally came                     me personally came

to me known, who, being by me duly     the subscribing witness to the
sworn, did depose and say that   he    foregoing instrument, with whom I am
resides at                             personally acquainted, who, being by
                                       me duly sworn, did depose and say that
that   he is the                       he resides at
of
                    , the corporation
described in and which executed the                      ; that he knows
foregoing instrument; that he knows                      to be the individual
the seal of said corporation; that     described in and who executed the
the seal affixed to said instrument    foregoing instrument; that he, said
is such corporate seal; that it was    subscribing witness, was present and saw
so affixed by order of the board of
directors of said corporation, and           execute the same; and that    he,
that he signed his name thereto by
like order.                            said witness, at the same time subscribed
                                       h     name as witness thereto.
                 ____________________
                                                        ____________________

                           *See attached notary block

BARGAIN AND SALE DEED

WITHOUT COVENANT AGAINST GRANTOR'S ACTS   SECTION
                                          BLOCK
Title No. _______________________         LOT     *See attached Exhibit B
                                          COUNTY  OR TOWN
CONSOLIDATED EDISON COMPANY               STREET ADDRESS
OF NEW YORK, INC.
                                               Recorded at Request of
TO                                        COMMONWEALTH LAND TITLE INSURANCE
                                                        COMPANY

                                                    RETURN BY MAIL TO

                                          ______________________________________

___________________________________

Standard Form of New York Board of
            Underwriters
           Distributed by

             Commonwealth

___________________________________       ______________________________________

________________________________________________________________________________

RESERVE THIS SPACE FOR USE OF RECORDING OFFICE

________________________________________________________________________________

                                      -2-
<PAGE>   182

                                   EXHIBIT A

                               Legal Description

               I. Legal Description of Astoria Generating Station

                       II. Legal Description of Tank Farm
<PAGE>   183

                                   EXHIBIT B

ASTORIA GENERATING STATION

SECTION           6
BLOCK             850
LOT               Part of 1 [Subject to Change]
COUNTY OR TOWN    Queens
STREET ADDRESS    20th Avenue, Astoria, New York
                  (No specific street address given; therefore, see Tax Map,
                  attached as Exhibit C)

TANK FARM

SECTION           6
BLOCK             850
LOT               Part of 1 [Subject to Change]
COUNTY OR TOWN    Queens
STREET ADDRESS    Interior Parcel, North of 20th Avenue,
                  Astoria, New York
                  (No specific street address given; therefore, see Map,
                  attached as Exhibit D. Note: this map is not a tax map.)
<PAGE>   184

                                   EXHIBIT C

                                    TAX MAP

                           ASTORIA GENERATING STATION

                                 (SEE ATTACHED)
<PAGE>   185

                                    EXHIBIT D

                                       MAP

                                    TANK FARM

                                 (SEE ATTACHED)

                        Note: this map is not a tax map.
<PAGE>   186

STATE OF NEW YORK  )
                   ) ss:
COUNTY OF NEW YORK )

      On the __ day of _____ in the year 199_ before me, the undersigned, a
Notary Public in and for said State, personally appeared
____________________________, personally known to me or proved to me on the
basis of satisfactory evidence to be the individual whose name is subscribed to
the within instrument and acknowledged to me that he executed the same in his
capacity, and that by his signature on the instrument, the individual, or the
person upon behalf of which the individual acted, executed the instrument.

                                        ________________________________________
                                                      Notary Public
<PAGE>   187

                                                                     EXHIBIT B-2

             [NARROWS GAS TURBINE SITE & GOWANUS GAS TURBINE SITE]

Form 3264 Standard NY S T U  Form 8001 -Bargain and Sale Deed, without Covenant
against Grantor's Acts-Individual or Corporate (Single Sheet)
CONSULT YOUR LAWYER BEFORE SIGNING THIS INSTRUMENT--THIS INSTRUMENT SHOULD BE
USED BY LAWYERS ONLY.

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

THIS INDENTURE, made the     day of                , 1999

BETWEEN

CONSOLIDATED EDISON COMPANY OF NEW YORK, INC., a New York corporation, having an
address at 4 Irving Place, New York, New York 10003.

party of the first part, and

[PURCHASER OF BUNDLE 3], a __________________, having an address at
________________________.

party of the second part,

WITNESSETH, that the party of the first part, in consideration of ten ($10)
dollars and other valuable consideration paid by the party of the second part,
does hereby grant and release unto the party of the second part, the heirs or
successors and assigns of the party of the second part forever,

ALL that certain plot, piece or parcel of land, with the buildings and
improvements thereon erected, situate, lying and being in the County of Kings,
City and State of New York, as more fully described in the attached Exhibit A.

TOGETHER with all right, title and interest, if any, of the party of the first
part in and to any streets and roads abutting the above described premises to
the center lines thereof; TOGETHER with the appurtenances and all the estate and
rights of the party of the first part in and to said premises: TO HAVE AND TO
HOLD the premises herein granted unto the party of the second part, the heirs or
successors and assigns of the party of the second part forever.

AND the party of the first part, in compliance with Section 13 of the Lien Law,
covenants that the party of the first part will receive the consideration for
this conveyance and will hold the right to receive such consideration as a trust
fund to be applied first for the purpose of paying the cost of the improvement
and will apply the same first to the payment of the cost of the improvement
before using any part of the total of the same for any other purpose. The word
"party" shall be construed as if it read "parties" whenever the sense of this
indenture so requires.

IN WITNESS WHEREOF, the party of the first part has duly executed this deed the
day and year first above written.

IN PRESENCE OF:

                                        CONSOLIDATED EDISON COMPANY
                                        OF NEW YORK, INC.

                                        By: ____________________________________
                                            Name:
                                            Title:
<PAGE>   188

STATE OF NEW YORK, COUNTY OF      ss:  STATE OF NEW YORK, COUNTY OF      ss:

On the    day of         19  , before  On the    day of         19  , before
me personally came                     me personally came

to me known to be the individual       to me known to be the individual
       described in and who executed          described in and who executed
the foregoing instrument, and          the foregoing instrument, and
acknowledged that     executed the     acknowledged that     executed the
same.                                  same.
                 ____________________
                                                        ____________________

STATE OF NEW YORK, COUNTY OF      ss:  STATE OF NEW YORK, COUNTY OF      ss:

On the    day of         19  , before  On the    day of         19  , before
me personally came                     me personally came

to me known, who, being by me duly     the subscribing witness to the
sworn, did depose and say that   he    foregoing instrument, with whom I am
resides at                             personally acquainted, who, being by
                                       me duly sworn, did depose and say that
that   he is the                       he resides at
of
                    , the corporation
described in and which executed the                      ; that he knows
foregoing instrument; that he knows                      to be the individual
the seal of said corporation; that     described in and who executed the
the seal affixed to said instrument    foregoing instrument; that he, said
is such corporate seal; that it was    subscribing witness, was present and saw
so affixed by order of the board of
directors of said corporation, and           execute the same; and that    he,
that he signed his name thereto by
like order.                            said witness, at the same time subscribed
                                       h     name as witness thereto.
                 ____________________
                                                        ____________________

                           *See attached notary block

BARGAIN AND SALE DEED

WITHOUT COVENANT AGAINST GRANTORS ACTS    SECTION
                                          BLOCK
Title No. _______________________         LOT     *See attached Exhibit B
                                          COUNTY  OR TOWN
CONSOLIDATED EDISON COMPANY               STREET ADDRESS
OF NEW YORK, INC.
                                                   Recorded at Request of
TO                                        COMMONWEALTH LAND TITLE INSURANCE
                                                        COMPANY

                                                      RETURN BY MAIL TO

                                          ______________________________________

___________________________________

Standard Form of New York Board of
            Underwriters
           Distributed by

            Commonwealth

___________________________________       ______________________________________

________________________________________________________________________________

RESERVE THIS SPACE FOR USE OF RECORDING OFFICE

________________________________________________________________________________

                                      -2-
<PAGE>   189

                                   EXHIBIT A

                               Legal Descriptions

                I. Legal Description of Narrows Gas Turbine Site

               II. Legal Description of Gowanus Gas Turbine Site
<PAGE>   190

                                   EXHIBIT B

NARROWS GAS TURBINE SITE

SECTION:          3
BLOCK:            803
LOTS:             10 & 150
COUNTY OR TOWN:   Kings
STREET ADDRESS:   1st Avenue, Brooklyn, New York
                  (No specific street address given; therefore, see Tax Map,
                  attached as Exhibit C)

GOWANUS GAS TURBINE SITE

SECTION:          3
BLOCK:            653
LOT:              3
COUNTY OR TOWN:   Kings
STREET ADDRESS:   3rd Avenue, 25th Street, 26th Street, 27th Street and
                  28th Street, Brooklyn, New York
                  (No specific street address given; therefore, see Tax Map,
                  attached as Exhibit D)
<PAGE>   191

                                   EXHIBIT C

                                    TAX MAP

                            NARROWS GAS TURBINE SITE

                                 (SEE ATTACHED)
<PAGE>   192

                                   EXHIBIT D

                                    TAX MAP

                            GOWANUS GAS TURBINE SITE

                                 (SEE ATTACHED)
<PAGE>   193

STATE OF NEW YORK  )
                   ) ss:
COUNTY OF NEW YORK )

      On the __ day of _____ in the year 199_ before me, the undersigned, a
Notary Public in and for said State, personally appeared
____________________________, personally known to me or proved to me on the
basis of satisfactory evidence to be the individual whose name is subscribed to
the within instrument and acknowledged to me that he executed the same in his
capacity, and that by his signature on the instrument, the individual, or the
person upon behalf of which the individual acted, executed the instrument.

                                        ________________________________________
                                                      Notary Public
<PAGE>   194

                                                                       EXHIBIT C

                      CERTIFICATION OF NON-FOREIGN STATUS

            Section 1445 of the Internal Revenue Code of 1986, as amended (the
"Code"), provides that a transferee of a U.S. real property interest must
withhold tax if the transferor is a foreign person. To inform Astoria Generating
Company, L.P. ("Buyer"), that a withholding of tax is not required upon the
disposition of a U.S. real property interest by Consolidated Edison Company of
New York, Inc., a New York corporation ("Con Ed"), the undersigned hereby
certifies the following on behalf of Con Ed:

            1. Con Ed is not a foreign corporation, foreign partnership, foreign
trust or foreign estate (as those terms are defined in the Code and Income Tax
Regulations);

            2. Con Ed's employer identification number is 13-5009340;

            3. Con Ed's office address is 4 Irving Place, New York, NY 10003.

            Con Ed and the undersigned understand that this certificate may be
disclosed to the Internal Revenue Service by Buyer and that any false statement
contained herein could be punished by fine, imprisonment or both.

            Under penalty of perjury, I declare that I have examined this
certificate and to the best of my knowledge and belief it is true, correct and
complete, and I further declare that I have authority to sign this document on
behalf of Con Ed.

Date:                                   By: ____________________________________
                                        Name: __________________________________
                                        Title: _________________________________
<PAGE>   195

                                                                       EXHIBIT D

                  FORM OF OPINION OF GENERAL COUNSEL TO SELLER

                                                                          , 1999

[Insert Buyer's Name and Address]

                 Consolidated Edison Company of New York, Inc.
                        Generating Plant and Gas Turbine
                       Asset Purchase and Sale Agreement

Ladies and Gentlemen:

            I am General Counsel of Consolidated Edison Company of New York,
Inc., a New York corporation ("Seller"), and have acted for Seller in connection
with the Generating Plant and Gas Turbine Asset Purchase and Sale Agreement (the
"Asset Purchase and Sale Agreement") dated as of March 2, 1999, between Seller
and Astoria Generating Company, L.P., a Delaware limited partnership ("Buyer"),
the Continuing Site Agreements, the Declaration of Easements Agreements, the
Declarations of Subdivision Easements, the Zoning Lot Development Agreements,
the other Ancillary Agreements (collectively, the "Agreements") and the
transactions contemplated thereby. Capitalized terms used but not defined herein
have the meanings assigned to them in the Asset Purchase and Sale Agreement.

            In that connection, I have examined originals, or copies certified
or otherwise identified to my satisfaction, of such documents, corporate records
and other instruments as I have deemed necessary or appropriate for the purposes
of this opinion, including: (a) the Agreements, (b) the Certificate of
Incorporation of Seller, (c) the By-laws of Seller and (d) resolutions of the
Board of Trustees of Seller.

            In rendering my opinion, I have assumed the due authorization,
execution and delivery of each Agreement by each party thereto other than
Seller.

            Based upon the foregoing and subject to the qualifications
hereinafter set forth, I am of the opinion as follows:

            1. Based solely on a certificate from the Secretary of State of the
State of New York, Seller is a

<PAGE>   196
                                                                               2

corporation validly existing and in good standing under the laws of the State of
New York. Seller has all necessary corporate power and authority to execute and
deliver each Agreement and to consummate the transactions contemplated thereby;
and the execution and delivery by Seller of each Agreement and the consummation
by Seller of the transactions contemplated thereby have been duly and validly
authorized by all necessary corporate action on the part of Seller.

            2. Each Agreement has been duly executed and delivered by Seller,
and assuming that such Agreement constitutes a valid and binding obligation of
each other party thereto, subject to the receipt of all required regulatory
approvals, such Agreement constitutes a valid and binding obligation of Seller,
enforceable against Seller in accordance with its terms (subject to applicable
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
other similar laws affecting creditors' rights generally from time to time in
effect and to general principles of equity, including, without limitation,
concepts of materiality, reasonableness, good faith and fair dealing, regardless
of whether considered in a proceeding in equity or at law). With respect to the
foregoing opinion, (i) insofar as provisions contained in the Agreements provide
for indemnification, the enforceability thereof may be limited by public
policy considerations and (ii) the availability of a decree for specific
performance or an injunction is subject to the discretion of the court requested
to issue any such decree or injunction.

            3. Neither the execution and delivery of the Agreements by Seller
nor the sale by Seller of the Auctioned Assets will (i) conflict with or result
in a breach of the Certificate of Incorporation or By-laws of Seller, (ii)
result in a default (or give rise to any right of termination, cancelation or
acceleration) under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, agreement, lease or other instrument or
obligation to which Seller is a party or by which Seller, or any of the
Auctioned Assets may be bound, except for such defaults (or rights of
termination, cancelation or acceleration) as to which requisite waivers or
consents have been obtained or which would not, individually or in the
aggregate, create a Material Adverse Effect or (iii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Seller, or the
Auctioned Assets, except for such violations which would not, individually or in
the aggregate, create a Material Adverse Effect.

            4. Except for the Seller Required Regulatory Approvals, no
declaration, filing or registration with, or

<PAGE>   197
                                                                               3

notice to, or authorization, consent or approval of any United States Federal or
New York State Governmental Authority is necessary for the consummation by
Seller of the transactions contemplated by the Agreements, other than such
declarations, filings, registrations, notices, authorizations, consents or
approvals (i) which, if not obtained or made, would not, individually or in the
aggregate, create a Material Adverse Effect or (ii) which relate to the
Transferable Permits.

            The opinions expressed herein are subject to the qualification that
I express no opinion regarding the applicability of, or compliance with, any
bulk sales, bulk transfer or similar laws in connection with the transfer of the
Auctioned Assets pursuant to the Asset Purchase and Sale Agreement. I express no
opinion herein as to (i) the provisions of the Agreements insofar as such
provisions relate to the subject matter jurisdiction of the United States
District Court for the Southern District of New York to adjudicate any
controversy related thereto and (ii) the waiver of an inconvenient forum set
forth in the provisions of the Agreements.

            I am admitted to practice in the State of New York, and I express no
opinion as to matters governed by any laws other than the laws of the State of
New York and the Federal laws of the United States of America.

            I am furnishing this opinion to you pursuant to Section 8.02(e)(iii)
of the Asset Purchase and Sale Agreement, solely for your benefit in connection
with the transactions contemplated by the Asset Purchase and Sale Agreement.
This opinion may not be relied upon by any other person or for any other purpose
or used, circulated, quoted or otherwise referred to for any other purpose.

                                        Very truly yours,
<PAGE>   198

                                                                       EXHIBIT E

                      FORM OF OPINION OF COUNSEL TO BUYER

                                                                          , 1999

Consolidated Edison Company
      of New York, Inc.
4 Irving Place
New York, NY 10003

                        Generating Plant and Gas Turbine
                       Asset Purchase and Sale Agreement

Ladies and Gentlemen:

            We have acted as counsel to Astoria Generating Company, L.P., a
Delaware limited partnership ("Buyer"), in connection with the Generating Plant
and Gas Turbine Asset Purchase and Sale Agreement (the "Asset Purchase and Sale
Agreement") dated as of March 2, 1999, between Buyer and Consolidated Edison
Company of New York, Inc., a New York corporation ("Seller"), the Continuing
Site Agreements, the Declaration of Easements Agreements, the Zoning Lot
Development Agreements (collectively, the "Agreements") and the transactions
contemplated thereby. Capitalized terms used but not defined herein have the
meanings assigned to them in the Asset Purchase and Sale Agreement.

            In that connection, we have examined originals, or copies certified
or otherwise identified to our satisfaction, of such documents, corporate
records and other instruments as we have deemed necessary or appropriate for the
purposes of this opinion, including: (a) the Agreements, (b) the Certificate of
Incorporation and By-laws (or other similar governing documents) of Buyer and
(c) resolutions of the Board of Directors of Buyer.

            In rendering our opinion, we have assumed the due authorization,
execution and delivery of each Agreement by each party thereto other than Buyer.

<PAGE>   199
                                                                               2

            Based upon the foregoing and subject to the qualifications
hereinafter set forth, we are of the opinion as follows:

            1. Buyer is a limited partnership validly existing and in good
standing under the laws of the State of Delaware. Buyer has all necessary
power and authority to execute and deliver each Agreement and to consummate the
transactions contemplated thereby; and the execution and delivery by Buyer of
each Agreement and the consummation by Buyer of the transactions contemplated
thereby have been duly and validly authorized by all necessary action on the
part of the general partner of Buyer.

            2. Each Agreement has been duly executed and delivered by Buyer, and
assuming that such Agreement constitutes a valid and binding obligation of each
other party thereto, subject to the receipt of all required regulatory
approvals, such Agreement constitutes a valid and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms (subject to applicable
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
other similar laws affecting creditors' rights generally from time to time in
effect and to general principles of equity, including, without limitation,
concepts of materiality, reasonableness, good faith and fair dealing, regardless
of whether considered in a proceeding in equity or at law). With respect to the
foregoing opinion, (i) insofar as provisions contained in the Agreements provide
for indemnification, the enforceability thereof may be limited by public policy
considerations and (ii) the availability of a decree for specific performance or
an injunction is subject to the discretion of the court requested to issue any
such decree or injunction.

            3. Neither the execution and delivery of the Agreements nor the
purchase by Buyer of the Auctioned Assets will (i) conflict with or result in a
breach of the limited partnership agreement (or other similar governing
documents) of Buyer, (ii) result in a default (or give rise to any right of
termination, cancelation or acceleration) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, agreement, lease or
other instrument or obligation to which Buyer or any of its subsidiaries is a
party or by which any of their respective assets may be bound or (iii) violate
any order, writ, injunction, decree, statute, rule or regulation applicable to
Buyer, or any of its assets, except in the case of clauses (ii) and (iii) for
such failures to obtain a necessary consent, defaults and violations which would
not, individually or in the aggregate, have a material adverse
<PAGE>   200
                                                                               3

effect on the ability of Buyer to consummate the transactions contemplated by,
and discharge its obligations under, the Asset Purchase and Sale Agreement and
the Agreements.

            4. Except for the Buyer Required Regulatory Approvals, no
declaration, filing or registration with, or notice to, or authorization,
consent or approval of any Governmental Authority is necessary for the
consummation by Buyer of the transactions contemplated by the Agreements.

            We express no opinion herein as to (i) the provisions of the
Agreements insofar as such provisions relate to the subject matter jurisdiction
of the United States District Court for the Southern District of New York to
adjudicate any controversy related thereto and (ii) the waiver of an
inconvenient forum set forth in the provisions of the Agreements.

            We are furnishing this opinion to you pursuant to Section 8.03(d) of
the Asset Purchase and Sale Agreement, solely for your benefit in connection
with the transactions contemplated by the Asset Purchase and Sale Agreement.
This opinion may not be relied upon by any other person or for any other purpose
or used, circulated, quoted or otherwise referred to for any other purpose.

                                        Very truly yours,
<PAGE>   201

                                                                       EXHIBIT F

                A-10 NON-EXCLUSIVE DOCK LICENSE (THE "LICENSE")
                        SUMMARY OF TERMS AND CONDITIONS

Licensor:               Seller.

Licensee:               Buyer.

Licensed Premises:      A-10 Dock and related appurtenances located adjacent to
                        Seller's property.

Licensed Term:          Twenty (20) years.

Renewal Term:           Licensee may renew for four (4) 20-year periods, in each
                        case by providing at least one hundred eighty (180)
                        days' prior written notice to Licensor.

Use:                    Licensee has a non-exclusive right to use the Licensed
                        Premises in connection with its operation of the Astoria
                        Generating Plants or any replacement power generation
                        facility located at the Astoria site owned by it or any
                        successor.

Improvements
And Alternations:       Licensee will not make any improvements or alternations
                        to the Licensed Premises without the prior written
                        consent of Licensor.

Non-Exclusivity:        Licensed Premises may also be used by Licensor and other
                        owners or tenants at the Astoria site.

Option to Terminate:    Licensee has right to terminate in its sole discretion
                        on one hundred twenty (120) days' prior written notice.

Revocation:             Licensor has the right to revoke in the event that
                        Licensee no longer operates the Astoria Generating
                        Plants as a power generation facility. Licensor has the
                        right to revoke the License for cause, which cause for
                        revocation continues uncured through the expiration of
                        any applicable grace period.

License Fee:            The License is granted free of charge.
<PAGE>   202

Economic Obligations
of Licensee:            The Licensee will pay the property taxes and be
                        responsible for all maintenance expenses on the Licensed
                        Premises.

Environmental
Liabilities:            Except as specified in the following sentence, as
                        between Licensor and Licensee, Licensee shall be
                        responsible and liable for, and indemnity and hold
                        Licensor harmless from, all Environmental Liabilities
                        under any Environmental Law relating to the Licensed
                        Premises and arising out of or in connection with the
                        Licensee's use of, or operations at, the Licensed
                        Premises during the License Term. As between Licensor
                        and Licensee, Licensor shall be responsible and liable
                        for, and indemnity and hold harmless Licensee from, all
                        Environmental Liabilities under any Environmental Law
                        relating to the Licensed Premises and arising out of or
                        in connection with the Licensor's use of, or operations
                        at, the Licensed Premises during the License Term or
                        with events or conditions which (i) existed prior to the
                        commencement of the License Term or (ii) arise after the
                        expiration of the License Term (and any Renewal Term

Maintenance:            The Licensee agrees to maintain the Licensed Premises in
                        the condition existing at the commencement of the
                        initial License Term. The Licensee will maintain and
                        repair the Licensed Premises in accordance with Good
                        Industry Practice but will not be responsible for
                        repairs required by damage to the Licensed Premises
                        caused by others.

