Document:

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                                                                   EXHIBIT 10.20

                                    SECOND
                             AMENDED AND RESTATED
                  WHOLESALE STANDARD OFFER SERVICE AGREEMENT

                           WHOLESALE STANDARD OFFER
                               SERVICE AGREEMENT

                                     among

                        MASSACHUSETTS ELECTRIC COMPANY,

                          NANTUCKET ELECTRIC COMPANY,

                                      and

                            USGEN NEW ENGLAND, INC.

Dated as of September 1, 1998
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<TABLE>
                                Table of Contents
<S>                                                                                     <C>
ARTICLE 1.  BASIC UNDERSTANDINGS.....................................................    1

ARTICLE 2.  DEFINITIONS...............................................................   2

ARTICLE 3.  TERM AND REGULATORY APPROVAL..............................................   5
    3.1   Term........................................................................   5
    3.2   Obtaining and Maintaining Required Permits..................................   5

ARTICLE 4.  SALE AND PURCHASE.........................................................   5
    4.1   Wholesale Standard Offer Service............................................   5
    4.2   Dispatchable Load Credits...................................................   6

ARTICLE 5.  PRICE AND BILLING.........................................................   6
    5.1   Price.......................................................................   6
    5.2   Payment.....................................................................   7
    5.3   Taxes, Fees and Levies......................................................   8

ARTICLE 6.  DELIVERY, LOSSES, AND DETERMINATION AND REPORTING
OF HOURLY LOADS.......................................................................   9
    6.1   Delivery....................................................................   9
    6.2   Losses......................................................................   9
    6.3   Determination and Reporting of Hourly Loads.................................   9

ARTICLE 7.  DEFAULT AND TERMINATION...................................................  10
    7.1   Material Breach and Termination.............................................  10

ARTICLE 8.  NOTICES, REPRESENTATIVES OF THE PARTIES...................................  12
    8.1   Notices.....................................................................  12
    8.2   Authority of Representative.................................................  12

ARTICLE 9.  LIABILITY, INDEMNIFICATION, AND RELATIONSHIP OF PARTIES...................  13
    9.1   Limitation on Consequential, Incidental and Indirect Damages................  13
    9.2   Recovery of Direct Damages Permitted........................................  13
    9.3   Indemnification.............................................................  14
    9.4   Independent Contractor Status...............................................  15

ARTICLE lO. ASSIGNMENT................................................................  15
   10.1   Assignment..................................................................  15
</TABLE>
                                       i

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<TABLE>
<S>                                                                                    <C>
ARTICLE 11. FORCE MAJEURE............................................................  16
   11.1   Force Majeure Standard.....................................................  16
   11.2   Force Majeure Definition...................................................  16
   11.3   Obligation to Diligently Cure Force Majeure................................  16

ARTICLE 12. WAIVERS..................................................................  17

ARTICLE 13. REGULATION...............................................................  17
   13.1   Laws and Regulations.......................................................  17
   13.2   NEPOOL Requirements........................................................  17

ARTICLE 14. INTERPRETATION, DISPUTE RESOLUTION.......................................  18
   14.1   Interpretation.............................................................  18
   14.2   Dispute Resolution.........................................................  18

ARTICLE 15. SEVERABILITY.............................................................  18

ARTICLE 16. MODIFICATIONS............................................................  18

ARTICLE 17. SUPERSESSION.............................................................  19

ARTICLE 18. COUNTERPARTS.............................................................  19

ARTICLE 19. HEADINGS.................................................................  19

Appendix A. Standard Offer Fuel Adjustment Provision................................. A-l

Appendix B. Estimation of Supplier Hourly Loads...................................... B-l

Appendix C. Arbitration Agreement.................................................... C-l
</TABLE>

                                      ii
<PAGE>

                     SECOND AMENDED AND RESTATED WHOLESALE
                        STANDARD OFFER SERVICE AGREEMENT

     This SECOND AMENDED AND RESTATED WHOLESALE STANDARD OFFER SERVICE AGREEMENT
("Agreement") is dated as of September 1, 1998 and is by and among MASSACHUSETTS
ELECTRIC COMPANY, a Massachusetts corporation, NANTUCKET ELECTRIC COMPANY, a
Massachusetts corporation (these two parties being referred to collectively as
"MECO"), and USGen New England, Inc., a Delaware corporation ("Seller"), and
amends and restates and supersedes in its entirety the Amended and Restated
Wholesale Standard Offer Service Agreement dated as of October 29, 1997 between
MECO and Seller. This Agreement provides for the purchase by MECO and the sale
by Seller of Wholesale Standard Offer Service, as defined in this Agreement.

                         ARTICLE 1. BASIC UNDERSTANDINGS

     MECO purchases all of its requirements of electricity for resale to its
retail electric customers from its affiliate, New England Power Company
("NEP").

     NEP, MECO and other parties have entered into an agreement in settlement of
regulatory proceedings before the Federal Energy Regulatory Commission and the
Massachusetts Department of Public Utilities (the "Massachusetts Restructuring
Agreement") that, among other things, permits MECO to terminate wholesale
purchases from NEP, permits current retail customers of MECO to purchase
electricity from other suppliers on and after a date defined therein as the
"Retail Access Date," or, for a limited time, to purchase Standard Offer Service
from MECO, obligates NEP to supply MECO with power sufficient to meet the
latter's obligations to supply Standard Offer Service, and obligates NEP to
transfer its interests in the electric generating business to another party or
parties.

     NEP and Seller have entered an agreement under which Seller will acquire
certain NEP generating assets.

     NEP and Seller desire that Seller shall supply electric capacity and energy
to MECO to fulfill a portion of NEP's power supply obligations under the
Massachusetts Restructuring Agreement.

     Under the Massachusetts Restructuring Agreement, MECO is obligated to
afford wholesale power suppliers other than NEP the opportunity to commit to
supply MECO with power sufficient to meet MECO's obligation to supply retail
Standard Offer Service after the Retail Access Date.

     This Agreement sets forth the terms under which Seller will supply
Wholesale Standard Offer Service to MECO, for a period beginning on the Closing
Date, to enable MECO to meet

                                        2
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the needs of its retail customers for electricity, including all or a portion
of the needs of customers receiving retail Standard Offer Service after the
Retail Access Date.

                             ARTICLE 2. DEFINITIONS

The following words and terms shall be understood to have the following meanings
when used in this Agreement, or in any associated documents entered into in
conjunction with this Agreement. In addition, except as otherwise expressly
provided, where terms used in this Agreement are defined in the NEPOOL Agreement
and not otherwise defined herein, such definitions are expressly incorporated
into this Agreement by reference.

Affiliate of MECO - Any company that is a subsidiary of New England Electric
-----------------
System and its successors.

Closing Date - The date upon which the Seller acquires ownership of generating
------------
assets it purchases from NEP.

Commission or FERC - The Federal Energy Regulatory Commission or such successor
------------------
federal regulatory agency as may have jurisdiction over this Agreement.

Contract Termination Date - The date established by the Massachusetts
-------------------------
Restructuring Agreement when the respective obligations of NEP and MECO under
NEP's FERC Electric Tariff, Original Volume No. 1, to sell and purchase
wholesale electric requirements service shall cease. The Contract Termination
Date occurred on March 1, 1998

Department - The Massachusetts Department of Telecommunications and Energy,
----------
formerly named the Massachusetts Department of Public Utilities.

GWh - Gigawatt hour.
---

ISO - The Independent System Operator to be established in accordance with the
---
NEPOOL Agreement and the Interim Independent System Operator Agreement as
amended, superseded or restated from time to time.

kWh - Kilowatt- hour.
---

Massachusetts Restructuring Agreement - The Offer of Settlement dated May 28,
-------------------------------------
1997, entered into by and among the Office of the Attorney General of
Massachusetts, American National Power, American Tractebel Corporation,
Conservation Law Foundation, Division of Energy Resources, KCS Power Marketing,
Inc., Low-Income Intervenors, Massachusetts Community Action Directors
Association, Massachusetts Energy Directors Association, Massachusetts High
Technology Council, Northeast Energy and Commerce Association,

                                        3
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Northeast Energy Efficiency Council, Inc., The Energy Consortium, Union of
Concerned Scientists, U.S. Generating Company, Massachusetts Electric Company
and Nantucket Electric Company, and New England Power Company, as amended and
accepted or approved by the Department and the FERC.

MECO's Service Territory - The geographic area in which MECO provided electric
------------------------
service to retail customers on August 6, 1996.

MECO's System - The electrical system of MECO and/or the electrical system of
-------------
any Affiliate of MECO.

MMBtu - Million British thermal units.
-----

NEP - New England Power Company, an Affiliate of MECO.
---

NEPEX - The New England Power Exchange.
-----

NEPOOL - The New England Power Pool.
------

NEPOOL Agreement - The New England Power Poo1 Agreement dated as of September 1,
----------------
1971, as amended and as may be amended or restated from time to time.

Price - The price set forth in SECTION 5.1, below.
-----

Prime Rate - The prime (or comparable) rate announced from time to time as its
----------
prime rate by the Bank of Boston or its successor, which rate may differ from
the rate offered to its more substantial and creditworthy customers.

PTF - Facilities categorized as Pool Transmission Facilities under the NEPOOL
---
Agreement.

Retail Access Date - The date so defined under the Massachusetts Restructuring
------------------
Agreement. The Retail Access Date occurred on March 1, 1998.

Standard Offer Auction - The solicitation by MECO of offers from wholesale
----------------------
power suppliers, including, at their option, NEP and Seller, of electric energy
and associated capacity and ancillary services necessary to meet the needs of
ultimate customers of MECO eligible for and accepting retail Standard Offer
Service on or after the Retail Access Date, and any wholesale electric supply
contracts resulting from that solicitation. The solicitation and any contract(s)
entered into as a result thereof shall not he on terms that are materially
different from those described by MECO in the Massachusetts Restructuring
Agreement, the RFQ dated April 3, 1997, and the letter to potential asset
purchasers dated June 16, 1997, or result in a material adverse impact on
Seller. MECO shall not, without Seller's consent, conduct the

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Standard Offer Auction more than once or more than six (6) months prior to and
in no event later than the Retail Access Date, which date shall be as
reasonably determined by MECO.

Standard Offer Service - The electric service provided by MECO pursuant to the
----------------------
Massachusetts Restructuring Agreement: (i) to retail customers in MECO's Service
Territory during the period, if any, during the term of this Agreement preceding
the Retail Access Date; and (ii) to all of MECO's retail customers on the Retail
Access Date that do not elect to obtain their electric supply from an
alternative supplier on or after the Retail Access Date through December 31,
2004.

Wholesale Access Date - The date so defined under the Massachusetts
---------------------
Restructuring Agreement, as the date on which MECO in its sole discretion
decides to terminate its purchase from NEP of wholesale requirements service
pursuant to NEP's FERC Electric Tariff, Original Volume No. 1, by providing the
Commission and the Signatories to the Massachusetts Restructuring Agreement with
90 days advance notice in writing, said date not to be earlier than January 1,
1998.

Wholesale Standard Offer Service - The generation and delivery, to any location
--------------------------------
on the NEPOOL PTF system or MECO's system, of the portion of the electric
capacity, energy and ancillary services required by MECO to meet the needs of
MECO's ultimate customers taking Standard Offer Service, excluding, after the
Retail Access Date, any portion of such requirements that MECO obtains or has
contracted to obtain through the Standard Offer Auction, determined in
accordance with ARTICLE 4. Seller, as the supplier of Wholesale Standard Offer
Service capacity and energy, will be responsible for all present, or future
requirements and associated costs for installed capability, operable capability,
energy, operating reserves, automatic generation control, including the benefit
payments, losses and any congestion charges associated with Seller's supply of
Wholesale Standard Offer Service and any other requirements imposed by NEPOOL or
the ISO, as they may be in effect from time to time. To the extent that any
NEPOOL, ISO or any successor entity expenses or uplift costs are allocated to
wholesale suppliers, the portion of such costs associated with Seller's supply
of Standard Offer Service will also be the responsibility of Seller. To the
extent any costs contemplated by this paragraph are applicable to MECO and
recoverable by MECO from its customers, MECO shall be responsible for such
costs.

                     ARTICLE 3. TERM AND REGULATORY APPROVAL

3.1  Term
     ----

       The term of this Agreement shall begin at 12:01 am on the Closing Date
and continue until the earlier of: (a) 11:59 p.m. on December 31, 2004; or (b)
the first date that MECO has no requirements for electric capacity and energy to
supply Standard Offer Service that are not satisfied by contracts resulting from
the Standard Offer Auction.

                                        5
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3.2  Obtaining and Maintaining Required Permits
     ------------------------------------------

       (a) Performance under this Agreement is conditioned upon all Parties
securing and maintaining such federal, state or local approvals, grants or
permits as may be necessary for the sale and purchase of Wholesale Standard
Offer Service, which shall not include any approvals, grants, or permits
necessary for the operation of any particular generating facility. Each Party
shall use reasonable efforts to acquire and maintain such approvals, grants or
permits. If the acquisition or maintenance of a particular approval, grant, or
permit requires a modification to this Agreement, then the Parties agree to
negotiate in good-faith to reach a mutually agreeable modification of the
Agreement. The Parties are not required to reach such a mutually acceptable
modification.

       (b) Seller will file this Agreement with FERC (and any other regulatory
agency as may have jurisdiction over the Agreement) in accordance with the
provisions of applicable laws, rules and regulations. Seller will be responsible
for any filing fees for filing this Agreement with FERC (and any other
regulatory agency as may have jurisdiction over the Agreement) and for any
regulatory assessments associated with sales under this Agreement. FERC approval
of this Agreement shall be a condition to the obligations of the Parties
hereunder.

                          ARTICLE 4. SALE AND PURCHASE

4.1  Wholesale Standard Offer Service
     --------------------------------

       Seller shall sell and deliver to the Delivery Points, as defined in
ARTICLE 6, SECTION 6.1, and MECO shall purchase 90.78% of MECO's requirements
for Wholesale Standard Offer Service. MECO's requirements for Wholesale Standard
Offer Service shall be determined on the basis of ARTICLE 6, SECTION 6.3, below,
and the price for such sale and purchase shall be as set forth in ARTICLE 5,
SECTION 5.1, below.

4.2  Dispatchable Load Credits
     -------------------------

       Seller shall have the right, but not the obligation, to elect to purchase
a portion of the peak load reduction credits, if any, as provided for in NEPOOL
Criteria, Rules and Standards No. 16, associated with MECO's retail customers
which are taking Standard Offer Service and which are taking service under
MECO's Cooperative Interruptible Service Provision (as defined in MECO's tariffs
on file with the Department) ("Dispatchable Load Credits"), during the period
commencing at 0001 hours on the Closing Date and ending at 2400 hours on
December 31, 2000 (the "Option Period"). Seller may purchase such credits for
any, all, or any combination of calendar months during the Option Period.

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<PAGE>

       In order to receive such credits, Seller shall provide MECO with written
notice of such election at least seven days prior to the requested start date.
Such notice shall include: (i) the requested start date, which shall be the
first day of a calendar month, (ii) the requested end date, which shall be the
last day of a calendar month, and (iii) the fixed amount per month of
Dispatchable Load Credits (the "Seller's Election"), which shall not exceed
90.78% of the minimum load reduction actually experienced by MECO during the
most recent 12 month period, excluding for such period months in which
interruptions occurred ("Load Reductions").

       In the event Seller does not provide a timely notice of election for any
month, Seller's Election for such month will be presumed to be zero (0)
kilowatts.

       MECO will provide Seller during each month of this Agreement with a
report on (i) the quantity of Load Reductions for the preceding month and (ii)
the number of customers (and associated nominal interruptible load), if any,
which ceased taking service under MECO's Cooperative Interruptible Service
Provision during the preceding month.