Insurance:              Unless waived by Licensor (in which case Licensor shall
                        obtain such insurance itself), Licensee shall maintain
                        and keep in full force and effect the following
                        insurance, subject to commercially reasonable terms,
                        with respect to the Licensed Premises:

                        o     general comprehensive liability insurance
                              including contractual liability with limits of at
                              least $5 million per occurrence for bodily injury
                              and at least $1 million per occurrence for
                              property damage or a combined single limit of
                              $5,000,000 per occurrence;

                        o     statutory workers' compensation insurance as
                              required by law, and employer's liability
                              insurance, including in respect of accidents (with
                              a limit of at least $500,000 per accident) and
                              occupation diseases (with a limit of at

                                       2
<PAGE>   203

                              least $500,000 per employee); and

                        o     property casualty insurance (with subrogation
                              waived against Licensor) in such amounts as are
                              agreed between Licensor and Licensee.

                        Such insurance shall have such deductibles and
                        retentions and be underwritten by such companies (to be
                        approved by Licensor) as would be obtained by a
                        reasonably prudent electric power business and shall be
                        primary and noncontributory with any insurance carried
                        by Licensor and shall not require that Licensor pay any
                        premium thereunder. Licensor will be named as an
                        additional insured under the general comprehensive
                        liability insurance policy and as a loss payee on the
                        property casualty insurance policy. Licensee may
                        self-insure against any of the liabilities set forth
                        above if Licensee satisfies all applicable statuary and
                        regulatory criteria with respect to the self-insurance
                        of the relevant liability.

Indemnification:        The indemnification rights and obligations under the
                        License will be governed by the indemnification
                        provisions of Asset Purchase and Sale Agreement.

Fire Protection:        Licensee shall maintain any person-in-charge building(s)
                        located at the Licensed Premises, will be required to
                        (upon request) provide one or more locations at the
                        Licensed Premises for mooring vessel(s) of the New York
                        City Fire Department ("FDNY") and will be responsible
                        for promptly installing its own FDNY-approved fire
                        protection systems at the Licensed Premises separate
                        from those of Licensor (at the expiration or termination
                        of the License, such separate fire protection systems
                        will be abandoned, not removed). Until the earlier of
                        the completion of such separate fire protection systems
                        or December 31, 2000, the Licensor will continue to
                        provide to Licensee free of charge, but without
                        liability for the failure or malfunction thereof, access
                        to and use of its existing saltwater fire protection
                        system at the Licensed Premises. After the earlier of
                        December 31, 2000 or the installation of Licensee's
                        separate fire protection systems at the Licensed
                        Premises, the ties to Licensor's existing saltwater fire
                        protection system at the Licensed Premises will be
                        severed.

                        To the extent that the FDNY does not permit such
                        separation by the date specified in the preceding
                        sentence, then Licensee will pay an annual fee for each
                        year or any part of each year in

                                       3
<PAGE>   204

                        which Licensor is required to continue the access and
                        use described in this section.

Assignment and
Sublicensing:           Licensee may not assign or sublicense its rights or
                        obligations under the License without the prior written
                        consent of Licensor.

End of License
Obligations:            At the expiration or revocation of the License, Licensee
                        will vacate the Licensed Premises and leave the Licensed
                        Premises in the condition existing at the commencement
                        of the License Term.

Permits:                Licensee will hold all permits necessary to conduct its
                        operations at or in connection with the Licensed
                        Premises and will be responsible for compliance with
                        same. Such permits include oil spill response plans and
                        certificates of financial responsibility to the extent
                        required under the Oil Pollution Act of 1990, as
                        amended.

Governing Law:          New York.

TERMS USED BUT NOT DEFINED HEREIN SHALL HAVE THE MEANINGS ASSIGNED THERETO IN
THE GENERATING PLANT AND GAS TURBINE ASSET PURCHASE AND SALE AGREEMENT TO WHICH
THIS EXHIBIT F IS ATTACHED.

                                       4
<PAGE>   205

                                                                       EXHIBIT G

                         TRANSITION CAPACITY AGREEMENT

                                    BETWEEN

                                       *

                                      AND

                 CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.

                              Dated as of *, 1999
<PAGE>   206
                                                                               i

                               TABLE OF CONTENTS

                                                                            Page
                                                                            ----

1.    DEFINITIONS .............................................................2

2.    EFFECTIVENESS, TERM AND TERMINATION .....................................4

3.    CAPABILITY AND AVAILABILITY REQUIREMENTS ................................5

4.    INSTALLED CAPACITY PURCHASE, QUANTITY AND PAYMENTS ......................6

5.    SCHEDULING ..............................................................8

6.    BILLING AND PAYMENT PROCEDURES ..........................................8

7.    FORCE MAJEURE ...........................................................9

8.    ASSIGNMENT; NO THIRD PARTY BENEFICIARIES ...............................10

9.    EXTENSION; WAIVER ......................................................11

10.   COUNTERPARTS ...........................................................11

11.   GOVERNING LAW ..........................................................11

12.   SEVERABILITY ...........................................................11

13.   AMENDMENT ..............................................................11

14.   ENTIRE AGREEMENT .......................................................12

15.   FURTHER ASSURANCES .....................................................12

16.   INDEPENDENT CONTRACTOR STATUS ..........................................12

17.   NOTICES ................................................................13

18.   INTERPRETATION .........................................................13

19.   JURISDICTION AND ENFORCEMENT ...........................................14

20.   CONFLICT ...............................................................14
<PAGE>   207

                  TRANSITION CAPACITY AGREEMENT BETWEEN * AND CONSOLIDATED
                  EDISON COMPANY OF NEW YORK, INC.

      This Transition Capacity Agreement ("Agreement") is made and entered into
as of this * day of * 1999, by and between * ("ABC"), a * corporation, and
Consolidated Edison Company of New York, Inc. ("Con Edison"), a New York
corporation. ABC and Con Edison shall each be referred to as a "Party", and
shall be referred to collectively as the "Parties."

      WHEREAS, ABC and Con Edison have entered into a Generating Plant and Gas
Turbine Asset Purchase and Sale Agreement (the "APA") and certain other
agreements specified in the APA relating to the purchase by ABC of certain of
Con Edison's generating assets comprised of Generating Plants and Gas Turbines
(each as defined in the APA) (collectively, the "Purchased Assets");

      WHEREAS, the rights and obligations of buyers and providers of electric
generating capacity, energy, transmission and ancillary services may be modified
by a proposal (the "Proposal") currently pending before the Federal Energy
Regulatory Commission ("FERC") to restructure the New York Power Pool, which
Proposal contemplates, among other things, (i) the formation of the ISO (as
defined) and (ii) the implementation of the ISO Tariff filed on December 19,
1997, in FERC Docket Nos. ER97-1523-000, OA97-470-000 and ER97-4234-000, as such
filings may be amended from time-to-time;

      WHEREAS, FERC may approve, accept, modify, or reject the Proposal, and its
actions may affect the rights and obligations of the Parties under this
Agreement;

      WHEREAS, FERC has accepted for filing certain market power mitigation
measures applicable to sales of capacity, energy and certain other services from
specified electric generating units in New York City in FERC Docket No.
ER98-3169-000 (such measures, as may be modified from time to time, and any
other applicable market power mitigation measures that may be imposed by FERC,
ISO or the New York State Public Service Commission ("PSC"), the "Mitigation
Measures");

      WHEREAS, sales of capacity, energy and certain other services from the
Purchased Assets will be subject to, and the rights and obligations of the
Parties under this Agreement may be affected by, the Mitigation Measures; and

      WHEREAS, in recognition of Con Edison's installed capacity requirements
for its delivery service customers and its remaining native load customers, ABC
and Con Edison are entering into this Agreement, whereby ABC will maintain the
electric generating capability and availability of the Purchased Assets at
specified levels for the term of this Agreement and whereby, during certain
periods, Con Edison will purchase from ABC, and ABC will sell to Con Edison,
specified amounts of Installed Capacity (as defined herein).

<PAGE>   208
                                                                               2

      NOW THEREFORE, in consideration of the mutual agreements and commitments
contained herein, ABC and Con Edison hereby agree as follows:

1. DEFINITIONS.

            (a) The following terms shall have the meanings set forth below. Any
term used in this Agreement that is not defined herein shall have the meaning
customarily attributed to such term by the electric utility industry in New
York.

"Ancillary Agreements" shall have the meaning ascribed thereto in the APA.

"Business Day" shall mean any day other than Saturday, Sunday or any day which
is a legal holiday or a day on which banking institutions in the State of New
York are authorized or required by law or other governmental action to close.

"Closing" shall mean the closing of the sale of the Purchased Assets and certain
other assets as contemplated by the APA.

"Closing Date" shall mean the date and time at which the Closing actually
occurs.

"Excess Deficiency Charges" shall mean the excess of the installed capacity
deficiency charges imposed by the NYPP or ISO, as the case may be, on Con Edison
over the payments that would have been due in accordance with Section 4.2 for
the amount of capacity in respect of which such deficiency charges were imposed.

"Government Authority" shall mean any court, administrative or regulatory agency
or commission or other government entity or instrumentality or any department
thereof.

"Installed Capacity" shall mean electric generating capacity of the Purchased
Assets that satisfies all of the requirements applicable to installed capacity
established by the NYPP or ISO, as the case may be, as such requirements apply
to Con Edison.

"ISO" shall mean the New York Independent System Operator, as described in the
Supplemental Filing, or its successors.

"ISO Rules" shall mean the rules and procedures adopted by the ISO pursuant to
the ISO Tariff from time to time in effect and the related ISO agreements.

"ISO Tariff" shall mean the tariff described in the Supplemental Filing, as it
may be amended from time to time.

"NERC" shall mean the North American Electric Reliability Council or its
successors.

"NYPP" shall mean the New York Power Pool or its successors.

"NPCC" shall mean the Northwest Power Coordinating Council or its successors.

<PAGE>   209
                                                                               3

"NYPP Rules" shall mean the rules and procedures of the NYPP from time to time
in effect.

"NYSRC" shall mean the New York State Reliability Council or its successor.

"Offering Memorandum" shall have the meaning ascribed thereto in the APA.

"Replacement Capacity" shall mean installed capacity from resources other than
the Purchased Assets which resources are identified to the NYPP or ISO, as the
case may be, as sources of installed capacity in Con Edison's periodic reports
required under applicable procedures, provided that such installed capacity (i)
is from resources that are located in New York City or directly interconnected
to Con Edison's electric system in New York City, and (ii) would satisfy the
installed capacity requirements applicable to Con Edison, including any
applicable delivery requirements, established by the NYPP or ISO, as the case
may be.

"Replacement Capacity Costs" shall mean the excess of Con Edison's costs and
expenses for Replacement Capacity over the payments that would have been due in
accordance with Section 4.2 for an amount of capacity provided by ABC equal to
such Replacement Capacity.

"Supplemental Filing" shall mean the December 19, 1997 Supplemental Filing to
the Comprehensive Proposal to Restructure the New York Wholesale Electric Market
in FERC Docket Nos. ER97-1523-000, OA97-47000, and ER97-4234-000.

"Summer Capability Period" shall have the meaning provided by the NYPP or ISO,
as the case may be, as may be modified from time to time. Summer Capability
Period is currently May I through October 31 of each year.

"Winter Capability Period" shall have the meaning provided by the NYPP or ISO,
as the case may be, as may be modified from time to time. Winter Capability
Period is currently each November 1 through April 30 of the following calendar
year.

<PAGE>   210
                                                                               4

            (b) Each of the following terms has the meaning specified in the
Section set forth opposite such term:

Term                                                Section
----                                                -------

ABC                                                 Preamble
Affiliate                                           8(a)
Agreement                                           Preamble
APA                                                 Recitals
Capacity Payment                                    4.2
Capacity Deficiency Payments                        4.3
Con Edison                                          Preamble
Confidentiality Agreement                           14
DMNC                                                3(a)
FERC                                                Recitals
Force Majeure Event                                 7(a)
ICAP                                                4.2
Mitigation Measures                                 Recitals
Party                                               Preamble
PSC                                                 Recitals
Proposal                                            Recitals
Purchased Assets                                    Recitals
Required Net Capability                             3(a)

2. EFFECTIVENESS, TERM AND TERMINATION.

            2.1 This Agreement shall only become effective upon the consummation
of the Closing.

            2.2 This Agreement shall expire on the later of (a) the earlier of
(i) December 31, 2002 or (ii) the date on which Buyer receives written notice
from the ISO to the effect that none of the electric capacity of the Purchased
Assets is required for meeting the installed capacity requirements in New York
City as determined by the ISO, or (b) the end of the capability period
immediately preceding the capability period covered by the first auction for
capacity sponsored by the ISO that occurs after the Closing Date.

            2.3 Buyer and Seller agree that, notwithstanding any other provision
of this Agreement, the APA or any other Ancillary Agreement, this Agreement may
not be terminated prior to its expiration by either Party under any
circumstances, including as a result of a breach, whether or not material, by
the other Party, except pursuant to an agreement in writing executed by each
Party.

            2.4 If any Governmental Authority having jurisdiction over this
Agreement requires any modification to, or imposes any condition on acceptance
or approval of, this Agreement, then the Parties shall engage in good faith
negotiations in

<PAGE>   211
                                                                               5

order to amend this Agreement to satisfy, or otherwise address, such
modification or condition.

3. CAPABILITY AND AVAILABILITY REQUIREMENTS.

            (a) During the term of this Agreement, ABC will use commercially
reasonable efforts to maintain the electric generating capability and
availability of the Purchased Assets (i) to provide an amount of Installed
Capacity, after any adjustment set forth in the ISO Rules to reflect the failure
by the Purchased Assets to satisfy the minimum generator availability targets
established by the ISO Rules applicable to the Purchased Assets, which shall be
no less than 100 percent of the Installed Capacity for the first Summer
Capability Period immediately following the Closing Date as reported by ABC to
the NYPP or ISO, as the case may be, based upon a Dependable Maximum Net
Capability ("DMNC") test of the Purchased Assets performed by ABC in accordance
with applicable procedures of the NYPP or ISO, as the case may be, but in no
event greater than the applicable summer net capacity amount set forth on pages
93 and 94 of the Offering Memorandum (the "Required Net Capability") and (ii) to
satisfy all criteria, standards and requirements applicable to providers of
installed capacity (including locational, seasonal and other performance
requirements and compliance with all applicable tariffs, rules and practices)
established by the NYSRC, NPCC, NERC and by the NYPP or the ISO, as applicable.

            (b) For each capability period in which ABC fails to maintain the
capability and availability of the Purchased Assets to provide an amount of
Installed Capacity of no less than the Required Net Capability as required under
Section 3(a)(i), as such amount of Installed Capacity is demonstrated by a DMNC
test and adjusted, if necessary, in accordance with the ISO Rules to reflect the
failure by the Purchased Assets to satisfy the applicable minimum generator
availability targets, ABC shall pay to Con Edison a deficiency charge equal to
the product of (i) the amount (in MW) by which the Installed Capacity provided
is deficient, less any Replacement Capacity purchased by ABC for the applicable
capability period, to the extent such Replacement Capacity is not otherwise
required to meet the installed capacity requirements for New York City under
applicable ISO Rules in such capability period, and (ii) the deficiency charge
per MW applicable under the NYPP Rules or ISO Rules, as the case may be, for
failure by providers of installed capacity to satisfy applicable installed
capacity requirements. Payment of such deficiency charges shall be due at the
end of the first month following the end of the capability period for which the
deficiency charged is assessed.

            (c) Following each capability period, and at such other times as may
reasonably be requested by Con Edison, ABC shall provide Con Edison access to,
or copies of, such relevant plant data and other documents and records
reasonably requested by Con Edison as is necessary to verify the electric
generating capability and availability of the Purchased Assets, and any
deficiency in the amount of Installed Capacity provided, for such capability
period or for another period as may be reasonably requested by Con Edison.

<PAGE>   212
                                                                               6

            (d) Without affecting ABC's obligations under Section 4 below, the
obligations under Section 3 shall not apply to any portion of the electric
generating capacity of the Purchased Assets with respect to which ABC receives a
written notice from the ISO that such capacity is no longer required for meeting
the installed capacity requirements in New York City as determined by the ISO.

4. INSTALLED CAPACITY PURCHASE, QUANTITY AND PAYMENTS.

            4.1 Capacity Purchase Quantity

                  (a) From the Closing Date until the later of (i) the end of
the 1999 Summer Capability Period or (ii) the end of the capability period
immediately preceding the capability period covered by the first auction for
capacity for or including New York City sponsored by the ISO that occurs after
the Closing Date, ABC will sell to Con Edison and Con Edison will purchase from
ABC an amount of Installed Capacity equal to 100 percent of the Installed
Capacity as demonstrated by the Purchased Assets based upon the applicable
summer period DMNC testing, performed in accordance with applicable procedures
of the NYPP or ISO, as the case may be, adjusted, if necessary, in accordance
with the ISO Rules to reflect the failure by the Purchased Assets to satisfy the
applicable minimum generator availability targets established by the ISO Rules;
provided, however, that the amount of Installed Capacity to be provided under
this Section 4.1(a) shall be no less than the Required Net Capability. ABC shall
notify Con Edison five days prior to the conduct of any DMNC test, and Con
Edison shall have the right to observe such test.

                  (b) If the 1999-2000 Winter Capability Period is covered by an
auction for capacity for or including New York City sponsored by the ISO, ABC
will sell to Con Edison and Con Edison will purchase from ABC 454 MW of
Installed Capacity during the 1999-2000 Winter Capability Period.

                  (c) Subject to ABC's obligations under Section 3(a), and to
the extent permitted by NYPP Rules or ISO Rules, as the case may be, ABC may use
Replacement Capacity to supply the Installed Capacity required to be provided to
Con Edison under this Section 4.1.

            4.2 Capacity Payments

            The monthly payment from Con Edison to ABC for Installed Capacity
("Capacity Payment") shall equal the product of (a) the ICAP, (b) a daily per-MW
rate which, on an annualized basis, is equivalent to $105/kW-Year and (c) the
number of days in the applicable month (or portion thereof, if applicable).
"ICAP" is the amount of Installed Capacity, in MW, plus Replacement Capacity,
that is actually provided by ABC to Con Edison based upon the applicable summer
period DMNC testing performed in accordance with applicable procedures of the
NYPP or ISO, as the case may be, adjusted, if necessary, in accordance with the
ISO Rules to reflect the failure by the Purchased Assets to satisfy the
applicable minimum generator availability targets established by the ISO Rules.

<PAGE>   213
                                                                               7

            4.3 Capacity Deficiency Payments

                  (a) Whenever ICAP provided by ABC to Con Edison is less than
the amount of Installed Capacity that ABC is required to sell to Con Edison
under Section 4.1, ABC shall pay to Con Edison deficiency payments ("Capacity
Deficiency Payments"), which shall equal:

            The sum of (i) all Excess Deficiency Charges; (ii) Con Edison's
            Replacement Capacity Costs that are reasonably incurred if, and to
            the extent that, ABC fails to provide Replacement Capacity and Con
            Edison obtains such Replacement Capacity; (iii) all other directly
            related costs and expenses, to the extent not included in (i) and
            (ii), that are reasonably incurred by Con Edison; in all cases
            incurred as a direct result of ABC's failure to provide Con Edison
            with the required amount of Installed Capacity; provided, however,
            that any Capacity Deficiency Payments will be credited against
            deficiency charges due to Con Edison under Section 3(b).

                  (b) If Con Edison incurs any reasonable costs and expenses
described in Section 4.3(a) over a period greater than one calendar month, Con
Edison shall, subject to ABC's approval, which shall not be unreasonably
withheld, allocate those costs on a monthly basis.

            4.4 Con Edison shall pay all taxes, surcharges, adjustments or other
assessments imposed by law, rule or regulation which are of general
applicability and imposed on the sales of Installed Capacity hereunder to the
extent that Con Edison can, based on a ruling from the PSC, collect such taxes,
surcharges, adjustments or other assessments from its customers.

            4.5 Billing and payments of the Capacity Payment due under Section
4.2 and the Capacity Deficiency Payments due under Section 4.3 shall be made in
accordance with Section 6.

            4.6 Subject to the terms and conditions set forth herein, ABC shall
satisfy all requirements applicable to suppliers of installed capacity
established by the NYPP or ISO, as the case may be, including any applicable
locational and seasonal requirements and compliance with and satisfaction of all
applicable tariffs, rules and practices, so that Con Edison will receive the
amount of Installed Capacity specified in Section 4.1.

            4.7 Subject to the terms and conditions set forth herein, Con Edison
shall satisfy all requirements applicable to purchasers of installed capacity
established by the NYPP or ISO, as the case may be. Notwithstanding the
provisions of Section 4.3, Con Edison shall have no obligation to obtain
Replacement Capacity if ABC fails to supply all or part of the Installed
Capacity required under Section 4.1 or to obtain Replacement Capacity for any
shortfall in such Installed Capacity.

<PAGE>   214
                                                                               8

            4.8 In the event the Closing occurs after July 31, 1999 and the
1999-2000 Winter Capability Period is covered by an auction for capacity for or
including New York City sponsored by the ISO, ABC will sell to Con Edison and
Con Edison will purchase from ABC an additional 182 MW of Installed Capacity
during the 1999-2000 Winter Capability Period, on a pro rata basis, for each
month or portion thereof after July 31, 1999, until the Closing Date, which
obligation shall be in addition to the obligations to sell and purchase
Installed Capacity pursuant to Section 4.1(b) and shall be otherwise subject to
the same terms and conditions as such obligations; provided, however, that the
additional obligation pursuant to this Section 4.8 to purchase Installed
Capacity shall (a) in no event exceed 546 MW and (b) not be applicable if such
delay in Closing is caused solely by Buyer.

5. SCHEDULING.

            Consistent with the procedures of the NYPP or ISO, as the case may
be, and consistent with ABC's obligations under Section 4.1 and 4.6, ABC shall
specify to Con Edison in writing, for each Summer Capability Period and for each
Winter Capability Period, the generating units of the Purchased Assets and
Replacement Capacity that ABC will use to supply Installed Capacity to Con
Edison for such Summer Capability Period or Winter Capability Period, as the
case may be, and the amount of Installed Capacity to be supplied from each
generating unit, or any change thereto, at least 30 days before the date Con
Edison is required to report such information, or any changes thereto, to the
NYPP or ISO, as the case may be.

6. BILLING AND PAYMENT PROCEDURES.

            6.1 Billing and Payments

                  (a) In respect of each calendar month ending after the Closing
Date, ABC shall, on or prior to the twentieth day of the following month,
prepare and render an invoice to Con Edison for the Capacity Payment due from
Con Edison to ABC for the preceding calendar month, calculated in accordance
with Section 4.2. The Capacity Payment owed shall be due and payable on or
before the later of (i) the last day of such following month, or (ii) 10
Business Days after Con Edison receives an invoice. All payments shall be made
in immediately available funds by wire transfer to an account designated by ABC.

                  (b) In respect of each calendar month ending after the Closing
Date, Con Edison shall, on or prior to the twentieth day of the following month,
prepare and render an invoice to ABC for any Capacity Deficiency Payments due
from ABC to Con Edison for the preceding calendar month, calculated in
accordance with Section 4.3. The Deficiency Capacity Payments owed shall be due
and payable on or before the later of (i) the last day of such following month,
or (ii) 10 Business Days after ABC receives an invoice.