                         ARTICLE 5. PRICE AND BILLING

5.1  Price
     -----

       (a)     For each kilowatt hour of Wholesale Standard Offer Service that
Seller delivers to the Delivery Points, in accordance with ARTICLE 6, SECTION
6.3, below, MECO shall pay Seller a price equal to the following amounts for
each period during the term of this Agreement:

                  ----------------------------------------
                       Period       Price in Cents per
                                           kWh
                  ----------------------------------------
                        1998            3.2 Cents
                  ----------------------------------------
                        1999            3.5 Cents
                  ----------------------------------------
                        2000            3.8 Cents
                  ----------------------------------------
                        2001            3.8 Cents
                  ----------------------------------------
                        2002            4.2 Cents
                  ----------------------------------------
                        2003            4.7 Cents
                  ----------------------------------------
                        2004            5.1 Cents
                  ----------------------------------------

       In addition, in the event of substantial increasers in the market price
of No. 6 residual fuel oil (1% sulphur) and natural gas after 1999 as described
in Appendix A, MECO shall pay

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Seller additional amounts in accordance with the Standard Offer Fuel Adjustment
Provision, described in Appendix A, attached and incorporated herein by
reference.

       (b)     For any month in which Seller elects to receive Dispatchable Load
Credits, in accordance with ARTICLE 4, SECTION 4.2, for each kilowatt of
Seller's Election, MECO shall be entitled to a reduction in the amount owed to
Seller by MECO pursuant to paragraph (a) above at a value calculated pursuant to
the second paragraph of ARTICLE 5, SECTION 5.2 using the following rates
("Option Price"):

         --------------------------------------------------------------
               Month Of Transfer        Option Price in Dollars
                                              per KW Month
         --------------------------------------------------------------
            January, February, July,             $3.125
               August, September,
                    December
         --------------------------------------------------------------
               March, April, May,                $1.875
            June, October, November
         --------------------------------------------------------------

5.2  Payment
     -------

       (a)     On or before the tenth (10th) day of each month during the term
of this Agreement, MECO shall: (i) calculate the amount due and payable to
Seller pursuant to this ARTICLE 5 with respect to the preceding month; and (ii)
advise Seller of the schedule upon which it shall pay the amount so calculated,
which schedule shall comply with paragraph (b), below.

       The amount payable shall be calculated by (i) multiplying the Price
specified in the first paragraph of ARTICLE 5, SECTION 5.1, above, for the
applicable Contract Period by the quantity of Wholesale Standard Offer Service
delivered by Seller to the Delivery Points for MECO's Standard Offer Service
customers in the month, as determined in accordance with ARTICLE 6, SECTION 6.3,
below and then subtracting the result obtained by (ii) multiplying the Option
Price specified in the second paragraph of ARTICLE 5, SECTION 5.1, above, for
the applicable month by the Seller's Election for the applicable month, as
determined and certified as true and accurate, by Seller.

       Because quantities determined under SECTION 6.3 are estimated, subject to
a reconciliation process described in SECTION 6.3(d), quantities used in
calculations under this paragraph (a) shall be subject to adjustment, whether
positive or negative, in subsequent months' calculations, to reflect that
reconciliation process, and any adjusted quantities shall be applied to the
Price applicable during the month of the calculation being adjusted. Additional
amounts due Seller, if any, from the Standard Offer Fuel Adjustment Provision
revenue shall be added to such amount.

                                        8
<PAGE>

       (b)    MECO shall pay Seller any amounts due and payable on or before the
twenty-fifth (25th) day after the date a calculation is made pursuant to
paragraph (a), provided that, if and to the extent MECO pays Seller any portion
of the amount due and payable before the twenty-fifth (25th) day after a
calculation is made, it shall be entitled, without interest or penalty, to defer
payment of an equal portion of the amount due and payable for that month by the
lesser of: (i) the same number of days that the early payment preceded the
twenty-fifth day after the calculation; and (ii) twenty-five (25) days. If all
or any part of any amount due and payable pursuant to paragraph (a) shall remain
unpaid thereafter, interest shall thereafter accrue and be payable to Seller on
such unpaid amount at a rate per annum equal to two percent (2%) above the Prime
Rate in effect on the date of such bill; provided, however, if the amount due
                                         --------  -------
and payable is disputed, interest shall accrue and be payable to Seller on the
unpaid amount finally determined to be due and payable at a rate per annum equal
to the Prime Rate in effect on the date of the calculation pursuant to paragraph
(a); and provided, further, no interest shall accrue in favor of Seller or MECO
     ---------------------
on amounts that are added to or credited against a calculation due to the
adjustment of estimated quantities in accordance with paragraph (a) and ARTICLE
6, SECTION 6.3.

       (c)    With respect to reconciliation adjustments pursuant to SECTION
6.3(d) or any error in a calculation (whether the amount is paid or not), any
overpayment, underpayment, or reconciliation adjustment will be refunded or paid
up, as appropriate. Interest shall accrue from the date of the error or
adjustment on the unpaid or overpaid amount finally determined to be due and
shall be calculated pursuant to Section 35.19a of the Commission regulations.

5.3  Taxes, Fees and Levies
     ----------------------

       Seller shall be obligated to pay all present and future taxes, fees and
levies which may be assessed upon Seller by any entity upon the purchase or sale
of electricity covered by the Agreement. To the extent such taxes, fees, and
levies are allowed to be, and are actually, recoverable by MECO from its
customers, MECO shall reimburse Seller for such taxes, fees, and levies paid by
Seller.

         ARTICLE 6. DELIVERY, LOSSES, AND DETERMINATION AND REPORTING
                                OF HOURLY LOADS

6.1  Delivery
     --------

       All electricity shall be delivered to MECO in the form of three-phase
sixty-hertz alternating current at any location on the NEPOOL PTF system or
MECO's System ("Delivery Points"). Title shall pass to MECO at the Delivery
Point and Seller shall incur no expense or risk beyond the Delivery Point other
than those described in SECTION 6.2. If the NEPOOL control area experiences
congestion, Seller will be responsible for any congestion costs incurred in
delivering power across the PTF system to MECO to the extent such costs

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are imposed by NEPOOL or the ISO on suppliers. Seller shall be responsible for
all transmission and distribution costs associated with the use of transmission
systems outside of NEPOOL and any local point to point charges and distribution
charges needed to deliver the power to the NEPOOL PTF.

6.2  Losses
     ------

       Seller shall be responsible for all transmission and distribution losses
associated with the delivery of electricity supplied under this Agreement to
the meters of ultimate customers of MECO receiving retail Standard Offer
Service, provided, however, that losses do not include service to unmetered
facilities for which estimates of kWh use are available and provided, further,
that Seller shall not be responsible for unmetered use or consumption of
electricity by MECO's Affiliates. Seller shall provide MECO at the Delivery
Points with additional quantities of electricity and ancillary services to cover
such losses, but Seller shall not be entitled to payment under ARTICLE 5 of this
Agreement for such additional quantity. The quantities required for this purpose
in each hour of a billing period shall be determined in accordance with
NEPOOL's, NEP's and MECO's filed procedures for loss determination.

6.3  Determination and Reporting of Hourly Loads
     -------------------------------------------

       (a)    To meet its NEPOOL obligations, Seller, or a NEPOOL member having
an own-load dispatch or settlement account with the NEPOOL billing system with
whom Seller has a load inclusion agreement, must report to NEPOOL or the ISO the
Standard Offer Service load for which Seller is providing Wholesale Standard
Offer Service pursuant to this Agreement, including losses. To accomplish this,
MECO will estimate its total hourly Standard Offer Service load based upon
average load profiles developed for each MECO customer class and MECO's actual
total hourly load. Appendix B, attached and incorporated herein by reference,
provides a general description of the estimation process that MECO will
initially employ (the "Estimation Process"). MECO reserves the right, subject to
the approval of appropriate regulatory authorities having jurisdiction, to
modify the Estimation Process in the future, provided that any such modification
be designed to improve the accuracy of its results and provided further that
MECO shall consult with Seller and other similarly situated sellers to the
maximum extent permitted by any applicable standards of conduct. MECO will
report to NEPOOL, on behalf of Seller or such other NEPOOL member, Seller's
hourly Standard Offer Service load, which shall equal the portion of MECO's
estimated total Standard Offer Service hourly load for which Seller is
responsible for supplying Wholesale Standard Offer Service under this Agreement.