<PAGE>   215
                                                                               9

                  (c) Each Party may set off any undisputed amount owed to the
other Party against any undisputed amount owed to such Party by the other Party
pursuant to this Agreement or other arrangement(s) specifically agreed to
between the parties, including, without limitation, amounts owed by ABC to Con
Edison under Section 3(b).

                  (d) If any payment under Sections 3(b), 6.1(a) or 6.1(b) falls
due on a day that is not a Business Day, then the payment shall be made on the
next Business Day.

                  (e) Interest on unpaid amounts or payments received after the
due date shall accrue at a rate equal to the prime commercial lending rate
established from time to time by Chase Manhattan Bank, N.A., New York, New York,
or its successor, from the due date until the date upon which payment is made.

                  (f) Any payments owed directly by ABC to the NYPP or ISO, as
the case may be, shall be made pursuant to the procedures established by the
NYPP or ISO, as the case may be. ABC shall be solely responsible for making all
such payments to the NYPP or ISO.

                  (g) The Parties shall maintain records, accounts and other
documents sufficient to reflect accurately all transactions hereunder for a
period of four years from the time of the transactions. Each Party shall, at its
own expense, have the right to audit such records, accounts and other documents
of the other Party during such four-year period upon reasonable prior notice to
the other Party.

            6.2 Billing Disputes

            If a Party contests the amount billed in accordance with Sections
6.1(a) or (b) before such amount is due, the contesting Party shall pay the
undisputed billed amount when due and promptly provide written notice to the
other Party of the disputed amount and identifying the reason for the dispute.
If neither Party disputes a bill within six months after the due date of such
bill, such bill shall be deemed correct. The Parties shall engage in good faith
negotiations to resolve any disputed amounts within 30 days. If the Parties are
unable to resolve a dispute within such period, disputed amounts shall, if
requested by the billing Party, be paid into an escrow account within 30 days of
such request pending resolution of the dispute. Thereafter, either Party may
exercise such remedies as may be available under this Agreement, at law or in
equity. In addition to any other remedies available to ABC, in the event Con
Edison fails to pay a disputed bill into such escrow account within 30 days of a
request by ABC pursuant to the previous sentence, ABC may withhold Installed
Capacity to be provided to Con Edison under Section 4.1 until such bill is paid
into such escrow account. Interest at the rate specified in Section 5.1(e) shall
accrue on any amount due hereunder, if any, that is refunded or credited to the
contesting Party or that is released from escrow to the non-contesting Party,
when the contested amount is resolved.

<PAGE>   216
                                                                              10

            6.3 Survival

            The provisions of Section 3, Section 4 and this Section 6 shall
survive termination, expiration, cancellation, suspension, or completion of this
Agreement to the extent necessary to allow for final billing and payment.

7. FORCE MAJEURE.

            (a) Notwithstanding anything in this Agreement to the contrary,
neither Party shall have any liability or be otherwise responsible to the other
for its failure to carry out its obligations, with the exception of any
obligation to pay money, under this Agreement if and only to the extent that it
becomes impossible for either Party to so perform as a result of any occurrence
or event which is beyond the reasonable control, and does not result from any
fault or negligence, of the Party affected (each, a "Force Majeure Event"),
including any act of God, strike or any other labor disturbance, act of a public
enemy, war, act of terrorism, riot, any other civil disturbance, fire, storm,
lightning, flood, earthquake, any other natural disasters, explosion, materials
shortage, breakage or accident involving facilities, equipment or systems, any
order or regulation or restriction imposed by any Governmental Authority,
failure of a contractor or subcontractor caused by a Force Majeure Event and
transportation delays or stoppages.

            (b) If a Party shall rely on the occurrence of a Force Majeure Event
as a basis for being excused from performance of its obligations under this
Agreement, then the Party relying on such occurrence shall (i) provide prompt
written notice of such Force Majeure Event to the other Party giving an estimate
of its expected duration and the probable impact on the performance of its
obligations hereunder; (ii) exercise its reasonable best efforts to continue to
perform its obligations under this Agreement; (iii) reasonably and expeditiously
take action to correct or cure the Force Majeure Event, provided, however that
settlement of strikes or any other labor disturbance will be completely within
the sole discretion of the Party affected by such strike or labor dispute; (iv)
exercise its reasonable best efforts to mitigate or limit damages to the other
Party; and (v) provide prompt written notice to the other Party of the cessation
of the Force Majeure Event.

8. ASSIGNMENT; NO THIRD PARTY BENEFICIARIES.

            (a) This Agreement and all of the provisions hereof shall be binding
upon and inure to the benefit of the Parties and their respective successors and
permitted assigns, but neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by either Party, including by
operation of law, without the prior written consent of the other Party, except
(i) in the case of Con Edison, to an Affiliate of Con Edison or a third party
that has a contractual or statutory obligation to supply Installed Capacity to
Con Edison's retail customers; (ii) in the case of ABC, to an Affiliate of ABC
or a third party in connection with the transfer of all of ABC's right, title
and interest in and to the Purchased Assets to such Affiliate or third party;
and (iii) in the case of either Party, to a lending institution or trustee in
connection with a

<PAGE>   217
                                                                              11

pledge or granting of a security interest in the Purchased Assets and/or this
Agreement; provided, however, that no assignment or transfer of rights or
obligations by either Party shall relieve it from the full liabilities and the
full financial responsibility, as provided for under this Agreement, unless and
until the transferee or assignee shall agree in writing to assume such
obligations and duties and the other Party has consented in writing to such
assumption. For purposes of this Agreement, the term "Affiliate" shall have the
meaning set forth in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended.

            (b) Nothing in this Agreement is intended to confer upon any other
person except the Parties any rights or remedies hereunder or shall create any
third party beneficiary rights in any person.

9. EXTENSION; WAIVER.

            Either Party may (a) extend the time for the performance of any of
the obligations or other acts of the other Party or (b) waive compliance by the
other Party with any of the agreements or conditions contained in this
Agreement. Any agreement on the part of a Party to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such Party. The failure of a Party to this Agreement to assert any of its rights
under this Agreement or otherwise shall not constitute a waiver of such rights.
Notwithstanding anything herein to the contrary, to the extent that either Party
fails, in any particular instance, to take affirmative steps to exercise its
rights to witness, inspect, observe or approve the activities of the other
Party, such rights shall, solely with respect to such instance, be deemed waived
in respect of such activity.

10. COUNTERPARTS.

            This Agreement may be executed in two or more counterparts, each of
which will be deemed an original, but all of which together shall constitute one
and the same instrument.

11. GOVERNING LAW.

            This Agreement shall be governed by and construed in accordance with
the laws of the State of New York (regardless of the laws that might otherwise
govern under applicable principles of conflicts of law).

12. SEVERABILITY.

            If any term or other provision of this Agreement is invalid, illegal
or incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect. Upon

<PAGE>   218
                                                                              12

such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the Parties shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the Parties as closely as
possible to the fullest extent permitted by applicable law in an acceptable
manner to the end that the transactions contemplated hereby are fulfilled to the
extent possible.

13. AMENDMENT.

            This Agreement may be amended, modified or supplemented only by an
instrument in writing signed on behalf of each of the Parties. This Agreement
shall not be subject to change by application or complaint by any of the Parties
to the FERC or any successor agency pursuant to Section 206 of the Federal Power
Act or any successor provision, or by application or complaint to any court or
state regulatory agency. If the applicable provisions of the NYPP Rules, or the
applicable provisions of the ISO Tariff or ISO Rules, relating to installed
capacity requirements applicable to this Agreement or the implementation of this
Agreement are changed materially, the Parties shall endeavor in good faith to
make conforming changes to this Agreement with the intent to fulfill the
purposes of this Agreement; provided, however, that in no event shall such
changes modify the price for Installed Capacity set forth in Section 4.2 or
excuse ABC from paying, or otherwise modifying its obligations in respect of,
Capacity Deficiency Payments under Section 4.3. Any such conforming change to
this Agreement shall be subject to all necessary regulatory authorizations,
which the Parties shall request or support, as applicable.

14. ENTIRE AGREEMENT.

            This Agreement, the APA, the other Ancillary Agreements and the
Confidentiality Agreement dated *, 1998, between Con Edison and ABC (the
"Confidentiality Agreement"), including the Exhibits, Schedules, documents,
certificates and instruments referred to herein or therein and other contracts,
agreements and instruments contemplated hereby or thereby embody the entire
agreement and understanding of the Parties in respect of the transactions
contemplated by this Agreement. There are no restrictions, promises,
representations, warranties, covenants or undertakings other than those
expressly set forth or referred to herein or therein. This Agreement, the APA
and the other Ancillary Agreements supersede all prior agreements and
understandings between the Parties with respect to the transaction contemplated
by this Agreement other than the Confidentiality Agreement.

15. FURTHER ASSURANCES.

            The Parties agree to, from time to time upon the reasonable request
of either Party, negotiate in good faith and execute and deliver amendments to
this Agreement, including in response to regulatory, technological, operational
or other changes affecting the Purchased Assets or the electric power industry
generally, or such

<PAGE>   219
                                                                              13

other documents or instruments as may be necessary, in order to effectuate the
transactions contemplated hereby.

16. INDEPENDENT CONTRACTOR STATUS.

            Nothing in this Agreement is intended to create an association,
trust, partnership or joint venture between the Parties, or to impose a trust,
partnership, or fiduciary duty, obligation or liability on or with respect to
either Party, and nothing in this Agreement shall be construed as creating any
relationship between Con Edison and ABC other than that of independent
contractors.

17. NOTICES.

            Unless otherwise specified herein, all notices and other
communications hereunder shall be in writing and shall be deemed given (as of
the time of delivery or, in the case of a telecopied communication, of
confirmation) if delivered personally, telecopied (which is confirmed) or sent
by overnight courier (providing proof of delivery) to the Parties at the
following addresses (or at such other address for a Party as shall be specified
by like notice)

if to Con Edison, to:

Consolidated Edison Company of New York, Inc.
4 Irving Place
New York, NY 10003
Telecopy No.: (212) 677-0601
Attention:    Senior Vice President & General Counsel

if to ABC, to:

Telecopy No.:
Attention:

18. INTERPRETATION.

            When a reference is made in this Agreement to an Article or Section,
such reference shall be to an Article or Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include",
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation" or

<PAGE>   220
                                                                              14

equivalent words. The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement. All terms defined
in this Agreement shall have the defined meanings when used in any certificate
or other document made or delivered pursuant hereto unless otherwise defined
therein. The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such terms. Any agreement, instrument,
statute, regulation, rule or order defined or referred to herein or in any
agreement or instrument that is referred to herein means such agreement,
instrument, statute, regulations, rule or order as from time to time amended,
modified or supplemented, including (in the case of agreements or instruments)
by waiver or consent and (in the case of statutes, regulations, rules or orders)
by succession of comparable successor statutes, regulations, rules or orders and
references to all attachments thereto and instruments incorporated therein.
References to a person are also to its permitted successors and assigns.

19. JURISDICTION AND ENFORCEMENT.

            (a) Each of the Parties irrevocably submits to the exclusive
jurisdiction of (i) the Supreme Court of the State of New York, New York County
and (ii) the United States District Court for the Southern District of New York,
for the purposes of any suit, action or other proceeding arising out of this
Agreement or any transaction contemplated hereby. Each of the Parties agrees to
commence any action, suit or proceeding relating hereto either in the United
States District Court for the Southern District of New York or, if such suit,
action or proceeding may not be brought in such court for jurisdictional
reasons, in the Supreme Court of the State of New York, New York County. Each of
the Parties further agrees that service of process, summons, notice or document
by hand delivery or U.S. registered mail at the address specified for such Party
in Section 17 (or such other address specified by such Party from time to time
pursuant to Section 17 shall be effective service of process for any action,
suit or proceeding brought against such Party in any such court. Each of the
Parties irrevocably and unconditionally waives any objection to the laying of
venue of any action, suit or proceeding arising out of this Agreement or the
transactions contemplated hereby in (i) the Supreme Court of the State of New
York, New York County, or (ii) the United States District Court for the Southern
District of New York, and hereby further irrevocably and unconditionally waives
and agrees not to plead or claim in any such court that any such action, suit or
proceeding brought in any such court has been brought in an inconvenient forum.

            (b) The Parties agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the Parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement, this being in addition to any other
remedy to which they are entitled at law or in equity.

<PAGE>   221
                                                                              15

20. CONFLICT.

            Except as expressly otherwise provided herein or therein, in the
event of any conflict or inconsistency between the terms of this Agreement and
the terms of the APA or any other Ancillary Agreement, the terms of this
Agreement shall prevail.

<PAGE>   222
                                                                              16

            IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to
be signed by their respective duly authorized officers as of the date and year
first above written.

                                        ABC

                                        By:    _________________________________
                                        Title: _________________________________

                                        CONSOLIDATED EDISON COMPANY
                                                OF NEW YORK, INC.

                                        By:    _________________________________
                                        Title: _________________________________
<PAGE>   223

                                                                       EXHIBIT H

                 A-0 NON-EXCLUSIVE DOCK LICENSE (THE "LICENSE")
                         SUMMARY OF TERMS AND CONDITIONS

Licensor:               Buyer.

Licensee:               Seller.

Licensed Premises:      A-0 Dock and related wastewater unloading equipment
                        located adjacent to the Astoria Generating Plants.

License Term:           Twenty (20) years.

Renewal Term:           Licensee may renew for four (4) 20-year periods, in each
                        case by providing at least one hundred eighty (180)
                        days' prior written notice to Licensor.

Use:                    Licensee has a non-exclusive right to use the Licensed
                        Premises in connection with the docking of a wastewater
                        barge and for unloading wastewater from such barge to a
                        wastewater treatment facility owned by Seller and
                        located on Seller's property.

Improvements
And Alternations:       Licensee will not make any improvements or alternations
                        to the Licensed Premises without the prior written
                        consent of Licensor.

Non-Exclusivity:        Licensed Premises may also be used by Licensor and other
                        owners or tenants at the Astoria site.

Option to Terminate:    Licensee has right to terminate in its sole discretion
                        on one hundred twenty (120) days' prior written notice.

Revocation:             Licensor has the right to revoke the License for cause,
                        which cause for revocation continues uncured through the
                        expiration of any applicable grace period.

License Fee:            The License is granted free of charge.

<PAGE>   224

Economic Obligations
of Licensee:            The Licensee will pay the property taxes and be
                        responsible for all maintenance expenses on the Licensed
                        Premises.

Environmental
Liabilities:            Except as specified in the following sentence, as
                        between Licensor and Licensee, Licensee shall be
                        responsible and liable for, and indemnify and hold
                        Licensor harmless from, all Environmental Liabilities
                        under any Environmental Law relating to the Licensed
                        Premises and arising out of or in connection with the
                        Licensee's use of, or operations at, the Licensed
                        Premises during the License Term. Except (i) for the
                        offsite transportation, disposal or arrangement for
                        disposal of Hazardous Substances by Licensee prior to
                        Closing, (ii) liabilities relating to the Licensed
                        Premises retained by Seller under the Seller Consent
                        Orders, and (iii) any monetary fines to the extent
                        arising out of events prior to Closing, as between
                        Licensor and Licensee, Licensor shall be responsible and
                        liable for, and indemnify and hold harmless Licensee
                        from, all Environmental Liabilities under any
                        Environmental Law relating to the Licensed Premises and
                        arising out of or in connection with the Licensor's use
                        of, or operations at, the Licensed Premises or with
                        events or conditions which (i) existed prior to the
                        commencement of the License Term or (ii) arise after the
                        expiration of the License Term (and any Renewal Term).

Maintenance:            The Licensee agrees to maintain the Licensed Premises in
                        the condition existing at the commencement of the
                        initial License Term. The Licensee will maintain and
                        repair the Licensed Premises in accordance with Good
                        Industry Practice but will not be responsible for
                        repairs required by damage to the Licensed Premises
                        caused by others.

Insurance:              Unless waived by Licensor (in which case Licensor shall
                        obtain such insurance itself), Licensee shall maintain
                        and keep in full force and effect the following
                        insurance, subject to commercially reasonable terms,
                        with respect to the Licensed Premises:

                        o     general comprehensive liability insurance
                              including contractual liability with limits of at
                              least $5 million per occurrence for bodily injury
                              and at least $1 million per occurrence for
                              property damage or a combined single limit of
                              $5,000,000 per occurrence;

                                       2
<PAGE>   225

                        o     statutory workers' compensation insurance as
                              required by law, and employer's liability
                              insurance, including in respect of accidents (with
                              a limit of at least $500,000 per accident) and
                              occupation diseases (with a limit of at least
                              $500,000 per employee); and

                        o     property casualty insurance (with subrogation
                              waived against Licensor) in such amounts as are
                              agreed between Licensor and Licensee.

                        Such insurance shall have such deductibles and
                        retentions and be underwritten by such companies (to be
                        approved by Licensor) as would be obtained by a
                        reasonably prudent electric power business and shall be
                        primary and noncontributory with any insurance carried
                        by Licensor and shall not require that Licensor pay any
                        premium thereunder. Licensor will be named as an
                        additional insured under the general comprehensive
                        liability insurance policy and as a loss payee on the
                        property casualty insurance policy. Licensee may
                        self-insure against any of the liabilities set forth
                        above if Licensee satisfies all applicable statuary and
                        regulatory criteria with respect to the self-insurance
                        of the relevant liability.

Indemnification:        The indemnification rights and obligations under the
                        License will be governed by the indemnification
                        provisions of Asset Purchase and Sale Agreement.

Assignment and
Sublicensing:           Licensee may not assign or sublicense its rights or
                        obligations under the License without the prior written
                        consent of Licensor.

End of License
Obligations:            At the expiration or revocation of the License, Licensee
                        will vacate the Licensed Premises and leave the Licensed
                        Premises in the condition existing at the commencement
                        of the License Term.

Permits:                Licensee will hold all permits necessary to conduct its
                        operations at or in connection with the Licensed
                        Premises and will be responsible for compliance with
                        same.

Governing Law:          New York.

                                        3
<PAGE>   226

TERMS USED BUT NOT DEFINED HEREIN SHALL HAVE THE MEANINGS ASSIGNED THERETO IN
THE GENERATING PLANT AND GAS TURBINE ASSET PURCHASE AND SALE AGREEMENT TO
WHICH THIS EXHIBIT H IS ATTACHED.

                                       4
<PAGE>   227

                                                                       EXHIBIT I

                                     ASTORIA

                      DECLARATION OF SUBDIVISION EASEMENTS

                                       By

                  CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.
                               Dated as of  , 1999

     The land affected by the within instrument lies in Block 850, Lot I on
                           the Tax Map of the City of
                            New York, Queens County.
                                    Address:

                              Record and return to:

                  Consolidated Edison Company of New York, Inc.
                                 4 Irving Place
                            New York, New York 10003

                          Attention: Robert Selya, Esq.

<PAGE>   228

                                TABLE OF CONTENTS

                                                                            Page

                                    ARTICLE I

                                   Definitions

SECTION 1.01. Definitions .................................................    2

                                   ARTICLE II

                            Declaration of Easements

SECTION 2.01. Grant of Easements for the Benefit of Parcel A ..............    3
SECTION 2.02. Grant of Easements for the Benefit of Parcel B ..............    4
SECTION 2.03. Grant of Easements for the Benefit of Parcel C ..............    5
SECTION 2.04. Grant of Easements for the Benefit of Parcel D ..............    5
SECTION 2.05. Utility Cost Sharing ........................................    6
SECTION 2.06. Condition of Easements ......................................    7
SECTION 2.07. Fire Alarm System ...........................................    7
SECTION 2.08. Emergency Response ..........................................    7

                                   ARTICLE III

                         Term of Easements; Abandonment

SECTION 3.01. Term ........................................................    7
SECTION 3.02. Abandonment of Easements ....................................    7

                                   ARTICLE IV

                    Use. Repair and Maintenance of Easements

SECTION 4.01. Maintenance Obligation ......................................    8
SECTION 4.02. Failure to Maintain .........................................    8
SECTION 4.03. Use of Easement Area During Maintenance .....................    8
SECTION 4.04. General Use Conditions ......................................    9
SECTION 4.05. Compliance with Law .........................................    9
SECTION 4.06. Notification of Proposed Activity ...........................    9
SECTION 4.07. Performance of Work .........................................    9
SECTION 4.08. Notice of Entry .............................................   10
SECTION 4.09. Relocation of Easements .....................................   10

                                    ARTICLE V

                             Casualty; Condemnation

SECTION 5.01. Restoration Work ............................................   10
SECTION 5.02. Condemnation ................................................   11
SECTION 5.03. Relocation of an Easement After Casualy or Condemnation .....   11

                                       i
<PAGE>   229

                                   ARTICLE VI

                            Miscellaneous Provisions

SECTION 6.01. Force Majeure ...............................................   11
SECTION 6.02. Default and Remedies ........................................   11
SECTION 6.03. Mortgagees' Status ..........................................   12
SECTION 6.04. Estoppel Certificate ........................................   12
SECTION 6.05. No Dedication ...............................................   12
SECTION 6.06. Covenants Running With Land .................................   12
SECTION 6.07. No Merger ...................................................   13
SECTION 6.08. Assignment; No Third Party Beneficiaries ....................   13
SECTION 6.09. Notices .....................................................   13
SECTION 6.10. Extension; Waiver ...........................................   14
SECTION 6.11. Amendment and Modification ..................................   14
SECTION 6.12. Governing Law ...............................................   14
SECTION 6.13. Interpretation ..............................................   14
SECTION 6.14. Jurisdiction and Enforcement ................................   15
SECTION 6.15. Severability ................................................   15
SECTION 6.16. Property Treated as Single Zoning Lot .......................   15

List of Exhibits and Schedules

Exhibit A       Legal Description of Parcel A
Exhibit B       Legal Description of Parcel B
Exhibit C       Legal Description of Parcel C
Exhibit D       Legal Description of Parcel D
Exhibit E       Site Plan

Schedule 4.01 Ownership Rights and Maintenance Obligations of Parcel Owners

                                       ii
<PAGE>   230

                                   DECLARATION

      ASTORIA DECLARATION OF SUBDIVISION EASEMENTS (including the Exhibits and
Schedules, this "Declaration") dated as of , 1999 by CONSOLIDATED EDISON COMPANY
OF NEW YORK, INC., a New York corporation ("Declarant").