       (b)    MECO will report to NEPOOL or the ISO Seller's hourly adjusted
Standard Offer Service loads by 1:00 p.m. of the second following business day.
This adjusted load should be added by NEPOOL or the ISO to the other NEPOOL load
of Seller or such other NEPOOL member.

                                       10
<PAGE>

       (c)    At the end of each month, MECO shall aggregate Seller's hourly
loads for the month as determined by the Estimation Process. For purposes of
SECTION 5.1, above, the result of the Estimation Process, less losses to the
Standard Offer Service customers' meters determined as specified in ARTICLE 6
SECTION 6.2, above, will be deemed to be the quantity of Wholesale Standard
Offer Service delivered by Seller to the Delivery Points in a month.

       (d)    To refine the estimates of Seller's monthly Standard Offer Service
load developed by the Estimation Process, a monthly calculation will be
performed to reconcile the original estimate of Seller's Standard Offer Service
loads to actual customer usage based on meter reads. MECO will apply any
resulting billing adjustment (debit or credit) to Seller's account no later than
the last day of the third month following the billing month. Appendix B,
attached and incorporated herein by reference, also provides a general
description of this reconciliation process.

                      ARTICLE 7. DEFAULT AND TERMINATION

7.1  Material Breach and Termination
     -------------------------------

       (a)    (i)   if MECO fails in any material respect to comply with,
                    observe or perform any covenant, warranty or obligation
                    under this Agreement (except due to causes excused by force
                                                                          -----
                    majeure or attributable to Seller's wrongful act or
                    -------
                    wrongful failure to act); and

              (ii)  After receipt of written notice from Seller such failure
                    continues for the Cure Period (as defined below), or, if
                    such failure cannot be reasonably cured within the Cure
                    Period, such further period as shall reasonably be required
                    to effect such cure (except in the case of a payment
                    default), provided that MECO commences within the Cure
                    Period to effect such cure and at all times thereafter
                    proceeds diligently to complete such cure as quickly as
                    possible; then

              (iii) Seller shall have the right to terminate this Agreement,
                    subject to paragraph (c) below. For purposes of this Section
                    7.1(a), the Cure Period shall mean five days in the case of
                    a failure by MECO to fulfill its payment obligations
                    pursuant to Section 5.2 and forty-five (45) days in the case
                    of a failure by MECO to comply with, observe or perform any
                    other covenant, warranty or obligation under this Agreement.
                    If an unexcused failure to pay continues for fifteen (15)
                    days Seller shall have the right to suspend service until
                    payment is made in full and appropriate security is posted
                    for future payments or terminate this Agreement.

                                       11
<PAGE>

       (b)    (i)    If Seller fails in any material respect to comply with,
                     observe, or perform any covenant, warranty or obligation
                     under this Agreement (except due to causes excused by force
                                                                           -----
                     majeure or attributable to MECO's wrongful act or wrongful
                     -------
                     failure to act); and

              (ii)   After receipt of written notice from MECO such failure
                     continues for a period of forty-five (45) days, or, if such
                     failure cannot be reasonably cured within such forty-five
                     (45) day period, such further period as shall reasonably be
                     required to effect such cure, provided that Seller
                     commences within such forty-five (45) day period to effect
                     such cure and at all times thereafter proceeds diligently
                     to complete such cure as quickly as possible; then

              (iii)  MECO shall have the right to terminate this Agreement,
                     subject to paragraph (c) below.

       (c)    Any termination arising out of the exercise of the termination
rights specified in paragraphs (a) or (b) above (with the exception of
termination for a payment default) may not take effect unless and until an
arbitrator (pursuant to ARTICLE 14, SECTION 14.2 of this Agreement) has made a
ruling that the exercise of such termination right was valid. The fact that one
party alleged to be in material breach of this Agreement ("Alleged Breaching
Party") complies with the request of the other to cure an alleged material
breach shall not be considered by the arbitrator as an admission against the
Alleged Breaching Party or evidence that such party was or was not in material
breach.

       (d)    Nothing in this SECTION 7.1 shall be construed to limit the right
of any party to seek any remedies for damages, as limited by ARTICLE 9 of this
Agreement, even if a cure of an alleged breach is made within the periods of
time specified for curing any such breach stated above. The provisions of this
SECTION 7.1 are intended only to provide the exclusive process through which one
party may exercise and effectuate its right to terminate this Agreement as a
result of a material breach of this Agreement.

              ARTICLE 8. NOTICES, REPRESENTATIVES OF THE PARTIES

8.1  Notices
     -------

       Any notice, demand, or request required or authorized by this Agreement
to be given by one party to another party shall be in writing. It shall either
be sent by facsimile (confirmed by telephone), overnight courier, personally
delivered and acknowledged in writing or by registered or certified mail,
(return receipt requested) postage prepaid, to the representative of the other
party designated in this ARTICLE 8. Any such notice, demand, or request shall be
deemed to be given (i) when sent by facsimile confirmed by telephone, (ii) when
actually

                                      12
<PAGE>

received if delivered by courier or personal deliver or (iii) three (3) days
after deposit in the United States mail, if sent by first class mail.

          Notices and other communications by Seller to MECO shall be addressed
to:

                              Michael J. Hager
                              New England Power Service Company
                              25 Research Drive
                              Westborough MA 01582
                              Fax (508) 389-2463

          Notices and other communications by MECO to Seller shall be addressed
to:

                              USGen New England, Inc.
                              7500 Old Georgetown Road, 13th Floor
                              Bethesda, MD 20814
                              Attention: Stephen A. Herman, Esq.
                              Fax: (301) 718-6913

          Any party may change its representative by written notice to the
others.

8.2  Authority of Representative
     ---------------------------

          The parties' representatives designated in ARTICLE 8, SECTION 8.1
 shall have full authority to act for their respective principals in all
 technical matters relating to the performance of this Agreement. They shall
 not, however, have the authority to amend, modify, or waive any provision of
 this Agreement unless they are authorized officers of their respective
 entities.

                  ARTICLE 9. LIABILITY, INDEMNIFICATION, AND
                            RELATIONSHIP OF PARTIES
                                       .
9.1 Limitation on Consequential, Incidental and Indirect Damages
    ------------------------------------------------------------

          To the fullest extent permissible by law, neither MECO nor Seller, nor
their respective officers, directors, agents, employees, parent or affiliates,
successor or assigns, or their respective officers, directors, agents, or
employees, successors, or assigns, shall be liable to the other party or its
parent, subsidiaries, affiliates, officers, directors, agents, employees,
successors or assigns, for claims, suits, actions or causes of action for
incidental, indirect, special, punitive, multiple or consequential damages
including attorney's fees or litigation costs) connected with or resulting from
performance or non-performance of this Agreement, or any actions undertaken in
connection with or related to this Agreement, including without

                                      13
<PAGE>

limitation any such damages which are based upon causes of action for breach of
contract, tort (including negligence and misrepresentation), breach of warranty,
strict liability, Massachusetts Gen. Laws ch 93A, statute, operation of law, or
any other theory of recovery. The provisions of this SECTION 9.1 shall apply
regardless of fault and shall survive termination, cancellation, suspension,
completion or expiration of this Agreement.

9.2  Recovery of Direct Damages Permitted
     ------------------------------------

         Notwithstanding the provisions of ARTICLE 9, SECTION 9.1, subject to
the duty to mitigate damages as provided under common law of damages recovery,
both MECO and Seller shall be entitled to recover their actual, direct damages
(i) incurred as a result of the other party's breach of this Agreement or (ii)
incurred as a result of any other claim arising out of any action undertaken
in connection with or related to this Agreement. For purposes of avoiding any
disputes about the difference between direct damages and consequential damages,
the parties agree as follows:

         (a)     (1)     To the extent that MECO is found to be in breach of
                         this Agreement or liable under another cause of action;
                         and

                 (2)     as a result of such breach or event giving rise to the
                         cause of action, Seller suffers loss of profits that
                         Seller reasonably expected to have received from MECO
                         under this Agreement had MECO performed under this
                         Agreement; then

                 (3)     Seller shall be entitled to recover any lost profits
                         that Seller can demonstrate it lost or will lose as a
                         result of MECO's breach, subject to the duty to
                         mitigate.