      WHEREAS Declarant is the owner of the parcel of land described on Exhibit
A attached hereto and made a part hereof located in Queens County, New York
("Parcel A") and the improvements located thereon, as shown on the site plan
prepared by GEOD Corporation dated February 17, 1999 attached hereto and made a
part hereof as Exhibit E (the "Site Plan");

      WHEREAS Declarant is the owner of the parcel of land described on Exhibit
B attached hereto and made a part hereof located in Queens County, New York
("Parcel B") and the improvements located thereon, as shown on the Site Plan;

      WHEREAS Declarant is the owner of the parcel of land described on Exhibit
C attached hereto and made a part hereof located in Queens County, New York
("Parcel "C") and the improvements located thereon, as shown on the Site Plan;

      WHEREAS Declarant is the owner of the parcel of land described on Exhibit
D attached hereto and made a part hereof located in Queens County, New York
("Parcel "D") and the improvements located thereon, as shown on the Site Plan;

      WHEREAS Parcel A, Parcel B, Parcel C and Parcel D are part of a single
zoning lot as that term is defined in Section 12-10 of the Zoning Resolution of
the City of New York, effective December 15, 1961, as amended from time to time
(collectively referred to as the "Property");

      WHEREAS Declarant has operated the Property for the generation and
production of electrical energy as well as the transmission and distribution
thereof, and other uses related to the conduct of a public utility business;

      WHEREAS Declarant has been ordered by the State of New York Public Service
Commission to divest certain generation plant assets;

      WHEREAS in order to accomplish such divestiture, Parcels B, C and D will
be sold to third parties and Parcel A will be retained by Declarant;

      WHEREAS in order to accomplish said proposed sale of Parcels B, C and D,
Declarant intends to subdivide the Property into four parcels, Parcel A, Parcel
B, Parcel C and Parcel D (each, a "Parcel" and, collectively, the "Parcels")
without affecting the single zoning lot status thereof; and

      WHEREAS Declarant, in order to continue operations on the Parcels and to
satisfy the New York City Department of Buildings and the New York City
Department of Business Services, has created certain easements and made certain
declarations for the benefit of Parcels A, B, C and D as a condition of said
subdivision.

<PAGE>   231

      NOW, THEREFORE, Declarant, intending the Parcels to be legally bound by
the easements, covenants, conditions and restrictions hereinafter set forth,
declares as follows:

                                    ARTICLE I

                                   Definitions

      SECTION 1.01. Definitions. As used in this Declaration, the following
terms shall have the following meanings:

      "Casualty" shall have the meaning set forth in Section 5.01.

      "Curing Party"" shall have the meaning set forth in Section 4.02.

      "Declarant" shall have the meaning set forth in the Preamble.

      "Defaulting Party" shall have the meaning set forth in Section 4.02.

      "Easement" means, as applicable, any easement including related rights
intended for the primary benefit of Parcel A or Parcel B or Parcel C or Parcel D
under this Declaration.

      "Easement Area" means an area, including roads and paths, on, above or
below the ground which burdens a Parcel with respect to which the owner of the
other Parcel is herein granted an Easement or Non-Exclusive Right.

      "Entering Party" shall have the meaning set forth in Section 4.07. The
term "Entering Party" shall include a Party exercising Self-Help Rights as a
Curing Party.

      "Entry Rights" means rights of any Party (including Self-Help Rights)
under this Declaration, to maintain an Easement Area; provided that such rights
shall be exercised in accordance with Section 4.07.

      "Force Majeure Event" means any occurrence or event which is beyond the
reasonable control, and does not result from any fault or negligence, of the
Party affected, including any act of God, strike or other labor disturbance, act
of a public enemy, war, act of terrorism, riot, any other civil disturbance,
fire, storm, flood, lightning, earthquake, any other natural disasters,
explosion, materials shortage, breakage or accident to machinery or equipment,
any order or regulation or restriction imposed by any Governmental Authority,
failure of a contractor or subcontractor caused by a Force Majeure Event and
transportation delays or stoppages.

      "Governmental Authority" means any court, administrative or regulatory
agency or commission or other governmental entity or instrumentality, domestic,
foreign or supranational or any department thereof.

      "Mortgagee" means the holder, from time to time, of a mortgage on Parcel A
or Parcel B or Parcel C or Parcel D, which holder has-notified the owners of
the other Parcels of its interest as mortgagee and has provided such owners with
a notice address.

      "Non-Exclusive Right" means any right or Easement intended for the common,
mutual, or reciprocal benefit of more than one Parcel under this Declaration.

                                       2
<PAGE>   232

      "Parcel" shall have the meaning set forth in the Recitals and shall
include a portion of a Parcel.

      "Party or Parties" shall mean the owner or owners from time to time of all
or any portion of a Parcel.

      "Permittee" means the Parties and those claiming by, through or under each
of them and their respective officers, directors, trustees, employees, agents,
contractors, subcontractors, customers, visitors, invitees and licensees.

      "Reimbursement Rights" means the rights of the Curing Party which has
exercised its Self-Help Rights (as defined below), to collect from the
Defaulting Party the reasonable costs and expenses actually expended by the
Curing Party in exercising its Self-Help Rights, including reasonable attorneys'
fees.

      "Release" means the relinquishment by any Party of an Easement or
Non-Exclusive Right.

      "Releasor" means the Party relinquishing an Easement or Non-Exclusive
Right and "Releasee" means the owner of the Easement Area affected by a Release.

      "Self-Help Rights" shall have the meaning set forth in Section 4.02.

      "Taking" shall have the meaning set forth in Section 5.03.

      "Taxes" shall mean all taxes, charges, fees, levies, penalties or other
assessments imposed by any state or local taxing authority, which, if unpaid,
could become a lien against a Parcel.

      "Utility" or "Utilities" shall mean the essential services for which
Easements and Non-Exclusive Rights are granted under Article II.

      "Zoning Resolution" shall mean the Zoning Resolution of the City of New
York, effective December 15, 1961, as amended from time to time.

                                   ARTICLE II

                            Declaration of Easements

      SECTION 2.01. Grant of Easements for the Benefit of Parcel A. Declarant,
as owner of Parcels B, C and D, hereby grants to Declarant, as appurtenant to
and for the benefit of Parcel A, the following rights and Easements intended to
allow the assets located on Parcel A to continue to operate, notwithstanding
subdivision of the Property:

      (a) Easement for Domestic Water Supply. The Non-Exclusive Right and
Easement for domestic water supply to Parcel A through the existing water pipes,
mains and other devices or equipment related thereto located on Parcel B and/or
Parcel C or designated for such purposes on the Site Plan.

      (b) Easement for Access. Intentionally Omitted.

                                       3
<PAGE>   233

      (c) Easement for Fire Protection Water and Related Purposes (Fire Service,
Alarm, Hydrant). The Non-Exclusive Right and Easement for domestic water supply
to Parcel A through the existing water pipes, mains and other devices or
equipment related thereto located on Parcel B and/or Parcel C or designated for
such purposes on the Site Plan.

      (d) Easement for Sewer Lines and Drainage System. The Non-Exclusive Right
and Easement for the discharge of sewage and drainage of storm water through the
existing sanitary sewer and drainage system, including pipes, drains, manholes,
mains and other devices or equipment related thereto as are now located on,
above or under Parcel B and/or Parcel C or shown on the Site Plan and are
designed for the discharge of sewage or drainage of storm water.

      (e) Reservation of Rights. Without in any way limiting the rights of the
fee owner(s) of Parcel B and Parcel C and Parcel D, there are hereby reserved to
the owner(s) of Parcel B and Parcel C and Parcel D all rights in and to the
Easement Areas located on Parcel B and Parcel C and Parcel D, respectively, to
the extent such rights are not inconsistent with and do not materially interfere
with the use of the Easement Areas by the owner of Parcel A and the exercise by
the owner of Parcel A of the Easements and Non-Exclusive Rights granted pursuant
to Section 2.01 hereof.

      (f) Further Actions. The Easements and Non-Exclusive Rights granted in
this Section 2.01 shall include the right on the part of the owner of Parcel A
to take such other actions as may be reasonably necessary for the full exercise
of the Easements and Non-Exclusive Rights specified herein.

      SECTION 2.02. Grant of Easements for the Benefit of Parcel B. Declarant,
as owner of Parcels A, C and D, hereby grants to Declarant, as appurtenant to
and for the benefit of Parcel B, the following rights and Easements intended to
allow the assets located on Parcel B to continue to operate, notwithstanding
subdivision of the Property:

      (a) Easement for Domestic Water Supply. The Non-Exclusive Right and
Easement for domestic water supply to Parcel B through the existing water pipes,
mains and other devices or equipment related thereto located on Parcel A or
designated for such purposes on the Site Plan.

      (b) Easement for Access. Intentionally Omitted.

      (c) Easement for Fire Protection Water and Related Purposes (Fire Service,
Alarm, Hydrant). The Non-Exclusive Right and Easement for domestic water supply
to Parcel B through the existing water pipes, mains and other devices or
equipment related thereto located on Parcel A or designated for such purposes on
the Site Plan.

      (d) Easement for Sewer Lines and Drainage System. Intentionally Omitted.

      (e) Reservation of Rights. Without in any way limiting the rights of the
fee owner(s) of Parcel A and Parcel C and Parcel D, there are hereby reserved to
the owner(s) of Parcel A and Parcel C and Parcel D all rights in and to the
Easement Areas located on Parcel A and Parcel C and Parcel D, respectively, to
the extent such rights are not inconsistent with and do not materially interfere
with the use of the Easement Areas by the owner of Parcel B and the exercise by
the owner of Parcel B of the Easements and Non-Exclusive Rights granted pursuant
to Section 2.02 hereof.

                                       4
<PAGE>   234

      (f) Further Actions. The Easements and Non-Exclusive Rights granted in
this Section 2.02 shall include the right on the part of the owner of Parcel B
to take such other actions as may be reasonably necessary for the full exercise
of the Easements and Non-Exclusive Rights specified herein.

      SECTION 2.03. Grant of Easements for the Benefit of Parcel C. Declarant,
as owner of Parcels A and B and D, hereby grants to Declarant, as appurtenant to
and for the benefit of Parcel C, the following rights and Easements intended to
allow the non-generating assets located on Parcel C to continue to operate,
notwithstanding subdivision of the Property:

      (a) Easement for Domestic Water Supply. The Non-Exclusive Right and
Easement for domestic water supply to Parcel C through the existing water pipes,
mains and other devices or equipment related thereto located on Parcel A and/or
Parcel B or designated for such purposes on the Site Plan.

      (b) Easement for Access. The Non-Exclusive Right and Easement to use, and
to permit its Permittees to use, in common with the owner(s) of Parcel A and
Parcel B and Parcel D and their Permittees, the area designated on the Site Plan
as the "Easement for Ingress and Egress," in accordance with the terms hereof,
for vehicular access, ingress and egress to and from Parcel C over said Easement
Area to 20th Avenue, including the passage of motor vehicles of every kind and
nature (including tractor-trailer trucks, fire trucks, delivery and service
trucks and other vehicles).

      (c) Easement for Fire Protection Water and Related Purposes (Fire Service,
Alarm, Hydrant). The Non-Exclusive Right and Easement for domestic water supply
to Parcel C through the existing water pipes, mains and other devices or
equipment related thereto located on Parcel A and/or Parcel B or designated for
such purposes on the Site Plan.

      (d) Easement for Sewer Lines and Drainage System. The Non-Exclusive Right
and Easement for the drainage of storm water through the existing drainage
system, including pipes, drains, manholes, pumps, mains and other devices or
equipment related thereto as are now located on, above or under Parcel A or
shown on the Site Plan and are designed for the drainage of storm water.

      (e) Reservation of Rights. Without in any way limiting the rights of the
fee owner(s) of Parcel A and Parcel B and Parcel D, there are hereby reserved to
the owner(s) of Parcel A and Parcel B and Parcel D all rights in and to the
Easement Areas located on Parcel A and Parcel B and Parcel D, respectively, to
the extent such rights are not inconsistent with and do not materially interfere
with the use of the Easement Areas by the owner of Parcel C and the exercise by
the owner of Parcel C of the Easements and Non-Exclusive Rights granted pursuant
to Section 2.03 hereof.

      (f) Further Actions. The Easements and Non-Exclusive Rights granted in
this Section 2.03 shall include the right on the part of the owner of Parcel C
to take such other actions as may be reasonably necessary for the full exercise
of the Easements and Non-Exclusive Rights specified herein.

      SECTION 2.04. Grant of Easements for the Benefit of Parcel D. Declarant,
as owner of Parcels A and B and C, hereby grants to Declarant, as appurtenant to
and for the benefit

                                       5
<PAGE>   235

of Parcel D, the following rights and Easements intended to allow the
non-generating assets located on Parcel D to continue to operate,
notwithstanding subdivision of the Property:

      (a) Easement for Domestic Water Supply. The Non-Exclusive Right and
Easement for domestic water supply to Parcel D through the existing water pipes,
mains and other devices or equipment related thereto located on Parcel A and/or
Parcel B and/or Parcel C or designated for such purposes on the Site Plan.

      (b) Easement for Access. The Non-Exclusive Right and Easement to use, and
to permit its Permittees to use, in common with the owner(s) of Parcel A and
Parcel B and Parcel C and their Permittees, the area designated on the Site Plan
as the "Easement for Ingress and Egress," in accordance with the terms hereof,
for vehicular access, ingress and egress to and from Parcel D over said Easement
Area to 20th Avenue, including the passage of motor vehicles of every kind and
nature (including tractor-trailer trucks, fire trucks, delivery and service
trucks and other vehicles).

      (c) Easement for Fire Protection Water and Related Purposes (Fire Service,
Alarm, Hydrant). The Non-Exclusive Right and Easement for domestic water supply
to Parcel D through the existing water pipes, mains and other devices or
equipment related thereto located on Parcel A and/or Parcel B and/or Parcel C or
designated for such purposes on the Site Plan.

      (d) Easement for Sewer Lines and Drainage System. The Non-Exclusive Right
and Easement for the discharge of sewage and drainage of storm water through the
existing sanitary sewer and drainage system, including pipes, drains, manholes,
pumps, mains and other devices or equipment related thereto as are now located
on, above or under Parcel A and/or Parcel C or shown on the Site Plan and are
designed for the discharge of sewage or drainage of storm water; provided,
however, that the owner of Parcel D shall, at its sole expense, install its own
sanitary sewer system on or before the date which is eighteen (18) months from
the date hereof.

      (e) Reservation of Rights. Without in any way limiting the rights of the
fee owner(s) of Parcel A and Parcel B and Parcel C, there are hereby reserved to
the owner(s) of Parcel A and Parcel B and Parcel C all rights in and to the
Easement Areas located on Parcel A and Parcel B and Parcel C, respectively, to
the extent such rights are not inconsistent with and do not materially interfere
with the use of the Easement Areas by the owner of Parcel D and the exercise by
the owner of Parcel D of the Easements and Non-Exclusive Rights granted pursuant
to Section 2.04 hereof.

      (f) Further Actions. The Easements and Non-Exclusive Rights granted in
this Section 2.04 shall include the right on the part of the owner of Parcel D
to take such other actions as may be reasonably necessary for the full exercise
of the Easements and Non-Exclusive Rights specified herein.

      SECTION 2.05. Utility Cost Sharing. The Parties shall request that the
applicable supplier send bills for the water supplied by the City water mains
described on Schedule 4.01 directly to the owners of such mains. Declarant
shall, at its expense, install a submeter on all branch lines off any of the
mains described on Schedule 4.01. Each owner of a Parcel served by a branch line
off one of the mains described on Schedule 4.01 shall, at its expense, maintain
the submeter on such branch line. Each owner of a water main described on
Schedule 4.01 shall pay all charges for water supplied through such main
directly to the City of New York or other applicable public authority or utility
company (each, a "Utility Supplier") and shall bill the owners of any Parcel
served by a branch line described in Schedule 401 for its share of such

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<PAGE>   236

water charges based on readings of the submeters described above at the same
rate it pays to the Utility Supplier. The owners of the other Parcels shall pay
such bills within 30 days after they are received. Sewer charges, if any, shall
be paid and billed in the same manner.

      SECTION 2.06. Condition of Easements. The Non-Exclusive Rights and
Easements established hereby are subject to any existing state of facts
affecting the respective Easement Areas, and Declarant makes no representation,
covenant or warranty as to the condition of any such Easement Area.

      SECTION 2.07. Fire Alarm System. The owner of each Parcel shall insure
that its fire alarm system will identify the location of a fire on that Parcel,
as opposed to the general location of a fire on the Property, to the central
control room on such Parcel. The Owner of Parcel D shall also be responsible for
the maintenance, repair and replacement of the fire alarm located at the A-10
dock facility, but only for so long as that certain A-10 Dock License Agreement
to be entered into between Declarant and the owner of Parcel D is in effect.

      SECTION 2.08. Emergency Response. The owners of the Parcels shall
individually or collectively maintain on-site personnel familiar with plant
equipment and operations whose duties shall include responding to alarms and
assisting the Fire Department or other emergency responder in accordance with
emergency response procedures to be developed with the Fire Department and other
emergency response agencies.

                                   ARTICLE III

                         Term of Easements; Abandonment

      SECTION 3.01. Term. Subject to the terms of Sections 3.02 and 5.03 hereof,
all Easements and Non-Exclusive Rights granted herein shall be perpetual. No
Easement or Non-Exclusive Right granted herein shall expire, terminate or be
deemed abandoned without the prior written approval of the New York City
Department of Buildings and/or the New York City Department of Business
Services, as applicable, or such other Governmental Authorities succeeding to
their jurisdiction.

      SECTION 3.02. Abandonment of Easements. Subject to receipt of the prior
written approval of the New York City Department of Buildings and/or the New
York City Department of Business Services, if required, the owner of a Parcel
benefitting from an Easement or Non-Exclusive Right under this Declaration may
from time to time, upon not less than thirty days' notice to the owner of the
Easement Area, release its Easement or Non-Exclusive Right with respect thereto.
Any such notice shall (x) specify the effective date of such Release and (y) be
accompanied by evidence reasonably satisfactory to the owner of the Easement
Area that such abandonment has been approved by the New York City Department of
Buildings and, to the extent necessary, the New York City Department of Business
Services. The Party benefitting from the Easement Area shall take such measures
as shall be required to effectuate the Release. Such measures shall include the
following: (i) in the case of any Easement or Non-Exclusive Right for domestic
water, to the extent necessary, the cutting, capping, removal or disabling of
any pipes, pumps, mains and other devices; (ii) in the case of any Easement or
Non-Exclusive Right for fire protection water, the cutting, capping, removal or
disabling of any pipes, pumps or mains; (iii) in the case of any Easement for
access, the erection of such wall, gate or other barrier required to prevent any
person, party or vehicle from gaining access to the Easement Area from the
benefitted Parcel; and (iv) in the case of sewer lines, the cutting and/or
capping of any pipes used to discharge sewage and drainage water and the
disabling or removal of any pipes, manholes, mains and other devices. Whenever
an Easement or Non-Exclusive Right is released

                                       7
<PAGE>   237

in accordance with the terms of this Section 3.02, (A) the owner of the Parcel
formerly burdened by such Easement Area shall execute and deliver to the
Releasee such documents in recordable form as shall be reasonably required to
evidence the Release, (B) the Releasor shall have no further obligation or
liability to the owner of the affected Easement Area; and (C) the Releasee shall
have no further obligation or liability to the Releasor with respect to such
Easement or Non-Exclusive Right.

                                   ARTICLE IV

                    Use, Repair and Maintenance of Easements

      SECTION 4.01. Maintenance Obligation. Each Party shall, at its sole cost
and expense, with respect to each Easement Area located on or within such
Party's Parcel (i) maintain the surface and subsurface of the improved portions
of the Easement Area in good repair and condition, (ii) keep the Easement Area
reasonably free of obstructions (including snow and ice) and adequately
illuminated, (iii) maintain the security of the Easement Area, and (iv) maintain
the facilities located within such Easement Area which are necessary for the
exercise of the Non-Exclusive Rights and Easements with respect thereto
(including all pipes, mains and other devices or equipment related thereto) in
good repair and condition. As used in this Section 4.01, the term "maintain"
shall include repair and/or replacement, to the extent applicable. Each Utility
shown on the Site Plan, except for roads, shall be owned and maintained in
accordance with Schedule 4.01 attached hereto and made a part hereof. Roads
shall be maintained by the Party on whose Parcel the road is located. Guard
service costs shall be billed to and paid by the owner of Parcel A and then
apportioned among the Parties in accordance with the size of each Party's Parcel
which is benefitted thereby.

      SECTION 4.02. Failure to Maintain. If a Party (the "Defaulting Party")
fails to perform any obligation set forth herein, the other Party (the "Curing
Party") shall have the right to perform the actions which the Defaulting Party
failed to perform in accordance with this Declaration (the "Self-Help Rights")
and shall be entitled to Entry Rights and Reimbursement Rights with respect
thereto. Notwithstanding the foregoing, Self-Help Rights may only be exercised
after failure of the Defaulting Party to perform any actions required to be
performed pursuant to this Declaration (i) if no emergency exists, within thirty
days after notice from the Curing Party, or if such failure is not curable
within said period, within such longer period as is reasonably necessary to cure
such failure, provided the Defaulting Party begins to cure such failure within
such thirty-day period and thereafter diligently prosecutes the same to
completion; and (ii) in any emergency situation, immediately upon written or
(notwithstanding any other provisions of this Declaration) verbal notice, if
prior notice is practicable, or, if such notice is not practicable, then without
giving prior notice to the Defaulting Party, provided that the Curing Party
shall, in such circumstances, give the Defaulting Party notice thereof as soon
thereafter as practicable. All work to be performed by the Curing Party so
acting under the provisions of this Declaration shall be performed in accordance
with Section 4.07.

      SECTION 4.03. Use of Easement Area During Maintenance. During the
performance of any maintenance work required or permitted hereunder, each Party
shall have the right, at its own risk, to use the affected Easement Area for the
purposes contemplated herein; provided, however, that each Party shall keep such
Easement Area free of obstructions, and shall implement such other safety and
similar measures as may be required by law or reasonably necessary from time to
time to assure the other Party safe and convenient access to its Parcel, and
neither Party shall materially adversely affect or substantially interfere with
the other Party's use of any such Easement Area.

                                       8
<PAGE>   238

      SECTION 4.04. General Use Conditions. No Party shall use an Easement or
Non-Exclusive Right in accordance herewith in such a manner so as to reduce,
injure, overload, deface, harm or impair the applicable Easement Area or
Utility, so as to allow or suffer any waste thereof, or so as to commit any
nuisance by its use thereof. Any damage caused by a Party or its Permittees in
violation of this provision shall be promptly repaired by the Party that caused,
or whose Permittees caused, such damage. No Party shall materially adversely
affect, materially deprive of a benefit associated with, materially impose a
burden on, or substantially interfere with, the other Party's use of the
Utilities, Non-Exclusive Rights and/or Easements that are the subject of this
Declaration.

      SECTION 4.05. Compliance with Law. All Parties shall use the Easement
Areas and Utilities, including roads, in compliance with all applicable
licenses, permits and approvals, and otherwise in compliance with all applicable
laws (including environmental laws), ordinances, orders, codes, rules and
regulations (including all fire safety and site security requirements imposed by
law or mutually agreed to by the Parties from time to time). All Parties shall
own, operate and maintain their respective Parcels and Easements Areas in
accordance with applicable licenses, permits and approvals, and otherwise in
compliance with all applicable laws, ordinances, orders, codes, rules and
regulations of Governmental Authorities. Notwithstanding anything to the
contrary contained herein, nothing in this Declaration shall be construed to
relieve any Party of its duty under the New York City Administrative Code or
other laws and regulations to maintain in a safe condition the Utilities and
other facilities located on its property, including but not limited to fire
protection and suppression devices and equipment.

      SECTION 4.06. Notification of Proposed Activity. Whenever a proposed
activity of a Party is reasonably expected to have an adverse impact on the use
by another Party of an Easement Area on such Party's Parcel, or the use of the
Utilities available therefrom, the Party proposing such activity shall notify
the other Party of such proposed activity reasonably in advance, so that the
other Party may implement reasonable measures designed to mitigate the impact
thereof. The cost of such protective measures shall be chargeable to the Party
proposing such activity. This notification requirement shall apply in all cases,
including emergencies, provided that in the case of emergency, the notice given
shall be such notice as is reasonably practicable under the circumstances.

      SECTION 4.07. Performance of Work. All work to be performed under this
Declaration by a Party (the "Entering Party") in or affecting the Easement Areas
on its Parcel or the Utilities available therefrom or the Parcel of the other
Party (i) shall not impair the structural integrity of any improvement situated
on either Parcel; (ii) shall not be undertaken until the Entering Party shall
have procured and paid for all required Permits; (iii) except for routine
maintenance activity, shall not be undertaken until the Entering Party shall
have submitted to the other Party all applicable drawings, plans,
specifications, engineering plans and related information and, except in
connection with the exercise of Self-Help Rights, obtained the consent of the
other Party to the work to be performed, which consent shall not be unreasonably
withheld or delayed; (iv) shall be performed in accordance with good industry
practice and in compliance with all applicable laws, ordinances, orders, codes,
rules and regulations; (v) shall be performed by contractors fully insured,
licensed (to the extent required by applicable law) and competent to do the work
being undertaken; (vi) shall be performed in a manner that does not materially
adversely affect or substantially interfere with the use and enjoyment by the
other Party of the affected Utility, Easement Areas or Parcel, and (vii) shall
be diligently prosecuted to completion. During any construction or
reconstruction work, the construction site shall be kept in an orderly, clean
and safe condition. The Entering Party shall pay when due all claims for labor
performed or material furnished and not permit any mechanics' or materialmen's
lien to attach, and if any such liens do attach, the Entering Party shall
immediately bond such liens in accordance with any

                                        9
<PAGE>   239

applicable statutory provision. Except in connection with the exercise of
Self-Help Rights, the Entering Party shall also be responsible for the
professional fees incurred by the other Party in reviewing the Entering Party's
plans and drawings, whether or not consent thereto shall be given. The review
of, comments on, or consent to any documents, drawings, plans, specifications or
other documentation provided by the Entering Party shall not relieve the
Entering Party of, or affect in any way, its responsibility for the correctness
and adequacy of the work to be performed. The other Party shall have no
liability whatsoever with respect to any review or non-review of or consent to
any documentation submitted to it by the Entering Party.

      SECTION 4.08. Notice of Entry. Whenever the Entering Party shall intend to
enter upon an Easement Area located upon the Parcel of another Party to perform
any work, the Entering Party shall give the affected Party (i) at least
twenty-four (24) hours' prior written notice in the case of routine maintenance,
(ii) prior written notice in accordance with Section 4.07(iii) hereof in the
case of any more significant work or (iii) immediate verbal notification
followed by written notice in the case of any emergency.

      SECTION 4.09. Relocation of Easements. The owner of any Easement Area may
elect to change the location of all or any portion of the Easement Area, on not
less than ninety days' prior written notice to the owner of the parcel
benefitted by any Easement or Non-Exclusive Right specifying the proposed
effective date of such relocation. The owner of the benefitted parcel shall have
thirty days from receipt of said notice to approve the relocation, with or
without modification, such approval to serve as evidence that any such
relocation shall not deprive the benefitted party of the practical realization
of the benefits of such Easement Area. Upon receipt of the written approval of
the benefitted party, the Owner of the Easement Area seeking the relocation
shall obtain the approval of the New York City Department of Buildings and/or
the New York City Department of Business Services, as applicable. No relocation
shall become effective unless and until such governmental approval shall have
been obtained. Any such relocation shall occur at the sole cost and expense to
the Easement Area owner. Any relocated Easement or Non-Exclusive Right shall be
subject to all of the terms, covenants and conditions of this Declaration. Upon
the relocation of any Easement Area pursuant to the terms of this Section 4.09,
the owner of the Parcel benefitted shall execute and deliver to the owner of the
Parcel formerly burdened such documents in recordable form as the owner of the
former Easement shall require to evidence the Release and/or relocation thereof.

                                    ARTICLE V

                             Casualty; Condemnation

      SECTION 5.01. Restoration Work. Except as set forth in Section 5.03, if
any of the facilities, equipment and systems located within an Easement Area
which provides any Utility is damaged or destroyed by fire or other casualty
("Casualty"), the owner of the Easement Area shall commence the repair or
restoration as expeditiously as is practicable in the circumstances, and shall
diligently prosecute such repair or restoration to completion in accordance with
the standards of work and other requirements set forth in Section 4.07. Failure
of the owner of the affected Easement Area to comply with such obligation
shall give rise to Self-Help Rights (and correlative Reimbursement Rights) and
other remedies in favor of the owner of the affected Parcel. Notwithstanding the
foregoing, any infrastructure, including any equipment or roads, exclusively for
the benefit of or owned by the owner of a Parcel, shall be repaired or restored
by the owner to whom it is reserved or by whom it is owned, as the case may be,
notwithstanding its location on another Party's Parcel.

                                       10
<PAGE>   240

      SECTION 5.02. Condemnation. Except as set forth in Section 5.03, in the
event that a Parcel or a portion thereof containing an Easement Area shall be
taken by any Governmental Authority in the exercise of the power of eminent
domain (each, a "Taking" with the term "Taken" construed accordingly), each
affected Easement or Non-Exclusive Right hereunder shall terminate, to the
extent affected by such Taking, as of the date the owner of the Easement Area is
divested of title, unless the instrument of Taking expressly provides otherwise,
and the award attributable to such Taking shall, if not separately awarded to
the Parties with respect to their separate interests by the condemning
authority, be equitably allocated between the Parties, as their respective
interests may appear. The control of the condemnation proceeding shall always be
vested in the fee owner of the Easement Area being Taken. Nothing herein shall
preclude the Party affected from pursuing any claims against the condemning
authority with respect to the loss of the Easements or Non-Exclusive Rights
granted herein or the costs of relocation, and all awards with respect to such
facilities or costs shall be the exclusive property of such Party.

      SECTION 5.03. Relocation of an Easement After Casualty or Condemnation.
Notwithstanding the foregoing provisions of this Article V, in the event of a
casualty or condemnation which results in the complete or substantial
destruction or unusability or relocation of any Easement or Non-Exclusive Right,
the beneficiary thereof shall, to the extent commercially practical, restore the
affected Utilities, if any, in a manner that an Easement or Non-Exclusive Right
is no longer required.

                                   ARTICLE VI

                            Miscellaneous Provisions

      SECTION 6.01. Force Majeure. (a) Notwithstanding anything in this
Declaration to the contrary, no Party shall have any liability or be otherwise
responsible to the other for its failure to carry out its obligations, with the
exception of any obligation to pay money, under this Declaration if and only to
the extent that it becomes impossible for either Party to so perform as a result
of any Force Majeure Event.

      (b) If a Party shall rely on the occurrence of a Force Majeure Event as a
basis for being excused from performance of its obligations under this
Declaration, then the Party relying on such occurrence shall (i) provide prompt
written notice of such Force Majeure Event to the other Party(ies) giving an
estimate of its expected duration and the probable impact on the performance of
its obligations hereunder, (ii) exercise its reasonable best efforts to continue
to perform its obligations under this Declaration, (iii) expeditiously take
action to correct or cure the Force Majeure Event (provided that settlement of
strikes or any other labor dispute will be completely within the sole discretion
of the Party affected by such strike or labor dispute), (iv) exercise its
reasonable best efforts to mitigate or limit damages to the other Party and (v)
provide prompt notice to the other Party(ies) of the cessation of the Force
Majeure Event.

      SECTION 6.02. Default and Remedies. In the event that a Party defaults,
breaches or otherwise fails to perform any obligation of such Party under this
Declaration, the other Party shall have the right to all remedies available at
law or in equity, including the right to injunctive relief and the right to
exercise its Self-Help Rights (and shall be entitled to correlative
Reimbursement Rights in connection therewith) without any requirement to pursue
or exhaust any other remedies available to such Party under any other agreement.
All such remedies shall be cumulative and not exclusive. A Party shall have the
right, following notice to the other Party,

                                       11
<PAGE>   241

to take such action as it may deem necessary or advisable, including payment of
any delinquent Taxes, to prevent a foreclosure for nonpayment of Taxes or other
action by a Governmental Authority that might affect its rights and interests
hereunder and any such action shall be deemed an exercise of Self-Help Rights
(and, accordingly, give rise to correlative Reimbursement Rights). In the event
a Party is entitled to Reimbursement Rights hereunder and same are not satisfied
within thirty days after written demand by the Party entitled to same, the
unpaid obligations shall constitute a lien against the defaulting Party's
Parcel; provided, however, that the payment of any monetary obligations which
become due and payable by a Party after recordation of a mortgage on such
Party's Parcel granted to an independent third party regularly engaged in the
business of making mortgage loans shall be subordinate to the payment of the
obligations secured by such mortgage.

      SECTION 6.03. Mortgagees' Status. Except as set forth in Section 6.02
hereof, this Declaration shall be superior to any mortgages or other instruments
evidencing security for indebtedness granted by either Party from time to time
with respect to its Parcel. Accordingly, each Party agrees to obtain and deliver
to the other Party such documents and instruments, in recordable form, as may be
reasonably necessary or requested by the other Party to evidence and confirm the
subordination of any such mortgages or other security instruments to the
provisions of this Declaration.

      SECTION 6.04. Estoppel Certificate. Each Party agrees, within ten (10)
days after written request by the other, to execute, acknowledge and deliver to
and in favor of any present or proposed lender, Mortgagee, ground lessor,
purchaser, tenant or the like of all or any part of the other Party's Parcel, an
estoppel certificate, in a form reasonably satisfactory to such lender,
Mortgagee, ground lessor, purchaser, tenant or the like, stating, among other
things: (i) whether this Declaration is in full force and effect; (ii) whether
this Declaration has been modified or amended and, if so, identifying and
describing any such modification or amendment; (iii) whether there are any sums
then due and owing under this Declaration from either Party to the other, and if
so, specifying the amount thereof and reason therefor; and (iv) whether the
Party giving such certificate knows of any default (or event which, with the
passage of time, the giving of notice, or both, would constitute a default) on
the part of the other Party, or has any outstanding claim against the other
Party arising under this Declaration and, if so, specifying the nature of such
default or claim.

      SECTION 6.05. No Dedication. Nothing contained in this Declaration shall
be deemed to be a gift or dedication of any portion of either Parcel to the
general public or for any public use or purpose whatsoever, or, except as
expressly set forth herein, be deemed to create any rights or benefits in favor
of any municipality, public authority or official thereof, it being the
intention of the Parties that this Declaration be for the exclusive benefit of
the owner or owners, from time to time, of the Parcels, or any part thereof, and
those claiming under them.

      SECTION 6.06. Covenants Running With Land. The benefits and burdens,
rights and obligations, Easements, Non-Exclusive Rights and restrictions created
by this Declaration shall be appurtenant to and run with and burden and be
binding upon Parcel A, Parcel B, Parcel C and Parcel D, and shall inure to the
benefit of and be binding upon Declarant and those claiming by, through, or
under it. The covenants, agreements, terms, provisions and conditions of this
Declaration shall bind and benefit the successors in interest (as owners of
Parcel A, Parcel B, Parcel C and Parcel D, respectively, whether by sale,
foreclosure or otherwise) of Declarant with the same effect as if mentioned in
each instance when a Party is named or referred to, it being understood and
agreed that upon any transfer of ownership (whether by sale, foreclosure or
otherwise) of all or any part of Parcel A, Parcel B, Parcel C and Parcel D, as
the case may be, each such successor in interest shall, without the requirement
of any further documentation,

                                       12
<PAGE>   242

thereupon and thereafter assume, and perform and observe, any and all of the
obligations of its predecessors in interest under this Declaration with respect
to such Parcel (or portion thereof). Notwithstanding the foregoing, (a) each
Party shall use reasonable efforts to cause any such successor in interest to
execute an agreement in recordable form pursuant to which such successor in
interest shall assume any and all obligations of its predecessors in interest
under this Declaration; provided, however, that the failure to obtain any such
agreement shall not detract from the provisions of the previous sentence, and
(b) no Party shall be released from any liability for such obligations (whether
arising before or after any such transfer of ownership) without the prior
written consent of all of the other Parties, provided that Declarant shall be
released from its liability for obligations relating to Parcel B, Parcel C
and/or Parcel D upon its conveyance of each such Parcel as contemplated by this
Declaration.

      SECTION 6.07. No Merger. The acquisition by the owner from time to time of
Parcel A of any interest in and to Parcel B or Parcel C or Parcel D, or the
acquisition by the owner from time to time of Parcel B of any interest in and to
Parcel A or Parcel C or Parcel D, or the acquisition by the owner from time to
time of Parcel C of any interest in and to Parcel A or Parcel B or Parcel D, or
the acquisition by the owner from time to time of Parcel D of any interest in
and to Parcel A or Parcel B or Parcel C, shall not result in an impairment or
extinguishment by merger of any right, Easement or obligation granted or created
hereby. No merger shall result unless and until (a) one person or entity owns
the fee title to Parcel A, Parcel B, Parcel C and Parcel D in their entirety and
(b) written consents to such merger and termination of this Declaration shall
have been obtained (and recorded with the Office of the City Register of Queens
County) from all holders of mortgages then of record with respect to any portion
of Parcel A, Parcel B, Parcel C or Parcel D.

      SECTION 6.08. Assignment; No Third Party Beneficiaries. (a) This
Declaration and all of the provisions hereof shall be binding upon and inure to
the benefit of Declarant and its successors and permitted assigns but neither
this Declaration nor any of the rights, interests or obligations hereunder shall
be assigned by any Party, including by operation of law, without the prior
written consent of the other Party(ies), except (A) to a Party acquiring all or
any part of a Parcel, or (B) to a lending institution or trustee in connection
with a pledge or granting of a security interest in all or any part of the
Parcel owned by such Party;

      (b) Nothing in this Declaration is intended to confer upon any other
person except the Parties any rights or remedies hereunder or shall create any
third party beneficiary rights in any person.

      SECTION 6.09. Notices. (a) Unless otherwise specified herein, all notices
and other communications hereunder shall be in writing and shall be deemed given
(as of the time of delivery or, in the case of a telecopied communication, of
confirmation) if delivered personally, telecopied (which is confirmed) or sent
by overnight courier (providing proof of delivery) to the Parties at the
following addresses (or at such other address for a Party as shall be specified
by like notice):

            if to Declarant, to:

                  Consolidated Edison Company of New York, Inc.
                  4 Irving Place
                  New York, NY 10003
                  Attention: Director of Real Estate

            With a copy to:

                                       13
<PAGE>   243

                  Consolidated Edison Company of New York, Inc.
                  4 Irving Place
                  New York, NY 10003
                  Attention: General Counsel

      (b) In the event any Party shall desire or shall be required to send any
notice to the Department of Buildings and/or to the Department of Business
Services, any such notice shall be sent in the manner described in Section
6.09(a) above addressed as follows:

            if to the Department of Buildings, to:

                  New York City Department of Buildings
                  Office of General Counsel
                  60 Hudson Street
                  New York, New York 10013, or at its then official address

            if to the Department of Business Services, to:

                  New York City Department of Business Services
                  Office of General Counsel
                  110 William Street
                  New York, New York 10038,
                  or at its then official address.

      SECTION 6.10. Extension; Waiver. Any Party may (i) extend the time for the
performance of any of the obligations or other acts of the other Party(ies) or
(ii) waive compliance by the other Party(ies) with any of the agreements or
conditions contained in this Declaration. Any agreement on the part of a Party
to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such Party. The failure of a Party to
this Declaration to assert any of its rights under this Declaration or otherwise
shall not constitute a waiver of such rights.

      SECTION 6.11. Amendment and Modification. This Declaration may be
amended, modified or supplemented only by an instrument in writing signed on
behalf of each of the Parties; provided, however, that no such amendment (other
than an amendment of Section 2.05 hereof) shall be effective without the prior
written approval of the New York City Department of Buildings or the New York
City Department of Business Services, as applicable.

      SECTION 6.12. Governing Law. This Declaration shall be governed by and
construed in accordance with the laws of the State of New York (regardless of
the laws that might otherwise govern under applicable principles of conflicts of
law).

      SECTION 6.13. Interpretation. When a reference is made in this Declaration
to an Article, Section, Schedule or Exhibit, such reference shall be to an
Article or Section of, or Schedule or Exhibit to, this Declaration unless
otherwise indicated. The table of contents and headings contained in this
Declaration are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Declaration. Whenever the words "include",
"includes" or "including" are used in this Declaration, they shall be deemed to
be followed by the words "without limitation". The words "hereof", "herein" and
"hereunder" and words of similar import when used in this Declaration shall
refer to this Declaration as a whole and not to any particular provision of this
Declaration. All terms defined in this Declaration shall have the defined

                                       14
<PAGE>   244

meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein. The definitions contained in
this Declaration are applicable to the singular as well as the plural forms of
such terms and to the masculine as well as to the feminine and neuter genders of
such term. Any agreement, instrument, statute, regulation, rule or order defined
or referred to herein or in any agreement or instrument that is referred to
herein means such agreement, instrument, statute, regulation, rule or order as
from time to time amended, modified or supplemented, including (in the case of
agreements or instruments) by waiver or consent and (in the case of statutes,
regulations, rules or orders) by succession of comparable successor statutes,
regulations, rules or orders and references to all attachments thereto and
instruments incorporated therein. References to a person are also to its
permitted successors and assigns.

      SECTION 6.14. Jurisdiction and Enforcement. (a) Each of the Parties
irrevocably submits to the exclusive jurisdiction of (i) the Supreme Court of
the State of New York, New York County and (ii) the United States District Court
for the Southern District of New York, for the purposes of any suit, action or
other proceeding arising out of this Declaration or any transaction contemplated
hereby. Each of the Parties agrees to commence any action, suit or proceeding
relating hereto either in the United States District Court for the Southern
District of New York or, if such suit, action or proceeding may not be brought
in such court for jurisdictional reasons, in the Supreme Court of the State of
New York, New York County. Each of the Parties further agrees that service of
process, summons, notice or document by hand delivery or U.S. registered mail at
the address specified for such Party in Section 6.09 (or such other address
specified by such Party from time to time pursuant to Section 6.09) shall be
effective service of process for any action, suit or proceeding brought against
such Party in any such court. Each of the Parties irrevocably and
unconditionally waives any objection to the laying of venue of any action, suit
or proceeding arising out of this Declaration or the transactions contemplated
hereby in (i) the Supreme Court of the State of New York, New York County, or
(ii) the United States District Court for the Southern District of New York, and
hereby further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such action, suit or proceeding brought in any
such court has been brought in an inconvenient forum.

      (b) The parties agree that irreparable damage would occur in the event
that any of the provisions of this Declaration were not performed in accordance
with their specific terms or were otherwise breached. It is accordingly agreed
that the Parties shall be entitled to an injunction or injunctions to prevent
breaches of this Declaration and to enforce specifically the terms and
provisions of this Declaration, this being in addition to any other remedy to
which they are entitled at law or in equity.

      SECTION 6.15. Severability. If any term or other provision of this
Declaration is invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other conditions and provisions of this Declaration
shall nevertheless remain in full force and effect. Upon such determination that
any term or other provision is invalid, illegal or incapable of being enforced,
the Parties shall negotiate in good faith to modify this Declaration so as to
effect the original intent of the Parties as closely as possible to the fullest
extent permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.

      SECTION 6.16. Property Treated as Single Zoning Lot. Declarant agrees that
no breach by any Party shall have any effect on the treatment of the Property
covered by this Declaration as one zoning lot and the Property shall be treated
as one zoning lot unless such

                                       15
<PAGE>   245

zoning lot is subdivided in accordance with the provisions of the Zoning
Resolution.

      IN WITNESS WHEREOF, Declarant has caused this Declaration to be signed by
its duly authorized officer as of the date first above written.

                        CONSOLIDATED EDISON COMPANY OF
                         NEW YORK, INC.

                        By:___________________
                        Name:
                        Title:

                                       16
<PAGE>   246

STATE OF NEW YORK  )
                   ) ss.:
COUNTY OF NEW YORK )

      On this __ day of _______ 1999, before me personally appeared
______________, personally known to me or proved to me on the basis of
satisfactory evidence to be the individual whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in his
capacity, and that by his signature on the instrument, the individual, or the
corporation upon behalf of which the individual acted, executed the instrument.

                                           ___________________________
                                           NOTARY PUBLIC

                                       17
<PAGE>   247

                                    EXHIBIT A

                          Legal Description of Parcel A

      To be prepared by GEOD Corporation prior to the recording of this
Declaration, which description shall be substantially in accordance with Parcel
A as shown on the Astoria Generating Station ALTA/ACSM Land Title Survey dated
February 17, 1999, as may be hereafter revised, prepared by GEOD Corporation.

                                       18
<PAGE>   248

                                    EXHIBIT B

                          Legal Description of Parcel B

      To be prepared by GEOD Corporation prior to the recording of this
Declaration, which description shall be substantially in accordance with Parcel
B as shown on the Astoria Generating Station ALTA/ACSM Land Title Survey dated
February 17, 1999, as may be hereafter revised, prepared by GEOD Corporation.

                                       19
<PAGE>   249

                                    EXHIBIT C

                          Legal Description of Parcel C

      To be prepared by GEOD Corporation prior to the recording of this
Declaration, which description shall be substantially in accordance with Parcel
C as shown on the Astoria Generating Station ALTA/ACSM Land Title Survey dated
February 17, 1999, as may be hereafter revised, prepared by GEOD Corporation.

                                       20
<PAGE>   250

                                    EXHIBIT D

                          Legal Description of Parcel D

      To be prepared by GEOD Corporation prior to the recording of this
Declaration, which description shall be substantially in accordance with Parcel
D as shown on the Astoria Generating Station ALTA/ACSM Land Title Survey dated
February 17, 1999, as may be hereafter revised, prepared by GEOD Corporation.

                                       21
<PAGE>   251

                                    EXHIBIT E

                                    Site Plan

      Astoria Generating Station ALTA/ACSM Land Title Survey dated February 17,
1999, as may be hereafter revised, prepared by GEOD Corporation.

                                       22
<PAGE>   252

Schedule 4.01

Ownership Rights and Maintenance Obligations of Parcel Owners

Ownership Rights and Maintenance Obligations of Parcel A Owner

Domestic Water / Fire Protection Water

1.    The owner of Parcel A owns and is responsible for all maintenance of fire
      hydrants located on Parcel A that are supplied by the two 20-inch city
      water mains that provide domestic and fire protection water to Parcel B.