         (b)     (1)     To the extent that Seller fails to provide MECO
                         Wholesale Standard Offer Service Power under the terms
                         of this Agreement; and

                 (2)     as a result, Seller is found to be in material breach
                         of this Agreement or liable under another cause of
                         action; and

                 (3)     subject to the duty to mitigate, MECO purchases (as a
                         result of Seller's failure) power from a third party at
                         a price that is higher than what MECO would have paid
                         under the terms of this Agreement, MECO may recover the
                         difference between the price MECO paid to such third
                         party and the price it would have paid had Seller
                         performed; provided, however, Seller shall not be
                                    --------  -------
                         liable to MECO for lost profits associated with any
                         expected revenue streams from the sale of power to
                         third parties or lost profits from any other contracts
                         acts or sales.

                                      14
<PAGE>

     (c)   Except as provided in paragraphs (a) and (b) above, neither MECO nor
 Seller shall be liable to the other for lost profits arising out of
 performance, or non-performance of this Agreement, whether such lost profits
 may be categorized as direct, incidental, indirect, or consequential damages
 and irrespective of whether such claims are based upon warranty, tort, strict
 liability, contract, statute (including Mass. G.L. ch 93A), operation of law or
 otherwise.

9.3 Indemnification
    ---------------

     (a)   Seller agrees to defend, indemnify and save MECO, its officers,
 directors, employees, agents, successors, assigns, and Affiliates and their
 officers, directors, employees, and agents harmless from and against any and
 all claims, suits, actions or causes of action for damage by reason of bodily
 injury, death, or damage to property caused by Seller, its officers, directors,
 employees, agents or affiliates or caused by or sustained on its facilities,
 except to the extent caused by an act of negligence or willful misconduct by an
 officer, director, agent, employee or Affiliate of MECO or their successors or
 assigns.

     (b)   MECO agrees to defend, indemnify and save Seller, its officers,
 directors, employees, agents, successors, assigns, and affiliates and their
 officers, directors, employees, and agents harmless from and against any and
 all claims, suits, actions or causes of action for damage by reason of bodily
 injury, death, or damage to property caused by MECO, its officers, directors,
 employees, agents or affiliates or caused by or sustained on its facilities,
 except to the extent caused by an act of negligence or willful misconduct by an
 officer, director, agent, employee or Affiliate of Seller or their successors
 or assigns.

     (c)   If any party intends to seek indemnification under this ARTICLE
from the other party with respect to any action or claim, the party seeking
indemnification shall give the other party notice of such claim or action within
fifteen (15) days of the commencement of, or actual knowledge of, such claim or
action. Such party seeking indemnification shall have the right, at its sole
cost and expense, to participate in the defense of any such claim or action. The
party seeking indemnification shall not compromise or settle any such claim or
action without the prior consent of the other party, which consent shall not be
unreasonably withheld.

9.4 Independent Contractor Status
    -----------------------------

     Nothing in this Agreement shall be construed as creating any relationship
between MECO and Seller other than that of independent contractors for the sale
and purchase of electricity provided as Wholesale Standard Offer Service.

                                      15
<PAGE>

                            ARTICLE 10. ASSIGNMENT

10.1 Assignment
     ----------

          This Agreement and all of the provisions hereof shall be binding upon
and inure to the benefit of the parties hereto 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 hereto,
including by operation of law without the prior written consent of the other
party, nor is this Agreement intended to confer upon any other Person except the
parties hereto any rights or remedies hereunder. Notwithstanding the foregoing,
(i) MECO may, without Seller's prior written consent, (A) assign all or a
portion of its rights and obligations under this Agreement to any Affiliate of
MECO or (B) assign its rights and obligations hereunder, or transfer such rights
and obligations by operation of law, to any corporation or other entity with
which or into which MECO shall merge or consolidate or to which MECO shall
transfer all or substantially all of its assets, provided that such Affiliate or
other entity agrees to be bound by the terms thereof; provided, in either case,
that the assignee or transferor shall have senior securities rated investment
grade or better; (ii) the Seller may assign all of its rights and obligations
hereunder to any wholly owned Subsidiary (direct or indirect) of PG&E
Corporation and upon the MECO's; receipt of notice from Seller of any such
assignment, the Seller will be released from all liabilities and obligations
hereunder, accrued and unaccrued, such assignee will be deemed to have assumed,
ratified, agreed to be bound by and perform all such liabilities and
obligations, and all references herein to "Seller" shall thereafter be deemed
references to such assignee, in each case without the necessity for further act
or evidence by the parties hereto or such assignee; provided, however, that no
such assignment and assumption shall release the Buyer from its liabilities and
obligations hereunder unless the assignee shall have acquired all or
substantially all of the Buyer's assets; provided, further, however, that no
such assignment and assumption shall relieve or in any way discharge PG&E
Corporation from the performance of its duties and obligations under the
Guaranty dated as of the date of this Agreement executed by PG&E Corporation,
and (iii) the Seller or its permitted assignee may assign, transfer, pledge or
otherwise dispose of its rights and interests hereunder to a trustee or lending
institution(s) for the purposes of financing or refinancing the Purchased
Assets, including upon or pursuant to the exercise of remedies under such
financing or refinancing, or by way of assignments, transfers, conveyances or
dispositions in lieu thereof; provided, however, that no such assignment or
disposition shall relieve or in any way discharge the Seller or such assignee
from the performance of its duties and obligations under this Agreement. MECO
agrees to execute and deliver such documents as may be reasonably necessary to
accomplish any such assignment, transfer, conveyance, pledge or disposition of
rights hereunder so long as MECO's rights under this Agreement are not thereby
altered, amended, diminished or otherwise impaired.

                                      16
<PAGE>

                           ARTICLE 11. FORCE MAJEURE

11.1 Force Majeure Standard
     ----------------------

     The parties shall be excused from performing their respective obligations
hereunder and shall not be liable in damages or otherwise, if and only to the
extent that they are unable to so perform or are prevented from performing by an
event of force majeure.
         -------------

11.2 Force Majeure Definition
     ------------------------

     An event of force majeure includes, without limitation, storm, flood,
                 -------------
lightning, drought, earthquake, fire, explosion, equipment failure, civil
disturbance, labor dispute, act of God or the public enemy, action of a court or
public authority, or any other cause beyond a party's control but only if and to
the extent that the event directly affects the availability of the transmission
or distribution facilities of NEPOOL, MECO or an Affiliate of MECO necessary to
deliver Wholesale Standard Offer Service to MECO's customers. Events affecting
the availability or cost of operating any generating facility shall not be
events of force majeure.
          -------------

11.3 Obligation to Diligently Cure Force Majeure
     -------------------------------------------

     If any party shall rely on the occurrence of an event or condition
described in ARTICLE 11, SECTION 11.2, above, as a basis for being excused from
performance of its obligations under this Agreement, then the party relying on
the event or condition shall:

          a.   provide written notice to the other parties promptly but in no
               event later than 5 days of the occurrence of the event or
               condition giving an estimation of its expected duration and the
               probable impact on the performance of its obligations hereunder;

          b.   exercise all reasonable efforts to continue to perform its
               obligations hereunder;

          C.   expeditiously take reasonable action to correct or cure the event
               or condition excusing performance provided that settlement of
                                                 -------- ----
               strikes or other labor disputes will be completely within the
               sole discretion of the party affected by such strike or labor
               dispute;

          d.   exercise all reasonable efforts to mitigate or limit damages to
               the other parties to the extent such action will not adversely
               affect its own interests; and

          e.   provide prompt notice to the other parties of the cessation of
               the event or condition giving rise to its excuse from
               performance.

                                      17
<PAGE>

                              ARTICLE 12. WAIVERS

     The failure of either party to insist in any one or more instance upon
strict performance of any of the provisions of this Agreement or to take
advantage of any of its rights under this Agreement shall not be construed as a
general waiver of any such provision or the relinquishment of any such right,
but the same shall continue and remain in full force and effect, except with
respect to the particular instance or instances.