2.    The owner of Parcel A owns and is responsible for all maintenance of the
      city water piping located on Parcel A, with the exception of the two
      20-inch city water mains routed to Parcel B and the 8-inch city water main
      routed to Parcel D, and the 8-inch city water main routed to Parcel C, as
      designated on the Site Plan.

3.    The owner of Parcel A owns and is responsible for all maintenance of an
      8-inch city water main that provides domestic and fire protection water at
      the Liquid Natural Gas Facility. The owner of Parcel A shall own this city
      water header from the branch connection located on Parcel C, as designated
      on the Site Plan.

4.    The owner of Parcel A owns and is responsible for all maintenance of a
      2-inch city water pipe that provides domestic water to the Central Waste
      Water Treatment Plant, as designated on the Site Plan. The owner of Parcel
      A shall own the city water header from the branch connection off the
      20-inch supply header to Parcel B that originates at city water meter
      house "A" as designated on the Site Plan.

Sewer Lines and Drainage Systems

1.    The owner of Parcel A owns and is responsible for the sanitary sewer
      piping from the two twelve-inch branch connections that exist on Parcel B
      and for all sanitary and storm sewers existing on Parcel A as designated
      on the Site Plan.

2.    The owner of Parcel A owns and is responsible for all maintenance of the
      36-inch "Southwest Storm Sewer" that originates on Parcel A and is routed
      to the East River across Parcel B as designated on the Site Plan. The
      owner of Parcel A also owns and is responsible for the oil water separator
      associated with this storm sewer that is located on Parcel B.

3.    The owner of Parcel A owns and is responsible for the maintenance of the
      20-inch storm sewer that extends onto Parcel B along 9th Street in the
      vicinity of the Power Authority Gas Regulator House as designated on the
      Site Plan.

                                       23
<PAGE>   253

Ownership Rights and Maintenance Ob1igations of Parcel B Owner

Domestic Water / Fire Protection

1.    The owner of Parcel B owns (as a tenant in common with at third party) and
      is responsible for all maintenance of the two 20-inch city water mains
      routed across Parcel A that originate at city water meter houses "A" and
      "B" as designated on the Site Plan. The owner of Parcel B is also
      responsible for the maintenance of the city water meter houses and all
      equipment appurtenant to these mains excluding any fire hydrants located
      on Parcel A.

Sewer Lines and Drainage Systems

1.    The owner of Parcel B owns (as a tenant in common with a third party) and
      is responsible for the maintenance of the 12-inch sanitary sewer existing
      on Parcels A and B except for the portions of the 12-inch branch
      connection routed from Parcel A which are on Parcel A and/or Parcel B,
      which are owned and maintained by the owner of Parcel A, as designated on
      the Site Plan,

2.    The owner of Parcel B owns and is responsible for the maintenance of the
      storm sewer catch basin located on Parcel B along 9th Street. The owner of
      Parcel B also owns and is responsible for the maintenance of the piping
      that connects this catch basin to the 20-inch storm sewer that is owned by
      Parcel A.

Ownership Rights and Maintenance Obligations of Parcel C Owner

Domestic Water / Fire Protection

1.    The owner of Parcel C owns and is responsible for all maintenance of the
      8-inch city water main originating on Parcel A from the branch connection
      that supplies Parcel C, as designated on the Site Plan.

Sewer Lines and Drainage Systems

1.    The owner of Parcel C owns and is responsible for the maintenance of all
      storm sewers existing on Parcel C as designated on the Site Plan. The
      owner of Parcel C is also responsible for the 12 inch storm drain that
      originates on Parcel C and extends onto Parcel A as designated on the Site
      Plan.

Ownership Rights and Maintenance Obligations of Parcel D Owner

Domestic Water / Fire Protection

1.    The owner of Parcel D owns and is responsible for all maintenance of the
      8-inch city water main originating on Parcel C from the branch connection
      to Parcel D, as designated on the Site Plan, The owner of Parcel D also
      owns and is responsible for all maintenance of the 65,000-gallon fire
      reserve tank that is located on Parcel C.

2.    Subject to the provisions of the last sentence of Section 2.07, the owner
      of Parcel D owns and is responsible for maintenance and testing of the
      Fire Alarm pull box located on that portion of Parcel A designated on the
      Site Plan as the "A-10 dock".

                                       24
<PAGE>   254

Sewer Lines and Drainage Systems

1.    The owner of Parcel D owns and is responsible for the maintenance of all
      storm sewers existing on Parcel D as designated on the Site Plan.

2.    The owner of Parcel D owns and is responsible for the maintenance of the
      sanitary sewer septic system that extends onto Parcel A. This system is to
      be relocated to Parcel D on or before that date that is 18 months from the
      date hereof.

                                       25
<PAGE>   255

                                                                       EXHIBIT J

                                     GOWANUS

                      DECLARATION OF SUBDIVISION EASEMENTS

                                       By

                  CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.

                               Dated as of o, 1999

   The land affected by the within instrument lies in Block 653, Lot 3 on the
                  Tax Map of the City of New York, Kings County
                                    Address:

                              Record and return to:

                  Consolidated Edison Company of New York, Inc.
                                 4 Irving Place
                            New York, New York 10003

                          Attention: Robert Selya, Esq.

<PAGE>   256

                                TABLE OF CONTENTS

                                                                            Page

                                    ARTICLE I

                                   Definitions

SECTION 1.01. Definitions .................................................    1

                                   ARTICLE II

                            Declaration of Easements

SECTION 2.01. Grant of Easements for the Benefit of Parcel A ..............    3
SECTION 2.02. Grant of Easements for the Benefit of Parcel B ..............    4
SECTION 2.03. Utility Cost Sharing ........................................    4
SECTION 2.04. Condition of Easements ......................................    5
SECTION 2.05. Emergency Response...........................................    5

                                   ARTICLE III

                         Term of Easements; Abandonment

SECTION 3.01. Term ........................................................    5
SECTION 3.02. Abandonment of Easements ....................................    5

                                   ARTICLE IV

                    Use, Repair and Maintenance of Easements

SECTION 4.01. Maintenance Obligation ......................................    6
SECTION 4.02. Failure to Maintain .........................................    6
SECTION 4.03. Use of Easement Area During Maintenance .....................    6
SECTION 4.04. General Use Conditions ......................................    6
SECTION 4.05. Compliance with Law .........................................    7
SECTION 4.06. Notification of Proposed Activity ...........................    7
SECTION 4.07. Performance of Work .........................................    7
SECTION 4.08. Notice of Entry .............................................    8
SECTION 4.09. Relocation of Easements .....................................    8

                                    ARTICLE V

                             Casualty; Condemnation

SECTION 5.01. Restoration Work ............................................    8
SECTION 5.02. Condemnation ................................................    8
SECTION 5.03. Relocation of an Easement After Casualty or Condemnation ....    9

                                       i
<PAGE>   257

                                   ARTICLE VI

                            Miscellaneous Provisions

SECTION 6.01. Force Majeure ...............................................    9
SECTION 6.02. Default and Remedies ........................................    9
SECTION 6.03. Mortgagees' Status ..........................................   10
SECTION 6.04. Estoppel Certificate ........................................   10
SECTION 6.05. No Dedication ...............................................   10
SECTION 6.06. Covenants Running With Land .................................   10
SECTION 6.07. No Merger ...................................................   11
SECTION 6.08. Assignment; No Third Party Beneficiaries ....................   11
SECTION 6.09. Notices .....................................................   11
SECTION 6.10. Extension; Waiver ...........................................   12
SECTION 6.11. Amendment and Modification ..................................   12
SECTION 6.12. Governing Law ...............................................   12
SECTION 6.13. Interpretation ..............................................   12
SECTION 6.14. Jurisdiction and Enforcement ................................   13
SECTION 6.15. Severability ................................................   13
SECTION 6.16. Property Treated as Single Zoning Lot .......................   13

List of Exhibits and Schedules

Exhibit A   Legal Description of Parcel A
Exhibit B   Legal Description of Parcel B
Exhibit C   Site Plan

Schedule 4.01 Ownership Rights and Maintenance Obligations of Parcel Owners

                                       ii
<PAGE>   258

                                   DECLARATION

            GOWANUS DECLARATION OF SUBDIVISION EASEMENTS (including the Exhibits
and Schedules, this "Declaration") dated as of o, 1999 by CONSOLIDATED EDISON
COMPANY OF NEW YORK, INC., a New York corporation ("Declarant").

            WHEREAS Declarant is the owner of the parcel of land described on
Exhibit A attached hereto and made a part hereof located in Kings County, New
York ("Parcel A") and the improvements located thereon, as shown on the Gowanus
Gas Turbine Site ALTA/ACSM Land Title Survey Conveyance Plan prepared by GEOD
Corporation dated February 23, 1999 attached hereto and made a part hereof as
Exhibit C (the "Site Plan");

            WHEREAS Declarant is the owner of the parcel of land described on
Exhibit B attached hereto and made a part hereof located in Kings County, New
York ("Parcel B") and the improvements located thereon, as shown on the Site
Plan;

            WHEREAS Parcel A and Parcel B are part of a single zoning lot as
that term is defined in Section 12-10 of the Zoning Resolution of the City of
New York, effective December 15, 1961, as amended from time to time, more
commonly known as Block 653, Lot 3 (collectively referred to as the "Property");

            WHEREAS Declarant has operated the Property for the generation and
production of electrical energy as well as the transmission and distribution
thereof, and other uses related to the conduct of a public utility business;

            WHEREAS Declarant has been ordered by the State of New York Public
Service Commission to divest certain generation plant assets;

            WHEREAS in order to accomplish such divestiture, the portion of the
Property used for the generation and production of electrical energy (Parcel A)
will be sold to a third party and the portion of the Property used for
transmission, distribution and other purposes (Parcel B) will be retained by
Declarant;

            WHEREAS in order to accomplish said proposed sale of Parcel A,
Declarant intends to subdivide the Property into two parcels, Parcel A and
Parcel B (each, a "Parcel," and, collectively, the "Parcels") without affecting
the single zoning lot status thereof; and

            WHEREAS Declarant, in order to continue operations on the Parcels
and to satisfy the New York City Department of Buildings and the New York City
Department of Business Services, has created certain easements and made certain
declarations for the benefit of Parcels A and B as a condition of said
subdivision.

            NOW, THEREFORE, Declarant, intending the Parcels to be legally bound
by the easements, covenants, conditions and restrictions hereinafter set forth,
declares as follows:

                                    ARTICLE I

                                   Definitions

            SECTION 1.01. Definitions. As used in this Declaration, the
following terms shall have the following meanings:

<PAGE>   259

            "Casualty" shall have the meaning set forth in Section 5.01.

            "Curing Party"" shall have the meaning set forth in Section 4.02.

            "Declarant" shall have the meaning set forth in the Preamble.

            "Defaulting Party" shall have the meaning set forth in Section 4.02.

            "Easement" means, as applicable, any easement including related
rights intended for the primary benefit of Parcel A or Parcel B under this
Declaration.

            "Easement Area" means an area, including roads and paths, on, above
or below the ground which burdens a Parcel with respect to which the owner of
the other Parcel is herein granted an Easement or Non-Exclusive Right.

            "Entering Party" shall have the meaning set forth in Section 4.07.
The term "Entering Party" shall include a Party exercising Self-Help Rights as a
Curing Party.

            "Entry Rights" means rights of any Party (including Self-Help
Rights) under this Declaration, to maintain an Easement Area; provided that such
rights shall be exercised in accordance with Section 4.07.

            "Force Majeure Event" means any occurrence or event which is beyond
the reasonable control, and does not result from any fault or negligence, of the
Party affected, including any act of God, strike or other labor disturbance, act
of a public enemy, war, act of terrorism, riot, any other civil disturbance,
fire, storm, flood, lightning, earthquake, any other natural disasters,
explosion, materials shortage, breakage or accident to machinery or equipment,
any order or regulation or restriction imposed by any Governmental Authority,
failure of a contractor or subcontractor caused by a Force Majeure Event and
transportation delays or stoppages.

            "Governmental Authority" means any court, administrative or
regulatory agency or commission or other governmental entity or instrumentality,
domestic, foreign or supranational or any department thereof.

            "Mortgage" means the holder, from time to time, of a mortgage on
Parcel A or Parcel B, which holder has notified the owner of the other Parcel of
its interest as mortgagee and has provided such owner with a notice address.

            "Non-Exclusive Right" means any right or Easement intended for the
common, mutual, or reciprocal benefit of Parcel A or Parcel B under this
Declaration.

            "Parcel" shall have the meaning set forth in the Recitals and shall
include a portion of a Parcel.

            "Party or Parties" shall mean the owner or owners from time to time
of all or any portion of a Parcel.

            "Permittee" means the Parties and those claiming by, through or
under each of them and their respective officers, directors, trustees,
employees, agents, contractors, subcontractors, customers, visitors, invitees
and licensees.

                                       2
<PAGE>   260

            "Reimbursement Rights" means the rights of the Curing Party which
has exercised its Self-Help Rights (as defined below), to collect from the
Defaulting Party the reasonable costs and expenses actually expended by the
Curing Party in exercising its Self-Help Rights, including reasonable attorneys'
fees.

            "Release" means the relinquishment by any Party of an Easement or
Non-Exclusive Right.

            "Releasor" means the Party relinquishing an Easement or
Non-Exclusive Right and "Releasee" means the owner of the Easement Area affected
by a Release.

            "Self-Help Rights" shall have the meaning set forth in Section 4.02.

            "Taking" shall have the meaning set forth in Section 5.03.

            "Taxes" shall mean all taxes, charges, fees, levies, penalties or
other assessments imposed by any state or local taxing authority, which, if
unpaid, could become a lien against a Parcel.

            "Utility" or "Utilities" shall mean the essential services for which
Easements and Non-Exclusive Rights are granted under Article II.

            "Zoning Resolution" shall mean the Zoning Resolution of the City of
New York, effective December 15, 1961, as amended from time to time.

                                   ARTICLE II

                            Declaration of Easements

      SECTION 2.01. Grant of Easements for the Benefit of Parcel A. Declarant,
as owner of Parcel B, hereby grants to Declarant, as appurtenant to and for the
benefit of Parcel A, the following rights and Easements intended to allow the
assets located on Parcel A to continue to operate, notwithstanding subdivision
of the Property:

            (a) Easement for Domestic Water Supply. The Non-Exclusive Right and
Easement for domestic water supply to Parcel A through the existing water pipes,
mains and other devices or equipment related thereto located on Parcel B or
designated for such purposes on the Site Plan.

            (b) Easement for Access. The Non-Exclusive Right and Easement to
use, and to permit its Permittees to use, in common with the owner(s) of Parcel
B and its Permittees, the area designated on the Site Plan as the "Emergency
Access to Gas Turbine Site" in accordance with the terms hereof, for emergency
vehicular access, ingress and egress to and from Parcel A over said Easement
Area to 27th Street.

            (c) Easement for Fire Protection Water and Related Purposes (Fire
Service, Alarm, Hydrant). The Non-Exclusive Right and Easement for fire
protection water through the existing water pipes, mains, hydrants and other
devices or equipment related thereto located on Parcel B or designated for such
purposes on the Site Plan.

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<PAGE>   261

            (d) Easement for Sewer Lines and Drainage System. The Non-Exclusive
Right and Easement for the discharge of sewage and drainage of storm water
through the existing sanitary sewer and drainage system, including pipes,
drains, manholes, mains and other devices or equipment related thereto as are
now located on, above or under Parcel B or shown on the Site Plan and are
designed for the discharge of sewage or drainage of storm water.

            (e) Reservation of Rights. Without in any way limiting the rights of
the fee owner of Parcel B, there are hereby reserved to the owner of Parcel B
all rights in and to the Easement Areas located on Parcel B, to the extent such
rights are not inconsistent with and do not materially interfere with the use
of the Easement Areas by the owner of Parcel A and the exercise by the owner of
Parcel A of the Easements and Non-Exclusive Rights granted pursuant to Section
2.01 hereof.

            (f) Further Actions. The Easements and Non-Exclusive Rights granted
in this Section 2.01 shall include the right on the part of the owner of Parcel
A to take such other actions as may be reasonably necessary for the full
exercise of the Easements and Non-Exclusive Rights specified herein.

            SECTION 2.02. Grant of Easements for the Benefit of Parcel B.
Declarant, as owner of Parcel A, hereby grants to Declarant, as appurtenant to
and for the benefit of Parcel B, the following rights and Easements intended to
allow the assets located on Parcel B to continue to operate, notwithstanding
subdivision of the Property:

            (a) Easement for Domestic Water Supply. Intentionally Omitted.

            (b) Easement for Access. Intentionally Omitted.

            (c) Easement for Fire Protection Water and Related Purposes (Fire
Service, Alarm, Hydrant). Intentionally Omitted.

            (d) Easement for Sewer Lines and Drainage System. Intentionally
Omitted.

            (e) Reservation of Rights. Without in any way limiting the rights of
the fee owner of Parcel A, there are hereby reserved to the owner of Parcel A
all rights in and to the Easement Areas located on Parcel A, to the extent
such rights are not inconsistent with and do not materially interfere with the
use of the Easement Areas by the owner of Parcel B and the exercise by the owner
of Parcel B of the Easements and Non-Exclusive Rights granted pursuant to
Section 2.02 hereof.

            (f) Further Actions. The Easements and Non-Exclusive Rights granted
in this Section 2.02 shall include the right on the part of the owner of
Parcel B to take such other actions as may be reasonably necessary for the full
exercise of the Easements and Non-Exclusive Rights specified herein.

            SECTION 2.03. Utility Cost Sharing. (a) The cost of any Utilities
which are metered separately so as to measure the consumption of utility service
by the respective owners of Parcels A and B ("Metered Utilities") shall be
billed directly to and paid by the owners of the respective Parcels.

            (b) The Parties shall request that the applicable supplier send
bills for Metered Utilities directly to the metered customer. The Parties shall
cooperate to assure that Utility bills are sent to the proper Party for payment
so as to avoid interest, penalties or other late charges.

                                       4
<PAGE>   262

            SECTION 2.04. Condition of Easements. The Non-Exclusive Rights and
Easements established hereby are subject to any existing state of facts
affecting the respective Easement Areas, and Declarant makes no representation,
covenant or warranty as to the condition of any such Easement Area.

            SECTION 2.05. Emergency Response. The owners of the Parcels shall
individually or collectively maintain on-site personnel familiar with plant
equipment and operations whose duties shall include responding to alarms and
assisting the Fire Department or other emergency responder in accordance with
emergency response procedures to be developed with the Fire Department and other
emergency response agencies.

                                   ARTICLE III

                         Term of Easements; Abandonment

            SECTION 3.01. Term. Subject to the terms of Sections 3.02 and 5.03
hereof, all Easements and Non-Exclusive Rights granted herein shall be
perpetual. No Easement or Non-Exclusive Right granted herein shall expire,
terminate or be deemed abandoned without the prior written approval of the New
York City Department of Buildings and/or the New York City Department of
Business Services, as applicable, or such other Governmental Authorities
succeeding to their jurisdiction.

            SECTION 3.02. Abandonment of Easements. Subject to receipt of the
prior written approval of the New York City Department of Buildings and/or the
New York City Department of Business Services, if required, the owner of a
Parcel benefitting from an Easement or Non-Exclusive Right under this
Declaration may from time to time, upon not less than thirty days' notice to the
owner of the Easement Area, release its Easement or Non-Exclusive Right with
respect thereto. Any such notice shall (x) specify the effective date of such
Release and (y) be accompanied by evidence reasonably satisfactory to the owner
of the Easement Area that such abandonment has been approved by the New York
City Department of Buildings and, to the extent necessary, the New York City
Department of Business Services. The Party benefitting from the Easement Area
shall take such measures as shall be required to effectuate the Release. Such
measures shall include the following: (i) in the case of any Easement or
Non-Exclusive Right for domestic water, to the extent necessary, the cutting,
capping, removal or disabling of any pipes, pumps, mains and other devices; (ii)
in the case of any Easement or Non-Exclusive Right for fire protection water,
the cutting, capping, removal or disabling of any pipes, pumps or mains; (iii)
in the case of any Easement for access, the erection of such wall, gate or other
barrier required to prevent any person, party or vehicle from gaining access to
the Easement Area from the benefitted Parcel; and (iv) in the case of sewer
lines, the cutting and/or capping of any pipes used to discharge sewage and
drainage water and the disabling or removal of any pipes, manholes, mains and
other devices. Whenever an Easement or Non-Exclusive Right is released in
accordance with the terms of this Section 3.02, (A) the owner of the Parcel
formerly burdened by such Easement Area shall execute and deliver to the
Releasee such documents in recordable form as shall be reasonably required to
evidence the Release, (B) the Releasor shall have no further obligation or
liability to the owner of the affected Easement Area; and (C) the Releasee shall
have no further obligation or liability to the Releasor with respect to such
Easement or Non-Exclusive Right.

                                       5
<PAGE>   263

                                   ARTICLE IV

                    Use, Repair and Maintenance of Easements

            SECTION 4.01. Maintenance Obligation. Each Party shall, at its sole
cost and expense, with respect to each Easement Area located on or within such
Party's Parcel (i) maintain the surface and subsurface of the improved portions
of the Easement Area in good repair and condition, (ii) keep the Easement Area
reasonably free of obstructions (including snow and ice) and adequately
illuminated, (iii) maintain the security of the Easement Area, and (iv) maintain
the facilities located within such Easement Area which are necessary for the
exercise of the Non-Exclusive Rights and Easements with respect thereto
(including all pipes, mains and other devices or equipment related thereto) in
good repair and condition. As used in this Section 4.01, the term "maintain"
shall include repair and/or replacement, to the extent applicable. Each Utility
shown on the Site Plan, except for roads, shall be owned and maintained in
accordance with Schedule 4.01 attached hereto and made a part hereof. Roads
shall be owned and maintained by the Party on whose Parcel the road is located.

            SECTION 4.02. Failure to Maintain. If a Party (the "Defaulting
Party") fails to perform any obligation set forth herein, the other Party (the
"Curing Party") shall have the right to perform the actions which the Defaulting
Party failed to perform in accordance with this Declaration (the "Self-Help
Rights") and shall be entitled to Entry Rights and Reimbursement Rights with
respect thereto. Notwithstanding the foregoing, Self-Help Rights may only be
exercised after failure of the Defaulting Party to perform any actions required
to be performed pursuant to this Declaration (i) if no emergency exists, within
thirty days after notice from the Curing Party, or if such failure is not
curable within said period, within such longer period as is reasonably necessary
to cure such failure, provided the Defaulting Party begins to cure such failure
within such thirty-day period and thereafter diligently prosecutes the same to
completion; and (ii) in any emergency situation, immediately upon written or
(notwithstanding any other provisions of this Declaration) verbal notice, if
prior notice is practicable, or, if such notice is not practicable, then without
giving prior notice to the Defaulting Party, provided that the Curing Party
shall, in such circumstances, give the Defaulting Party notice thereof as soon
thereafter as practicable. All work to be performed by the Curing Party so
acting under the provisions of this Declaration shall be performed in accordance
with Section 4.07.

            SECTION 4.03. Use of Easement Area During Maintenance. During the
performance of any maintenance work required or permitted hereunder, each Party
shall have the right, at its own risk, to use the affected Easement Area for the
purposes contemplated herein; provided, however, that each Party shall keep such
Easement Area free of obstructions and shall implement such other safety and
similar measures as may be required by law or reasonably necessary from time to
time to assure the other Party safe and convenient access to its Parcel, and
neither Party shall materially adversely affect or substantially interfere with
the other Party's use of any such Easement Area.

            SECTION 4.04. General Use Conditions. No Party shall use an Easement
or Non-Exclusive Right in accordance herewith in such a manner so as to reduce,
injure, overload, deface, harm or impair the applicable Easement Area or
Utility, so as to allow or suffer any waste thereof, or so as to commit any
nuisance by its use thereof. Any damage caused by a Party or its Permittees in
violation of this provision shall be promptly repaired by the Party that
caused, or whose Permittees caused, such damage. No Party shall materially
adversely affect, materially deprive of a benefit associated with, materially
impose a burden on, or substantially interfere with, the other Party's use of
the Utilities, Non-Exclusive Rights and/or Easements that are the subject of
this Declaration.

                                       6
<PAGE>   264

            SECTION 4.05. Compliance with Law. All Parties shall use the
Easement Areas and Utilities, including roads, in compliance with all applicable
licenses, permits and approvals, and otherwise in compliance with all applicable
laws (including environmental laws), ordinances, orders, codes, rules and
regulations (including all fire safety and site security requirements imposed by
law or mutually agreed to by the Parties from time to time). All Parties shall
own, operate and maintain their respective Parcels and Easements Areas in
accordance with applicable licenses, permits and approvals, and otherwise in
compliance with all applicable laws, ordinances, orders, codes, rules and
regulations of Governmental Authorities. Notwithstanding anything to the
contrary contained herein, nothing in this Declaration shall be construed to
relieve any Party of its duty under the New York City Administrative Code or
other laws and regulations to maintain in a safe condition the Utilities and
other facilities located on its property, including but not limited to fire
protection and suppression devices and equipment.

            SECTION 4.06. Notification of Proposed Activity. Whenever a proposed
activity of a Party is reasonably expected to have an adverse impact on the use
by another Party of an Easement Area on such Party's Parcel, or the use of the
Utilities available therefrom, the Party proposing such activity shall notify
the other Party of such proposed activity reasonably in advance, so that the
other Party may implement reasonable measures designed to mitigate the impact
thereof. The cost of such protective measures shall be chargeable to the Party
proposing such activity. This notification requirement shall apply in all cases,
including emergencies, provided that in the case of emergency, the notice given
shall be such notice as is reasonably practicable under the circumstances.

            SECTION 4.07. Performance of Work. All work to be performed under
this Declaration by a Party (the "Entering Party") in or affecting the Easement
Areas on its Parcel or the Utilities available therefrom or the Parcel of the
other Party (i) shall not impair the structural integrity of any improvement
situated on either Parcel; (ii) shall not be undertaken until the Entering Party
shall have procured and paid for all required Permits; (iii) except for routine
maintenance activity, shall not be undertaken until the Entering Party shall
have submitted to the other Party all applicable drawings, plans,
specifications, engineering plans and related information and, except in
connection with the exercise of Self-Help Rights, obtained the consent of the
other Party to the work to be performed, which consent shall not be unreasonably
withheld or delayed; (iv) shall be performed in accordance with good industry
practice and in compliance with all applicable laws, ordinances, orders, codes,
rules and regulations; (v) shall be performed by contractors fully insured,
licensed (to the extent required by applicable law) and competent to do the work
being undertaken; (vi) shall be performed in a manner that does not materially
adversely affect or substantially interfere with the use and enjoyment by the
other Party of the affected Utility, Easement Areas or Parcel, and ("vii") shall
be diligently prosecuted to completion. During any construction or
reconstruction work, the construction site shall be kept in an orderly, clean
and safe condition. The Entering Party shall pay when due all claims for labor
performed or material furnished and not permit any mechanics' or material men's
lien to attach, and if any such liens do attach, the Entering Party shall
immediately bond such liens in accordance with any applicable statutory
provision. Except in connection with the exercise of Self-Help Rights, the
Entering Party shall also be responsible for the professional fees incurred by
the other Party in reviewing the Entering Party's plans and drawings, whether or
not consent thereto shall be given. The review of, comments on, or consent to
any documents, drawings, plans, specifications or other documentation provided
by the Entering Party shall not relieve the Entering Party of, or affect in any
way, its responsibility for the correctness and adequacy of the work to be
performed. The other Party shall have no liability whatsoever with respect to
any review or non-review of or consent to any documentation submitted to it by
the Entering Party.

                                       7
<PAGE>   265

            SECTION 4.08. Notice of Entry. Whenever the Entering Party shall
intend to enter upon an Easement Area located upon the Parcel of another Party
to perform any work, the Entering Party shall give the affected Party (i) at
least twenty-four hours' prior written notice in the case of routine
maintenance, (ii) prior written notice in accordance with Section 4.07(iii)
hereof in the case of any more significant work or (iii) immediate verbal
notification followed by written notice in the case of any emergency.

            SECTION 4.09. Relocation of Easements. The owner of any Easement
Area may elect to change the location of all or any portion of the Easement
Area, on not less than ninety days' prior written notice to the owner of the
parcel benefitted by any Easement or Non-Exclusive Right specifying the proposed
effective date of such relocation. The owner of the benefitted parcel shall have
thirty days from receipt of said notice to approve the relocation, with or
without modification, such approval to serve as evidence that any such
relocation shall not deprive the benefitted party of the practical realization
of the benefits of such Easement Area. Upon receipt of the written approval of
the benefitted party, the Owner of the Easement Area seeking the relocation
shall obtain the approval of the New York City Department of Buildings and/or
the New York City Department of Business Services, as applicable. No relocation
shall become effective unless and until such governmental approval shall have
been obtained. Any such relocation shall occur at the sole cost and expense of
the Easement Area owner. Any relocated Easement or Non-Exclusive Right shall be
subject to all of the terms, covenants and conditions of this Declaration. Upon
the relocation of any Easement Area pursuant to the terms of this Section 4.09,
the owner of the Parcel benefitted shall execute and deliver to the owner of the
Parcel formerly burdened such documents in recordable form as the owner of the
former Easement shall require to evidence the Release and/or relocation thereof.

                                    ARTICLE V

                             Casualty; Condemnation

            SECTION 5.01. Restoration Work. Except as set forth in Section 5.03,
if any of the facilities, equipment and systems located within an Easement
Area which provides any Utility is damaged or destroyed by fire or other
casualty ("Casualty"), the owner of the Easement Area shall commence the repair
or restoration as expeditiously as is practicable in the circumstances, and
shall diligently prosecute such repair or restoration to completion in
accordance with the standards of work and other requirements set forth in
Section 4.07. Failure of the owner of the affected Easement Area to comply with
such obligation shall give rise to Self-Help Rights (and correlative
Reimbursement Rights) and other remedies in favor of the owner of the affected
Parcel. Notwithstanding the foregoing, any infrastructure, including any
equipment or roads, exclusively for the benefit of or owned by the owner of a
Parcel, shall be repaired or restored by the owner to whom it is reserved or by
whom it is owned, as the case may be, notwithstanding its location on the other
Party's Parcel.

            SECTION 5.02. Condemnation. Except as set forth in Section 5.03, in
the event that a Parcel or a portion thereof containing an Easement Area shall
be taken by any Governmental Authority in the exercise of the power of eminent
domain (each, a "Taking" with the term "Taken" construed accordingly), each
affected Easement or Non-Exclusive Right hereunder shall terminate, to the
extent affected by such Taking, as of the date the owner of the Easement Area is
divested of title, unless the instrument of Taking expressly provides otherwise,

                                       8
<PAGE>   266

and the award attributable to such Taking shall, if not separately awarded to
the Parties with respect to their separate interests by the condemning
authority, be equitably allocated between the Parties, as their respective
interests may appear. The control of the condemnation proceeding shall always be
vested in the fee owner of the Easement Area being Taken. Nothing herein shall
preclude the Party affected from pursuing any claims against the condemning
authority with respect to the loss of the Easements or Non-Exclusive Rights
granted herein or the costs of relocation, and all awards with respect to such
facilities or costs shall be the exclusive property of such Party.

            SECTION 5.03. Relocation of an Easement After Casualty or
Condemnation. Notwithstanding the foregoing provisions of this Article V, in the
event of a casualty or condemnation which results in the complete or substantial
destruction or unusability or relocation of any Easement or Non-Exclusive Right,
the beneficiary thereof shall, to the extent commercially practical, restore the
affected Utilities, if any, in a manner that an Easement or Non-Exclusive Right
is no longer required.

                                   ARTICLE VI

                            Miscellaneous Provisions

            SECTION 6.01. Force Majeure. (a) Notwithstanding anything in this
Declaration to the contrary, no Party shall have any liability or be otherwise
responsible to the other for its failure to carry out its obligations, with the
exception of any obligation to pay money, under this Declaration if and only to
the extent that it becomes impossible for either Party to so perform as a result
of any Force Majeure Event.

            (b) If a Party shall rely on the occurrence of a Force Majeure Event
as a basis for being excused from performance of its obligations under this
Declaration, then the Party relying on such occurrence shall (i) provide prompt
written notice of such Force Majeure Event to the other Party(ies) giving an
estimate of its expected duration and the probable impact on the performance of
its obligations hereunder, (ii) exercise its reasonable best efforts to continue
to perform its obligations under this Declaration, (iii) expeditiously take
action to correct or cure the Force Majeure Event (provided that settlement of
strikes or any other labor dispute will be completely within the sole discretion
of the Party affected by such strike or labor dispute), (iv) exercise its
reasonable best efforts to mitigate or limit damages to the other Party and (v)
provide prompt notice to the other Party(ies) of the cessation of the Force
Majeure Event.

            SECTION 6.02. Default and Remedies. In the event that a Party
defaults, breaches or otherwise fails to perform any obligation of such Party
under this Declaration, the other Party shall have the right to all remedies
available at law or in equity, including the right to injunctive relief and the
right to exercise its Self-Help Rights (and shall be entitled to correlative
Reimbursement Rights in connection therewith) without any requirement to pursue
or exhaust any other remedies available to such Party under any other agreement.
All such remedies shall be cumulative and not exclusive. A Party shall have the
right, following notice to the other Party, to take such action as it may deem
necessary or advisable, including payment of any delinquent Taxes, to prevent a
foreclosure for nonpayment of Taxes or other action by a Governmental Authority
that might affect its rights and interests hereunder and any such action shall
be deemed an exercise of Self-Help Rights (and, accordingly, give rise to
correlative Reimbursement Rights). In the event a Party is entitled to
Reimbursement Rights hereunder and same are not satisfied within thirty days
after written demand by the Party entitled to same, the unpaid

                                       9
<PAGE>   267

obligations shall constitute a lien against the defaulting Party's Parcel;
provided, however, that the payment of any monetary obligations which become due
and payable by a Party after recordation of a mortgage on such Party's Parcel
granted to an independent third party regularly engaged in the business of
making mortgage loans shall be subordinate to the payment of the obligations
secured by such mortgage.

            SECTION 6.03. Mortgagees' Status. Except as set forth in Section
6.02 hereof, this Declaration shall be superior to any mortgages or other
instruments evidencing security for indebtedness granted by either Party from
time to time with respect to its Parcel. Accordingly, each Party agrees to
obtain and deliver to the other Party such documents and instruments, in
recordable form, as may be reasonably necessary or requested by the other Party
to evidence and confirm the subordination of any such mortgages or other
security instruments to the provisions of this Declaration.

            SECTION 6.04. Estoppel Certificate. Each Party agrees, within ten
days after written request by the other, to execute, acknowledge and deliver to
and in favor of any present or proposed lender, Mortgagee, ground lessor,
purchaser, tenant or the like of all or any part of the other Party's Parcel, an
estoppel certificate, in a form reasonably satisfactory to such lender,
Mortgagee, ground lessor, purchaser, tenant or the like, stating, among other
things: (i) whether this Declaration is in full force and effect; (ii) whether
this Declaration has been modified or amended and, if so, identifying and
describing any such modification or amendment; (iii) whether there are any sums
then due and owing under this Declaration from either Party to the other, and if
so, specifying the amount thereof and reason therefor; and (iv) whether the
Party giving such certificate knows of any default (or event which, with the
passage of time, the giving of notice, or both, would constitute a default) on
the part of the other Party, or has any outstanding claim against the other
Party arising under this Declaration and, if so, specifying the nature of such
default or claim.

            SECTION 6.05. No Dedication. Nothing contained in this Declaration
shall be deemed to be a gift or dedication of any portion of either Parcel to
the general public or for any public use or purpose whatsoever, or, except as
expressly set forth herein, be deemed to create any rights or benefits in favor
of any municipality, public authority or official thereof, it being the
intention of the Parties that this Declaration be for the exclusive benefit of
the owner or owners, from time to time, of the Parcels, or any part thereof, and
those claiming under them.

            SECTION 6.06. Covenants Running With Land. The benefits and burdens,
rights and obligations, Easements, Non-Exclusive Rights and restrictions created
by this Declaration shall be appurtenant to and run with and burden and be
binding upon Parcel A and Parcel B, and shall inure to the benefit of and be
binding upon Declarant and those claiming by, through, or under it. The
covenants, agreements, terms, provisions and conditions of this Declaration
shall bind and benefit the successors in interest (as owners of Parcel A and
Parcel B, respectively, whether by sale, foreclosure or otherwise) of Declarant
with the same effect as if mentioned in each instance when a Party is named or
referred to, it being understood and agreed that upon any transfer of ownership
(whether by sale, foreclosure or otherwise) of all or any part of Parcel A and
Parcel B, as the case may be, each such successor in interest shall, without the
requirement of any further documentation, thereupon and thereafter assume, and
perform and observe, any and all of the obligations of its predecessors in
interest under this Declaration with respect to such Parcel (or portion
thereof). Notwithstanding the foregoing, (a) each Party shall use reasonable
efforts to cause any such successor in interest to execute an agreement in
recordable form pursuant to which such successor in interest shall assume any
and all obligations of its predecessors in interest under this Declaration;
provided, however, that the failure to obtain any such agreement shall not
detract from the provisions of the previous sentence, and (b) no Party

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<PAGE>   268

shall be released from any liability for such obligations (whether arising
before or after any such transfer of ownership) without the prior written
consent of all of the other Parties, provided that Declarant shall be released
from its liability for obligations relating to Parcel A upon its conveyance of
such Parcel as contemplated by this Declaration.

            SECTION 6.07. No Merger. The acquisition by the owner from time to
time of Parcel A of any interest in and to Parcel B, or the acquisition by the
owner from time to time of Parcel B of any interest in and to Parcel A shall not
result in an impairment or extinguishment by merger of any right, Easement or
obligation granted or created hereby. No merger shall result unless and until
(a) one person or entity owns the fee title to both Parcel A and Parcel B in
their entirety and (b) written consents to such merger and termination of this
Declaration shall have been obtained (and recorded with the Office of the City
Register of Kings County) from all holders of mortgages then of record with
respect to any portion of Parcel A or Parcel B.

            SECTION 6.08. Assignment; No Third Party Beneficiaries. (a) This
Declaration and all of the provisions hereof shall be binding upon and inure to
the benefit of Declarant and its successors and permitted assigns but neither
this Declaration nor any of the rights, interests or obligations hereunder shall
be assigned by any Party, including by operation of law, without the prior
written consent of the other Party(ies), except (A) to a Party acquiring all or
any part of a Parcel, or (B) to a lending institution or trustee in connection
with a pledge or granting of a security interest in all or any part of the
Parcel owned by such Party;

            (b) Nothing in this Declaration is intended to confer upon any other
person except the Parties any rights or remedies hereunder or shall create any
third party beneficiary rights in any person.

            SECTION 6.09. Notices. (a) Unless otherwise specified herein, all
notices and other communications hereunder shall be in writing and shall be
deemed given (as of the time of delivery or, in the case of a telecopied
communication, of confirmation) if delivered personally, telecopied (which is
confirmed) or sent by overnight courier (providing proof of delivery) to the
Parties at the following addresses (or at such other address for a Party as
shall be specified by like notice)

            if to Declarant, to:

                  Consolidated Edison Company of New York, Inc.
                  4 Irving Place
                  New York, NY 10003
                  Attention: Director of Real Estate

            With a copy to:

                  Consolidated Edison Company of New York, Inc.
                  4 Irving Place
                  New York, NY 10003
                  Attention: General Counsel

            (b) In the event any Party shall desire or shall be required to send
any notice to the Department of Buildings and/or to the Department of Business
Services, any such notice shall be sent in the manner described in Section
6.09(a) above addressed as follows:

            if to the Department of Buildings, to:

                                       11
<PAGE>   269

                  New York City Department of Buildings
                  Office of General Counsel
                  60 Hudson Street
                  New York, New York 10013, or at its then official address

            if to the Department of Business Services, to:

                  New York City Department of Business Services
                  Office of General Counsel
                  110 William Street
                  New York, New York 10038, or at its then official address.

            SECTION 6.10. Extension; Waiver. Any Party may (i) extend the time
for the performance of any of the obligations or other acts of the other
Party(ies) or (ii) waive compliance by the other Party(ies) with any of the
agreements or conditions contained in this Declaration. Any agreement on the
part of a Party to any such extension or waiver shall be valid only if set forth
in an instrument in writing signed on behalf of such Party. The failure of a
Party to this Declaration to assert any of its rights under this Declaration or
otherwise shall not constitute a waiver of such rights.

            SECTION 6.11. Amendment and Modification. This Declaration may be
amended, modified or supplemented only by an instrument in writing signed on
behalf of each of the Parties; provided, however, that no such amendment (other
than an amendment of Section 2.03 hereof) shall be effective without the prior
written approval of the New York City Department of Buildings or the New York
City Department of Business Services, as applicable.

            SECTION 6.12. Governing Law. This Declaration shall be governed by
and construed in accordance with the laws of the State of New York (regardless
of the laws that might otherwise govern under applicable principles of conflicts
of law).

            SECTION 6.13. Interpretation. When a reference is made in this
Declaration to an Article, Section, Schedule or Exhibit, such reference shall be
to an Article or Section of, or Schedule or Exhibit to, this Declaration unless
otherwise indicated. The table of contents and headings contained in this
Declaration are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Declaration. Whenever the words "include",
"includes" or "including" are used in this Declaration, they shall be deemed to
be followed by the words "without limitation". The words "hereof", "herein" and
"hereunder" and words of similar import when used in this Declaration shall
refer to this Declaration as a whole and not to any particular provision of
this Declaration. All terms defined in this Declaration shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein. The definitions contained in
this Declaration are applicable to the singular as well as the plural forms of
such terms and to the masculine as well as to the feminine and neuter genders of
such term. Any agreement, instrument, statute, regulation, rule or order defined
or referred to herein or in any agreement or instrument that is referred to
herein means such agreement, instrument, statute, regulation, rule or order as
from time to time amended, modified or supplemented, including (in the case of
agreements or instruments) by waiver or consent and (in the case of statutes,
regulations, rules or orders) by succession of comparable successor statutes,
regulations, rules or orders and references to all attachments thereto and
instruments incorporated therein. References to a person are also to its
permitted successors and assigns.

                                       12
<PAGE>   270

            SECTION 6.14. Jurisdiction and Enforcement. (a) Each of the Parties
irrevocably submits to the exclusive jurisdiction of (i) the Supreme Court of
the State of New York, New York County and (ii) the United States District Court
for the Southern District of New York, for the purposes of any suit, action or
other proceeding arising out of this Declaration or any transaction contemplated
hereby. Each of the Parties agrees to commence any action, suit or proceeding
relating hereto either in the United States District Court for the Southern
District of New York or, if such suit, action or proceeding may not be brought
in such court for jurisdictional reasons, in the Supreme Court of the State of
New York, New York County. Each of the Parties further agrees that service of
process, summons, notice or document by hand delivery or U.S. registered mail at
the address specified for such Party in Section 6.09 (or such other address
specified by such Party from time to time pursuant to Section 6.09) shall be
effective service of process for any action, suit or proceeding brought against
such Party in any such court. Each of the Parties irrevocably and
unconditionally waives any objection to the laying of venue of any action, suit
or proceeding arising out of this Declaration or the transactions contemplated
hereby in (i) the Supreme Court of the State of New York, New York County, or
(ii) the United States District Court for the Southern District of New York, and
hereby further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such action, suit or proceeding brought in any
such court has been brought in an inconvenient forum.

            (b) The parties agree that irreparable damage would occur in the
event that any of the provisions of this Declaration were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the Parties shall be entitled to an injunction or
injunctions to prevent breaches of this Declaration and to enforce specifically
the terms and provisions of this Declaration, this being in addition to any
other remedy to which they are entitled at law or in equity.

            SECTION 6.15. Severability. If any term or other provision of this
Declaration is invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other conditions and provisions of this Declaration
shall nevertheless remain in full force and effect. Upon such determination that
any term or other provision is invalid, illegal or incapable of being enforced,
the Parties shall negotiate in good faith to modify this Declaration so as to
effect the original intent of the Parties as closely as possible to the fullest
extent permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.

            SECTION 6.16. Property Treated as Single Zoning Lot. Declarant
agrees that no breach by any Party shall have any effect on the treatment of
the Property covered by this Declaration as one zoning lot and the Property
shall be treated as one zoning lot unless such

                                       13
<PAGE>   271

zoning lot is subdivided in accordance with the provisions of the Zoning
Resolution.

            IN WITNESS WHEREOF, Declarant has caused this Declaration to be
signed by its duly authorized officer as of the date first above written.

                        CONSOLIDATED EDISON COMPANY OF
                         NEW YORK, INC.

                        By:______________________
                        Name:
                        Title:

                                       14
<PAGE>   272

STATE OF NEW YORK  )
                   ) ss.:
COUNTY OF NEW YORK )

      On this __ day of_______ 1999, before me personally appeared ____________,
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his capacity, and that by his
signature on the instrument, the individual, or the corporation upon behalf of
which the individual acted, executed the instrument.

                                           _____________________
                                           NOTARY PUBLIC

                                       15
<PAGE>   273

                                    EXHIBIT A

                          Legal Description of Parcel A

To be prepared by GEOD Corporation, prior to the recording of this Agreement,
which description shall be substantially in accordance with Parcel A as shown on
the Gowanus Gas Turbine Site ALTA/ACSM Land Title Survey Conveyance Plan dated
February 23, 1999, as may be hereafter revised, prepared by GEOD Corporation.

                                       16
<PAGE>   274

                                    EXHIBIT B

                          Legal Description of Parcel B

To be prepared by GEOD Corporation, prior to the recording of this Agreement,
which description shall be substantially in accordance with Parcel B as shown on
the Gowanus Gas Turbine Site ALTA/ACSM Land Title Survey Conveyance Plan dated
February 23, 1999, as may be hereafter revised, prepared by GEOD Corporation.

                                       17
<PAGE>   275

                                    EXHIBIT C

                                    Site Plan

The Gowanus Gas Turbine Site ALTA/ACSM Land Title Survey Conveyance Plan dated
February 23, 1999, as may be hereafter revised, prepared by GEOD Corporation.