                           ARTICLE 13. REGULATION

13.1 Laws and Regulations
     --------------------

     This Agreement and all rights, obligations, and performances of the parties
hereunder, are subject to all applicable Federal and state laws, and to all duly
promulgated orders and other duly authorized action of governmental authority
having jurisdiction.

13.2 NEPOOL Requirements
     -------------------

     This Agreement must comply with all NEPOOL Criteria, Rules, and Standard
Operating Procedures ("Rules"). If, during the term of this Agreement, the
NEPOOL Agreement is terminated or amended in a manner that would eliminate or
materially alter a Rule affecting a right or obligation of a party hereunder, or
if such a Rule is eliminated or materially altered by NEPOOL, the parties agree
to negotiate in good faith in an attempt to amend this Agreement to incorporate
a replacement Rule ("Replacement Rule"). The intent of the parties is that any
such Replacement Rule reflect, as closely as possible, the intent and substance
of the Rule being replaced as such Rule was in effect prior to such termination
or amendment of the NEPOOL Agreement or elimination or alteration of the Rule.
If the parties are unable to reach agreement on such an amendment, the parties
agree to submit the matter to arbitration under the terms of Appendix C,
attached and incorporated herein by reference, and to seek a resolution of the
matter consistent with the above stated intent.

                 ARTICLE 14. INTERPRETATION DISPUTE RESOLUTION

14.1 Interpretation
     ------------

     The interpretation and performance of this Agreement shall be in accordance
with and controlled by the laws of The Commonwealth of Massachusetts.

                                      18

<PAGE>

14.2  Dispute Resolution
      ------------------

      All disputes between MECO and Seller arising out of relating to this
Agreement which are defined as "Arbitrable Claims" in SECTION 2 of Appendix C,
attached and incorporated herein by reference, shall be resolved by binding
arbitration and be governed by the terms of such Arbitration Agreement.  Any
arbitration of an Arbitrable Claim that is substantially related to an
arbitrable claim under a Wholesale Standard Offer Service Agreement between
Seller and The Narragansett Electric Company shall be conducted jointly with the
arbitration of the latter claim, before the same panel of arbitrators, with MECO
and The Narragansett Electric Company jointly exercising their rights regarding
the selection of arbitrators. Any decisions of the arbitrators shall be final
and binding upon the parties.

                           ARTICLE 15. SEVERABILITY

     If any provision or provisions of this Agreement shall be held invalid,
illegal, or unenforceable, the validity, legality, and enforceability of the
remaining provisions shall in no way be affected or impaired thereby.

                          ARTICLE 16.  MODIFICATIONS

     No modification to this Agreement will be binding on any party unless it is
in writing and signed by all parties.

                           ARTICLE 17.  SUPERSESSION

     This Agreement constitutes the entire agreement between the parties
relating to the subject matter hereof and its execution supersedes any other
agreements, written or oral, between the parties concerning such subject matter.

                           ARTICLE 18.  COUNTERPARTS

     This Agreement may be executed in any number of counterparts, and each
executed counterpart shall have the same force and effect as an original
instrument.

                                      19
<PAGE>

                             ARTICLE 19. HEADINGS

     Article and Section headings used throughout this Agreement are for the
convenience of the parties only and are not to be construed as part of this
Agreement.

                                      20
<PAGE>

     IN WITNESS WHEREOF, the parties have caused their duly authorized
representatives to execute this Agreement on their behalf as of the date first
above written.

                                        MASSACHUSETTS ELECTRIC COMPANY

                                        BY: Lawrence J. Reilly
                                           ---------------------------------
                                            Lawrence J. Reilly

                                        Its President
                                           ---------------------------------

                                        NANTUCKET ELECTRIC COMPANY

                                        BY: Lawrence J. Reilly
                                           ---------------------------------
                                            Lawrence J. Reilly

                                        Its President
                                           ---------------------------------

                                        USGEN NEW ENGLAND, INC.

                                        BY: James V. Mahoney
                                           ---------------------------------
                                            James V. Mahoney

                                        Its Senior Vice President
                                           ---------------------------------
<PAGE>

                          Appendix A. Standard Offer
                           Fuel Adjustment Provision

         In the event of substantial increases in the market prices of No. 6
residual fuel oil (1% sulphur) and natural gas after 1999, MECO will pay
additional amounts to Seller in accordance with this Standard Offer Fuel
Adjustment Provision, which is calculated as follows:

         The Stipulated Price that is in effect for a given billing month is
multiplied by a "Fuel Adjustment" that is set equal to 1.0 and thus has no
impact on the rate paid unless the "Market Gas Price" plus "Market Oil Price"
                                                      ----
for the billing month exceeds the "Fuel Trigger Point" then in effect, where:

             The Stipulated Price is the following predetermined, flat
             --------------------
             rate, for energy consumed at the customer meter point:

                   Calendar Year              Price per Kilowatt hour
                   -------------              -----------------------

                       1998                        2.8 cents
                       1999                        3.1 cents
                       2000                        3.4 cents
                       2001                        3.8 cents
                       2002                        4.2 cents
                       2003                        4.7 cents
                       2004                        5.1 cents

         Seller will be paid the difference between the Stipulated Price as
adjusted in accordance with this Standard Offer Fuel Adjustment Provision and
the Stipulated Price for each kilowatt-hour it provides in the applicable month.

         Market Gas Price is the average of the values of "Gas Index" for the
         ----------------
most recent available twelve months, where:

             Gas Index is the average of the daily settlement prices for the
             ---------
             last three days that the NYMEX Contract (as defined below) for the
             month of delivery trades as reported in the "Wall Street Journal",
             expressed in dollars per MMBtu. NYMEX Contract shall mean the New
             York Mercantile Exchange Natural Gas Futures Contract as approved
             by the Commodity Futures Trading Commission for the purchase and
             sale of natural gas at Henry Hub;

         Market Oil Price is the average of the values of "Oil Index" for the
         ----------------
most recent available twelve months, where:

                                      A-1
<PAGE>

                  Oil Index is the average for the month of the daily low
                  ---------
                  quotations for cargo delivery of 1.0% sulphur No. 6 residual
                  fuel oil into New York harbor, as reported in "Platt's Oilgram
                  U.S. Marketscan" in dollars per barrel and converted to
                  dollars per MMBtu by dividing by 6.3; and

         If the indices referred to above should become obsolete or no longer
suitable, MECO shall file alternate indices with the Massachusetts Department
of Public Utilities.

         Fuel Trigger Point is the following amounts, expressed in dollars per
         ------------------
MMBtu, applicable for all months in the specified calendar year:

                          2000                            $5.35/MMBtu
                          2001                            $5.35
                          2002                            $6.09
                          2003                            $7.01
                          2004                            $7.74

         In the event that the Fuel Trigger Point is exceeded, the Fuel
Adjustment value for the billing month is determined based according to the
following formula:

<TABLE>
        <S>            <C>
         Fuel =         (Market Gas Price + $.6O/MMBtu)+(Market Oil Price + $.04/MMBtu)
       Adjustment       ---------------------------------------------------------------
                                      Fuel Trigger Point + $.60 + $.04/MMBtu
</TABLE>

         Where:

               Market Gas Price, Market Oil Price and Fuel Trigger Point are as
               defined above. The values of $.60 and $.04/MMBtu represent for
               gas and oil respectively, estimated basis differentials or
               market costs of transportation from the point where the index is
               calculated to a proxy power plant in the New England market.

         For example if at a point in the year 2002 the Market Gas Price and
Market Oil Price total $6.50 ($3.50/MMBtu plus $3.00/MMBtu respectively), the
Fuel Trigger Point of $6.09 would be exceeded. In this case the Fuel Adjustment
value would be:

               ($3.50+$.60/MMBtu)+($3.00+$.04/MMBtu) = 1.0609
               ------------------------------------
                     $6.09+$.60+$.04/MMBtu

The Stipulated Price is increased by this Fuel Adjustment factor for the billing
month, becoming 4.4548 (cents)/kWh (4.2 x 1.0609).