                                       18
<PAGE>   276

                                  Schedule 4.01

          Ownership Rights and Maintenance Obligations of Parcel Owners

Ownership Rights and Maintenance Obligations of Parcel A Owner

Domestic Water / Fire Protection Water

1.    The owner of Parcel A owns and is responsible for the 10-inch line which
      supplies Parcel A. The line begins at the New York City main on 25th
      Street (if extended) and crosses Parcel B. The owner of Parcel A will
      assume all maintenance obligations associated with this line from the
      point at which ownership currently passes from New York City to Con
      Edison.

Sanitary sewer

1.    The owner of Parcel A owns and is responsible for the 6-inch forced
      sanitary main up to but not including the "T" tap joint to the spur line
      into the Gowanus Substation control room.

Ownership Rights and Maintenance Obligations of Parcel B Owner

Sanitary Sewer

1.    At the "T" tap joint to the spur line into the Gowanus Substation control
      room, ownership and maintenance obligations transfer to the owner of
      Parcel B. The owner of Parcel B will own the 6-inch spur from the control
      room and the remainder of the 6-inch line across Parcel B up until it ties
      in with the New York City main on 3rd Avenue.

                                       19
<PAGE>   277

                                                                       EXHIBIT K

                             GUARANTEE AGREEMENT dated as of March 2, 1999,
                       between ORION POWER HOLDINGS, INC., a Delaware
                       corporation ("Guarantor"), and CONSOLIDATED EDISON
                       COMPANY OF NEW YORK, INC., a New York corporation (the
                       "Seller" and, collectively with Guarantor, the "Parties")

            WHEREAS Buyer (as defined below) and Seller have entered into a
Generating Plant and Gas Turbine Asset Purchase and Sale Agreement dated as of
even date herewith (the "Sale Agreement"), pursuant to which Buyer has agreed to
purchase and Seller has agreed to sell certain electric generating assets, as
more particularly set forth therein, and each of Buyer and Seller undertook
certain duties, responsibilities and obligations as set forth in the Sale
Agreement and the Ancillary Agreements (as defined in the Sale Agreement);

            WHEREAS Guarantor has agreed to guarantee payment and performance of
Buyer's covenants, agreements, obligations, liabilities, representations and
warranties under the Sale Agreement, any Ancillary Agreement or any other
agreement or instrument related thereto; and

            WHEREAS Guarantor will benefit from the transactions contemplated by
the Sale Agreement.

            NOW, THEREFORE, the Parties agree as follows:

            SECTION 1. Definitions. Capitalized terms used herein shall have the
meanings assigned to them herein or, if not defined herein, then such terms
shall have the meanings assigned to them in the Sale Agreement. For the purpose
of this Agreement, "Buyer" shall mean Astoria Generating Company, L.P., a
Delaware limited partnership, and any successors and assigns under the Sale
Agreement or any Ancillary Agreement.

            SECTION 2. Guarantee. Guarantor absolutely, irrevocably and
unconditionally guarantees, as a primary obligor and not merely as a surety, (a)
the due and punctual payment of (i) each payment required to be made by Buyer
under the Sale Agreement or any Ancillary Agreement, when and as due, including
payments in respect of reimbursement of disbursements and interest thereon and
(ii) all other monetary obligations, including indemnities, fees, costs and
expenses, whether primary, secondary, direct, contingent,

<PAGE>   278

                                                                               2

fixed or otherwise (including monetary obligations incurred during the pendency
of any bankruptcy, insolvency, receivership or other similar proceeding,
regardless of whether allowed or allowable in such proceeding), of Buyer under
the Sale Agreement, any Ancillary Agreement or any other agreement or instrument
related thereto (all such obligations referred to in the clause (a) being
collectively referred to as the "Monetary Obligations") and (b) the due and
punctual performance and observance of, and compliance with, all covenants,
agreements, obligations, liabilities, representations and warranties of Buyer
under or pursuant to the Sale Agreement, any Ancillary Agreement or any other
agreement or instrument related thereto (all such obligations referred to in the
preceding clauses (a) and (b) being collectively referred to as the
"Obligations") . Guarantor further agrees that the Obligations may be extended,
amended, modified or renewed, in whole or in part, without notice to or further
assent from it, and that it will remain bound upon its guarantee notwithstanding
any extension, amendment, modification or renewal of any Obligation.

            SECTION 3. Obligations Not Waived. To the fullest extent permitted
by applicable law, Guarantor waives presentment to, demand of payment from and
protest to Buyer of any of the Obligations, and also waives notice of acceptance
of its guarantee and notice of protest for nonpayment. To the fullest extent
permitted by applicable law, the obligations of Guarantor hereunder shall not be
affected by (a) the failure of Seller to assert any claim or demand or to
enforce or exercise any right or remedy against Buyer in respect of the
Obligations or otherwise under the provisions of the Sale Agreement, any
Ancillary Agreement or otherwise or, in each case, any delay in connection
therewith, or (b) any rescission, waiver, amendment or modification of, or any
release from any of the terms or provisions of, this Agreement, the Sale
Agreement, any Ancillary Agreement or any other agreement.

            SECTION 4. Continuing Guarantee of Payment and Performance.
Guarantor further agrees that its guarantee constitutes a continuing guarantee
of payment and performance when due and not of collection, and waives any right
to require that any resort be had by Seller to any security.

            SECTION 5. No Discharge or Diminishment of Guarantee. (a) The
obligations of Guarantor hereunder shall not be subject to any reduction,
limitation, impairment or termination, or be subject to any defense or setoff,
counterclaim, recoupment or termination whatsoever, or otherwise be affected,
for any reason (other than the performance in full of all Obligations, including
the

<PAGE>   279

                                                                               3

indefeasible payment in full in cash of all Monetary Obligations, and the
termination of all the Obligations), including:

            (i) any claim of waiver, release, surrender, alteration or
      compromise or any of the Obligations;

            (ii) the invalidity, illegality or unenforceability of the
      Obligations;

            (iii) the occurrence or continuance of any event of bankruptcy,
      reorganization, insolvency, receivership or other similar proceeding with
      respect to Buyer or any other person (for purposes hereof, "person" means
      any individual, partnership, limited liability company, joint venture,
      corporation, trust, unincorporated organization or Governmental
      Authority), or the dissolution, liquidation or winding up of Buyer or any
      other person;

            (iv) any permitted assignment or other transfer of this Agreement by
      Seller or any permitted assignment or other transfer of the Sale Agreement
      or any Ancillary Agreement in whole or in part;

            (v) any sale, transfer or other disposition by Guarantor of any
      direct or indirect interest it may have in Buyer or any other change in
      ownership or control of Buyer; or

            (vi) the absence of any notice to, or knowledge on behalf of,
      Guarantor of the existence or occurrence of any of the matters or events
      set forth in the foregoing clauses.

            (b) Without limiting the generality of the foregoing, the
obligations of Guarantor hereunder shall not be discharged or impaired or
otherwise affected by the failure of Seller to assert any claim or demand or to
enforce any remedy under the Sale Agreement, any Ancillary Agreement or any
other agreement, by any waiver or modification of any provision thereof, by any
default, failure or delay, wilful or otherwise, in the performance of the
Obligations, or by any other act or omission that may or might in any manner or
to any extent vary the risk of Guarantor or that would otherwise operate as a
discharge of Guarantor as a matter of law or equity (other than the performance
in full of all Obligations, including the indefeasible payment in full in cash
of all Monetary Obligations, and the termination of all the Obligations).

<PAGE>   280

                                                                               4

            SECTION 6. Defenses of Buyer Waived. To the fullest extent permitted
by applicable law, Guarantor waives any defense based on or arising out of any
defense of Buyer or the unenforceability of the Obligations or any part thereof
from any cause, or the cessation from any cause of the liability of Buyer (other
than the performance in full (of all Obligations, including the indefeasible
payment in full in cash of all Monetary Obligations, and the termination of all
the Obligations). Seller may compromise or adjust any part of the Obligations,
make any other accommodation with Buyer or exercise any other right or remedy
available to it against Buyer, without affecting or impairing in any way the
liability of Guarantor hereunder except to the extent all the Obligations have
been fully and finally performed, including the indefeasible payment in full of
all Monetary Obligations, and terminated. To the fullest extent permitted by
applicable law, Guarantor waives any defense arising out of any such election
even though such election operates, pursuant to applicable law, to impair or to
extinguish any right of reimbursement or subrogation or other right or remedy of
Guarantor against Buyer or any security.

            SECTION 7. Representations and Warranties of Guarantor. Guarantor
represents and warrants to Seller as follows:

            (a) Organization. Guarantor is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority to own, lease and operate
its properties and to carry on its business as is now being conducted. Guarantor
is duly qualified and licensed to do business as a foreign corporation and is in
good standing in the State of New York.

            (b) Authority Relative to this Agreement. Guarantor has all
necessary corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder. The execution and delivery by
Guarantor of this Agreement and performance by Guarantor of its obligations
hereunder have been duly and validly authorized by the Board of Directors of
Guarantor and no other corporate proceedings on the part of Guarantor are
necessary to authorize this Agreement or performance by Guarantor of its
obligations hereunder. This Agreement has been duly and validly executed and
delivered by Guarantor and this Agreement constitutes a valid and binding
agreement of Guarantor, enforceable against Guarantor in accordance with its
terms.

<PAGE>   281

                                                                               5

            (c) Consents and Approvals; No Violation. (i) Subject to obtaining
Guarantor Required Regulatory Approvals, neither the execution and delivery of
this Agreement by Guarantor nor performance by Guarantor of its obligations
hereunder will (i) conflict with or result in any breach of any provision of the
Certificate of Incorporation or By-laws (or other similar governing documents)
of Guarantor, (ii) result in a default (or give rise to any right of
termination, cancellation or acceleration) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, agreement, lease or
other instrument or obligation to which Guarantor or any of its subsidiaries is
a party or by which any of their respective assets may be bound or (iii) violate
any order, writ, injunction, decree, statute, rule or regulation applicable to
Guarantor, or any of its assets, except in the case of clauses (ii) and (iii)
for such failures to obtain a necessary consent, defaults and violations which
would not, individually or in the aggregate, have a material adverse effect on
the ability of Guarantor to discharge its obligations under this Agreement (a
"Guarantor Material Adverse Effect").

            (ii) No declaration, filing or registration with, or notice to, or
authorization, consent or approval of any Governmental Authority is necessary
for performance by Guarantor of its obligations hereunder, other than such
declarations, filings, registrations, notices, authorizations, consents or
approvals which, if not obtained or made would not, individually or in the
aggregate, have a Guarantor Material Adverse Effect.

            SECTION 8. Agreement to Perform and Pay; Subordination. In
furtherance of the foregoing and not in limitation of any other right that
Seller has at law or in equity against Guarantor by virtue hereof, upon the
failure of Buyer to perform or pay any Obligation when and as the same shall
become due, Guarantor hereby promises to and will forthwith, as the case may be,
(a) perform, or cause to be performed, such unperformed Obligations and (b) pay,
or cause to be paid, to Seller in cash the amount of such unpaid Obligations.
Upon payment by Guarantor of any sums to Seller as provided above, all rights of
Guarantor against Buyer arising as a result thereof by way of right of
subrogation, contribution, reimbursement, indemnity or otherwise shall in all
respects be subordinate and junior in right of payment to the prior indefeasible
payment in full in cash of all the Obligations. In addition, any indebtedness of
Buyer now or hereafter held by Guarantor is hereby subordinated in right of
payment to the prior payment in full in cash of the Monetary Obligations. If any
amount

<PAGE>   282

                                                                               6

shall erroneously be paid to Guarantor on account of (i) such subrogation,
contribution, reimbursement, indemnity or similar right or (ii) any such
indebtedness of Buyer, such amount shall be held in trust for the benefit of
Seller and shall forthwith be paid to Seller to be credited against the payment
of the Monetary Obligations or perform in (accordance with the terms of the
Sale Agreement or any Ancillary Agreement, as applicable.

            SECTION 9. Information. Guarantor assumes all responsibility for
being and keeping itself informed of Buyer's financial condition and assets, and
of all other circumstances bearing upon the risk of nonperformance of the
Obligations (including the nonpayment of Monetary Obligations) and the nature,
scope and extent of the risks that Guarantor assumes and incurs hereunder, and
agrees that Seller will not have any duty to advise Guarantor of information
known to it regarding such circumstances or risks.

            SECTION 10. Termination and Reinstatement. The guarantee made
hereunder (a) shall terminate when all the Obligations have been (i) performed
in full, including the indefeasible payment in full in, cash of the Monetary
Obligations and (ii) terminated and (b) shall continue to be effective or be
reinstated, as the case may be, if at any time any payment, or any part thereof,
of any Obligation is rescinded or must otherwise be restored by Seller upon the
bankruptcy or reorganization of Buyer or Guarantor or for any other reason.

            SECTION 11. Assignment; No Third Party Beneficiaries. This Agreement
and all of the provisions hereunder shall be binding upon and inure to the
benefit of the Parties and their respective successors and permitted assigns,
but neither this Agreement nor any of the rights, interests and obligations
hereunder shall be assigned by Guarantor, including by operation of law, without
the prior written consent of Seller, except to an Affiliate of Guarantor in
connection with the transfer of the Auctioned Assets to an Affiliate of Buyer in
accordance with Section 12.05 (a) (ii) (A) of the Sale Agreement; provided,
however, that no assignment or transfer of rights or obligations by Guarantor
shall relieve it from the full liabilities and the full financial
responsibility, as provided for under this Agreement, unless and until the
transferee or assignee shall agree in writing to assume such obligations and
duties and Seller has consented in writing to such assumption.

<PAGE>   283

                                                                               7

            SECTION 12. Amendment and Modification; Extension; Waiver. This
Agreement may be amended, modified or supplemented only by an instrument in
writing signed on behalf of each of the Parties. Any agreement on the part of a
Party to any extension or waiver in respect of this Agreement shall be valid
only if set forth in an instrument in writing signed on behalf of such Party.
The failure of a Party to this Agreement to assert any of its rights under this
Agreement or otherwise shall not constitute a waiver of such rights.

            SECTION 13. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York (regardless of
the laws that might otherwise govern under applicable principles of conflicts of
law).

            SECTION 14. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given (as of the time of delivery or, in
the case of a telecopied communication, of confirmation) if delivered
personally, telecopied (which is confirmed) or sent by overnight courier
(providing proof of delivery) to the Parties at the following addresses (or at
such other address for a Party as shall be specified by like notice):

       if to Guarantor, to:

            Orion Power Holdings, Inc.
            111 Market Place
            Suite 520
            Baltimore, MD 21202
            Telecopy No.: (410) 468-3699
            Attention: General Counsel

            with a copy on or prior to the Closing Date to:

            Thelen Reid & Priest LLP
            Two Embarcadero Center
            Suite 2100
            San Francisco, CA 94111
            Telecopy No.: (415) 421-1068
            Attention: Thomas B. Glascock, Esq.

       if to Seller, to:

            Consolidated Edison Company of New York, Inc.
            4 Irving Place
            New York, NY 10003
            Telecopy No.: (212) 677-0601
            Attention: General Counsel

<PAGE>   284

                                                                               8

             with a copy on or prior to the Closing Date to:

             Cravath, Swaine & Moore
             825 Eighth Avenue
             New York, NY 10019
             Telecopy No.: (212) 474-3700
             Attention: George W. Bilicic, Jr., Esq.

            SECTION 15. Jurisdiction and Enforcement. (a) Each of the Parties
irrevocably submits to the exclusive jurisdiction of (i) the Supreme Court of
the State of New York, New York County and (ii) the United States District Court
for the Southern District of New York, for the purposes of any suit, action or
other proceeding arising out of this Agreement or any transaction contemplated
hereby. Each of the Parties agrees to commence any action, suit or proceeding
relating hereto either in the United States District Court for the Southern
District of New York for, if such suit, action or proceeding may not be brought
in such court for jurisdictional reasons, in the Supreme Court of the State of
New York, New York County. Each of the Parties further agrees that service of
process, summons, notice or document by hand delivery or U.S. registered mail at
the address specified for such Party in Section 14 (or such other address
specified by such Party from time to time pursuant to Section 14) shall be
effective service of process for any action, suit or proceeding brought against
such Party in any such court. Each of the Parties irrevocably and
unconditionally waives any objection to the laying of venue of any action, suit
or proceeding arising out of this Agreement or the transactions contemplated
hereby in (i) the Supreme Court of the State of New York, New York County, or
(ii) the United States District Court for the Southern District of New York, and
hereby further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such action, suit or proceeding brought in any
such court has been brought in an inconvenient forum.

            (b) The Parties agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the Parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement, this being in addition to any other
remedy to which they are entitled at law or in equity.

            SECTION 16. Survival of Agreement. All covenants, agreements,
representations and warranties made

<PAGE>   285

                                                                               9

by Guarantor herein and in the certificates or other instruments prepared or
delivered in connection with or pursuant to this Agreement shall be considered
to have been relied upon by Seller and shall survive the consummation of the
transactions contemplated by the Sale Agreement regardless of any investigation
made by Seller or on its behalf, and shall continue in full force and effect as
long as any Obligations remain outstanding.

            SECTION 17. Effectiveness; Counterparts. This Agreement shall become
effective when executed by Guarantor and Seller. This Agreement may be executed
in two or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.

            SECTION 18. Rules of Interpretation. The rules of interpretation
specified in Section 12.08 of the Sale Agreement shall be applicable to this
Agreement.

            SECTION 19. Severability. (a) If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
Parties shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the Parties as closely as possible to the fullest extent
permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.

            (b) In the event that the provisions of this Agreement are claimed
or held to be inconsistent with any other agreement or instrument evidencing the
Obligations, the terms of this Agreement shall remain fully valid and effective.

            SECTION 20. Entire Agreement. This Agreement and the Confidentiality
Agreement embody the entire agreement and understanding of the Parties in
respect of the matters contemplated hereby. There are no restrictions, promises,
representations, warranties, covenants or undertakings other than those
expressly set forth or referred to herein or therein. This Agreement supersedes
all prior agreements and understandings between the Parties with respect to the
matters contemplated hereby other than the Confidentiality Agreement.

<PAGE>   286

                                                                              10

            SECTION 21. Letter of Credit. Guarantor agrees that it shall at all
times, until the earlier of the fifth anniversary of the Closing Date and such
time as long-term debt of the Guarantor is rated by a nationally recognized
statistical rating organization (as such term is defined in the Rules under the
Securities Exchange Act of 1934, as amended) in one of its generic categories
that signifies investment grade, maintain an irrevocable letter of credit in
respect of the Obligations in favor of Seller in the amount of $10,000,000, and
that the terms and conditions of such letter of credit shall be in form and
substance reasonably satisfactory to Seller.

<PAGE>   287

                                                                              11

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

                                    ORION POWER HOLDINGS, INC.,

                                        by ___________________________
                                           Name:
                                           Title:

                                    CONSOLIDATED EDISON COMPANY OF
                                    NEW YORK, INC.,

                                        by ___________________________
                                           Name:
                                           Title:
<PAGE>   288

                                                                       EXHIBIT L

                     FORM OF OPINION OF COUNSEL TO GUARANTOR

                                                              *  , 1999

Consolidated Edison Company
    of New York, Inc.
4 Irving Place
New York, NY 10003

                               Guarantee Agreement

Ladies and Gentlemen:

            We have acted as counsel to Orion Power Holdings, Inc., a Delaware
corporation ("Guarantor"), in connection with the Guarantee Agreement (the
"Guarantee") dated as of March 2, 1999, between Guarantor and Consolidated
Edison Company of New York, Inc., a New York corporation ("Seller"). Capitalized
terms used but not defined herein have the meanings assigned to them in the
Guarantee.

            In that connection, we have examined originals, or copies certified
or otherwise identified to our satisfaction, of such documents, corporate
records and other instruments as we have deemed necessary or appropriate for the
purposes of this opinion, including: (a) the Guarantee, (b) the Certificate of
Incorporation and By-laws (or other similar governing documents) of Guarantor,
(c) resolutions of the Board of Directors of Guarantor and (d) the Generating
Plant and Gas Turbine Asset Purchase and Sale Agreement dated as of March 2,
1999, between Astoria Generating Company, L.P., a Delaware limited partnership,
and Seller (the "Sale Agreement") and the Ancillary Agreements (as defined in
the Sale Agreement).

            In rendering our opinion, we have assumed the due authorization,
execution and delivery of the Guarantee by Seller.

<PAGE>   289

                                                                               2

            Based upon the foregoing and subject to the qualifications
hereinafter set forth, we are of the opinion as follows:

            1. Guarantor is a corporation validly existing and in good standing
under the laws of the State of Delaware. Guarantor has all necessary corporate
power and authority to execute and deliver the Guarantee and to consummate the
transactions contemplated thereby; and the execution and delivery by Guarantor
of the Guarantee and the performance by Guarantor of its obligations thereunder
have been duly and validly authorized by all necessary corporate action on the
part of Guarantor.

            2. The Guarantee has been duly executed and delivered by Guarantor,
and assuming that the Guarantee constitutes a valid and binding obligation of
Seller, the Guarantee constitutes a valid and binding obligation of Guarantor,
enforceable against Guarantor in accordance with its terms (subject to
applicable bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and other similar laws affecting creditors' rights generally from
time to time in effect and to general principles of equity, including, without
limitation, concepts of materiality, reasonableness, good faith and fair
dealing, regardless of whether considered in a proceeding in equity or at law).
With respect to the foregoing opinion, the availability of a decree for specific
performance or an injunction is subject to the discretion of the court requested
to issue any such decree or injunction.

            3. Neither the execution and delivery of the Guarantee nor the
performance by Guarantor of its obligations thereunder will (i) conflict with or
result in a breach of the Certificate of Incorporation or By-laws (or other
similar governing documents) of Guarantor, (ii) result in a default (or give
rise to any right of termination, cancelation or acceleration) under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, license,
agreement, lease or other instrument or obligation to which Guarantor or any of
its subsidiaries is a party or by which any of their respective assets may be
bound or (iii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Guarantor, or any of its assets, except in the case of
clauses (ii) and (iii) for such failures to obtain a necessary consent, defaults
and violations which would not, individually or in the aggregate, have a
material adverse effect on the ability of Guarantor to consummate the
transactions contemplated by, and discharge its obligations under, the
Guarantee.

<PAGE>   290

                                                                               3

            4. No declaration, filing or registration with, or notice to, or
authorization, consent or approval of any Governmental Authority is necessary
for performance by Guarantor of its obligations under the Guarantee.

            We express no opinion herein as to (i) the provisions of the
Guarantee insofar as such provisions relate to the subject matter jurisdiction
of the United States District Court for the Southern District of New York to
adjudicate any controversy related thereto and (ii) the waiver of an
inconvenient forum set forth in the provisions of the Guarantee.

            We are furnishing this opinion to you pursuant to Section 8.03(k) of
the Sale Agreement, solely for your benefit in connection with the transactions
contemplated by the Guarantee and the Sale Agreement. This opinion may not be
relied upon by any other person or for any other purpose or used, circulated,
quoted or otherwise referred to for any other purpose.

                                    Very truly yours,

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