                                      A-2
<PAGE>

          In subsequent months the same comparisons are made and, if applicable,
a Fuel Adjustment determined.

                                      A-3
<PAGE>

                Appendix B. Estimation of Supplier Hourly Loads

Overview

          Generating units operated by suppliers are dispatched by the power
pool to meet the region's electrical requirements reliably, and at the lowest
possible cost. As a result, a supplier's electricity production may not match
the demand of its customers. In each hour some suppliers with low cost
production units are net sellers of electricity to the pool, while other
suppliers are purchasing power from the pool to meet the demand of their
customers. To determine the extent to which suppliers are net buyers or sellers
on an hourly basis, it is necessary to estimate the hourly aggregate demand for
all of the customers served by each supplier ("own-load"). MECO will estimate
Seller's Wholesale Standard Offer Service "own-load" within MECO's service
territory and report the hourly results to NEPOOL or the ISO on a daily basis.

          The estimation process is a cost effective approach to producing
results that are reliable, unbiased and reasonably accurate. The hourly load
estimates will be based on rate class load profiles which will be developed from
statistically designed samples. Each day, the class load shapes will be scaled
to the population of customers served by each supplier. In cases where
telemetered data on individual customers are available, they will be used in
place of the estimated shapes. On a monthly basis, the estimates will be refined
by incorporating actual usage data obtained from meter readings. In both
processes, the sum of all suppliers' estimated loads will match the total load
delivered into the distribution system. A description of the estimation process
follows.

Daily Estimation of Suppliers' Own Load

          The daily process estimates the hourly load for each supplier for the
previous day. There are five components in this process:

          .    Select a proxy date from the previous year with characteristics
               which best match the day for which the hourly demand estimates
               are being produced. Extract class load shapes for the selected
               proxy date from the load research data base.

          .    Scale the class load shapes appropriately for each individual
               customer based on the usage level of the customer relative to the
               class average usage level.

          .    Calculate a factor for each customer which reflects their
               relative usage level and includes an adjustment for losses ("load
               adjustment factor"). Aggregate the load adjustment factors across
               the customers served by each supplier in each class.

                                      B-1
<PAGE>

          .    Produce a preliminary estimate of each supplier's hourly loads by
               combining the proxy day class load shapes with the supplier's
               total load adjustment factors. Aggregate the loads across the
               classes for each supplier.

          .    Adjust the preliminary hourly supplier estimates so that their
               sum is equal to MECO's actual hourly metered loads (as metered at
               the point of delivery to the distribution system) by allocating
               any differences to suppliers in proportion to their estimated
               load.

Monthly Reconciliation Process

          The monthly process will improve the estimates of supplier loads by
incorporating the most recent customer usage information, which will be
available after the monthly meter readings are processed. A comparison will be
made between customers' estimated and actual usage, by billing cycle, then
summed across billing cycles for each supplier. The ratio between the actual kWh
and the estimated kWh reflects the kWh amount for which the supplier may have
been overcharged or undercharged by NEPOOL or the ISO during the month. This
ratio will be used to develop a kWh adjustment amount for each supplier for the
calendar month. The sum of the adjustments will be zero because the total kWh
will still be constrained to equal MECO's actual hourly metered loads during
the month.

                                      B-2

<PAGE>

                      Appendix C. Arbitration Agreement

                             ARBITRATION AGREEMENT
                             ---------------------

          This Arbitration Agreement, dated as of September 1, 1998, is entered
into between Massachusetts Electric Company and Nantucket Electric Company,
both Massachusetts corporations (referred to collectively as "MECO") and USGen
New England, Inc., a Delaware corporation ("Seller"). Reference is made to that
certain Second Amended and Restated Wholesale Standard Offer Service Agreement
dated as of September 1, 1998 (the "Service Agreement") between MECO and
Seller. Unless otherwise specified or apparent from the context of this
Arbitration Agreement, the term "Party" shall mean either MECO or Seller, or
both of them.

          WHEREAS, MECO and Seller wish to avoid the burden, time, and expense
of court proceedings with respect to any disputes that may arise from or relate
to the Service Agreement, and to submit such disputes to mandatory binding
arbitration if they cannot first be resolved through negotiation and mediation.

          NOW, THEREFORE, MECO and SELLER AGREE AS FOLLOWS:

1.        Mediation
          ---------

          Before resorting to mediation or arbitration under this Arbitration
Agreement, the Parties will try to resolve promptly through negotiation any
Arbitrable claim, as defined below. If the Arbitrable Claim has not been
resolved through negotiation within ten (10) days after the existence of the
Arbitrable Claim has been brought to the attention of the other Party in a
writing, any Party may request in writing to resolve the Arbitrable Claim
through mediation conducted by a mediator selected by agreement of the Parties.
The mediation procedure shall be determined by the Parties in consultation with
the mediator. Any medication pursuant hereto shall be kept confidential in
accordance with Mass. G.L. c. 233, (S)23C. The fees and expenses of the mediator
shall be borne equally by the Parties. If the Parties are unable to agree upon
the identity of a mediator or a mediation procedure within ten (10) days after a
Party has requested mediation in writing or if the Arbitrable Claim has not been
resolved to the satisfaction of either MECO or Seller within forty (40) days
after the Parties have selected a mediator and agreed upon a mediation
procedure, either Party may invoke arbitration pursuant to the following
sections by notifying the other Party of such selection in writing consistent
with Section 3(c), below.

2.        Mandatory Arbitration
          ---------------------

          (a)  Except as provided in paragraph (b) of this Section 2 and in
Section 8, below, any case, controversy or claim arising out of or relating to
the Service Agreement, its breach,

                                      C-1
<PAGE>

or any other disputes arising out of the business relationship created by the
Service Agreement, of whatever nature, including but not limited to any claim
based in contract, in law, in equity, any statute, regulation, or theory of law
now in existence or which may come into existence in the future, whether known
or unknown , including without limitation, claims based upon deceit, fraudulent
inducement, misrepresentation, 18 U.S.C (S)(S)1962 and 1964 (RICO), and
Mass. G.L. c. 93A, the federal and state antitrust laws (collectively, the
"Arbitrable Claims"), which cannot be resolved by negotiation or mediation, as
provided in Section 1 above, shall be submitted to mandatory, binding, and final
arbitration in accordance with procedures set forth in this Agreement, which
shall constitute the exclusive remedy for any and all Arbitrable Claims.

          (b)  Notwithstanding paragraph (a) above, physical accidents or
events giving rise to negligence or intentional tort claims for the recovery of
property damages and/or damages for personal injury and failure to make
payments due under Section 5.2 of the Service Agreement shall not be considered
"Arbitrable Claims." However disputes regarding the interpretation or scope of
any indemnification clauses in the Service Agreement shall be subject to
arbitration, even if the dispute relates to whether one Party must indemnify
the other for property damages and/or damages for personal injury, the recovery
of which was or will be determined in a court of law.

          (c)  Each Party agrees that it will not attempt to circumvent this
Arbitration Agreement by coordinating or cooperating with their respective
parent companies of affiliates or guarantors in the filing of a legal action in
the name of any of the parent companies or affiliates or guarantors of the
Parties to this Arbitration Agreement regarding claims that otherwise are
subject to this Arbitration Agreement. Any Party failing to comply with this
provision shall indemnify the other Party against, and hold the other harmless
from, the costs (including reasonable litigation costs) incurred by the other
in defending any and all claims brought by a parent company or affiliate or
guarantor of the other in a court of law regarding claims that otherwise
would Arbitrable Claims under this Arbitration Agreement.

3.        Selection and Qualification of Arbitrators
          ------------------------------------------

          (a)  Any arbitration shall be conducted by a panel of three neutral
arbitrators, consisting of (i) a practicing lawyer admitted to practice in the
Commonwealth of Massachusetts; (ii) a person with professional experience in and
substantial knowledge of the power generation industry in any one or more of the
New England States, who may be, but need not be a lawyer, and (iii) a person
with professional experience in and substantial knowledge of power markets in
any one or more of the New England States, who may, but need not be, a lawyer
(collectively, the "Arbitration Panel"). For purposes of this Arbitration
Agreement, an arbitrator or candidate shall be considered "neutral" only if the
arbitrator or candidate has not previously served as an arbitrator for a Party
or one of its affiliates or guarantors and is not a present or former lawyer,
employee or consultant of a Party or any of its affiliates or guarantors.

                                      C-2
<PAGE>

          (b)  Any Party entitled to commence arbitration hereunder shall
do so by serving a written Notice of Arbitration briefly describing the
Arbitrable Claims and the Agreements under which they are brought. Service of
such Notice of Arbitration shall be complete upon receipt by the person
designated for each party at the addresses specified in Section 12 below.

          (c)  Within twenty (20) days after service of a Notice of Arbitration,
each Party shall serve upon the other Party a list of seven neutral candidates
for each of the three panel members described in subparagraph (a) above.

          (d)  Within twenty (20) days after service of the lists referred to in
subparagraph (c), MECO and Seller shall then strike from the other's lists any
two candidates from each of the lists, for any reason whatsoever. For the
remaining candidates each Party shall rank each candidate on its three lists
from one to five and shall do the same for the other Party's lists.

          (e)  The candidates in each of the three categories with the lowest
total score shall be invited to serve as panel members. In the event that the
candidate in any of the three categories with the lowest total score is unable
or unwilling to serve, or has a potential conflict of interest not consented to
by each Party, then the candidate with the next lowest score in that category
shall be invited to serve, subject to full disclosure by each candidate of, and
consent by each Party to any potential conflicts of interests. This process
shall be repeated until a full arbitration Panel is selected or the list of
candidates for that category is exhausted. If the list of candidates for a
category is exhausted the Parties shall exchange a new list of candidates for
that category and the procedures set forth above shall be repeated a second
time.

          (f)  If the parties cannot select a full Arbitration Panel in
accordance with these procedures than any Party may request that a court of
competent jurisdiction appoint the remaining members subject to their
qualifications, willingness and ability to serve as provided above.

          (g)  The American Arbitration Association shall be appointed to
facilitate and administer the parties' compliance with the procedures set forth
above.

4.        Time Schedule
          -------------

          The Arbitration shall be conducted as expeditiously as possible. The
Arbitration Panel shall schedule a pre-hearing conference and hearings as it
deems advisable and shall use its best efforts to schedule consecutive days of
hearings. Hearings shall be limited to a total of ten (10) days. The Arbitration
Panel shall issue its final decision and award within thirty (30) days of the
close of the hearings, which shall be accompanied by a written, reasoned
opinion.

                                      C-3
<PAGE>

                                      C-3

5.        Remedies
          --------

          (a)  The Arbitration Panel shall not award punitive or multiple
damages or any other damages not measured by the prevailing Party's actual
damages - except that the Arbitration Panel, in its sole discretion, may shift
all or a port on of the costs of the Arbitration to any Party.

          (b) Any award of damages by the Arbitration Panel shall be determined,
limited and controlled by the damages limitation clauses of the Service
Agreement applicable to the dispute before the Arbitration Panel.

          (c)  The Arbitration Panel may, in its discretion, award pre-award and
post-award interest on any damages award; provided, however, that the rate of
pre-award or post-award interest shall not exceed a rate equal to the rate
provided for post-judgment interest by 28 U.S.C.(S) 1961 as published from time
to time by the Administrative Office of the United States Courts based on the
equivalent coupon issue yield or auctions of 52-week Treasury bills.

6.        Confidentiality
          ---------------

          In accordance with Mass. G.L.c. 233 (S)23C. the existence, contents,
or results of any mediation or arbitration hereunder may not be disclosed
without the prior written consent of both Parties; provided, however, either
Party may make disclosures as may be necessary to fulfill regulatory
obligations to any regulatory bodies having jurisdiction, and may inform their
lenders, affiliates, auditors and insurers, as necessary, under pledge of
confidentiality and can consult with experts as required in connection with the
arbitration under pledge of confidentiality. If any Party seeks preliminary
injunctive relief from any court to preserve the status quo or avoid
irreparable harm pending mediation or arbitration, the Parties agree to use
best efforts to keep the court proceedings confidential, to the maximum extent
permitted by law.

7.        FERC Jurisdiction over Certain Disputes
          ---------------------------------------

          (a)  Nothing in this Arbitration Agreement shall preclude, or be
construed to preclude, any Party from filing a petition or complaint with the
Federal Energy Regulatory Commission ("FERC") with respect to any Arbitrable
Claim. In such case, the other Party may request FERC to reject or to waive
jurisdiction. If the FERC rejects or waives jurisdiction, with respect to all
or a portion of the claim, the portion of the claim not so accepted by FERC
shall be resolved through arbitration, as provided in this Arbitration
Agreement. TO the extent that FERC asserts or accepts jurisdiction over the
claim, the decision, finding of fact, or order of FERC shall be final and
binding, and any arbitration proceedings that may have commenced prior to the
assertion or acceptance of jurisdiction by FERC shall be stayed, pending the
outcome of the FERC proceedings.

                                      C-4
<PAGE>

          (b)  The Arbitration Panel shall have no authority to modify, and
shall be conclusively bound by, any decision, finding of fact, or order of
FERC. However, to the extent that a decision finding of fact, or order of FERC
does not provide a final or complete remedy to the Party seeking relief, such
Party may proceed to arbitration under this Arbitration Agreement to secure
such remedy, subject to the FERC decision, finding or order.

8.        Preliminary Injunctive Relief
          -----------------------------

          Nothing in this Arbitration Agreement shall preclude, or be construed
to preclude, the resort by either Party to a court of competent jurisdiction
solely for the purposes of securing a temporary or preliminary injunction to
preserve the status quo or avoid irreparable harm pending mediation or
arbitration pursuant to this Arbitration Agreement.

9.        Governing Law
          -------------

          This Arbitration Agreement shall be construed, enforced in accordance
with, and governed by, the laws of the Commonwealth of Massachusetts.

10.       Location of Arbitration
          -----------------------

          Any arbitration hereunder shall be conducted in Boston, Massachusetts.

11.       Severability
          ------------

          If any section, subsection, sentence, or Clause of this Arbitration
Agreement is adjudged illegal, invalid, or unenforceable, such illegality,
invalidity, or enforceability shall not affect the legality, validity, or
enforceability of the Arbitration Agreement as a whole or of any section,
subsection, sentence or clause hereof not so adjudged.

12.       Notices
          -------

          Any notices required to be given pursuant to this Arbitration
Agreement shall be in writing and sent to the receiving party by (i) certified
mail, return receipt requested, (ii) overnight delivery service, or (iii)
facsimile transmission (confirmed by telephone), addressed to the receiving
party at the address shown below or such other address as a party may
subsequently designate in writing. Any such notice shall be deemed to be given
(i) three days after deposit in the United States mail, if sent by mail, (ii)
when actually received if sent by overnight delivery service, or (iii) when
sent, if sent by facsimile and confirmed by telephone.

                                      C-5
<PAGE>

          If to MECO:   Massachusetts Electric Company
                        25 Research Drive
                        Westborough, Massachusetts 01582
                        Attention: General Counsel
                        Facsimile: (508) 389-2463

          If to Seller  USGen New England, Inc.
                        7500 Old Georgetown Road, 13th Floor
                        Bethesda, MD 20814
                        Attention: Stephen A. Herman, Esq.
                        Facsimile: (301) 718-6913

          In addition, the parties shall send copies of any notices required by
the terms of any of the Agreements, in accordance with the terms of each
Agreement.

                                      C-6
<PAGE>

          IN WITNESS WHEREOF, Each Party has caused its duly authorized officers
to execute this Arbitration Agreement on the dates set forth below.

                                    MASSACHUSETTS ELECTRIC COMPANY

                                    BY: /s/ Larry J. Reilly
                                        ------------------------

                                    Its President
                                        ------------------------

                                    NANTUCKET ELECTRIC COMPANY

                                    BY: /s/ Larry J. Reilly
                                        ------------------------

                                    Its President
                                        ------------------------

                                    USGEN NEW ENGLAND, INC.

                                    BY: /s/ James V. Mahoney
                                        ------------------------

                                    Its Senior Vice President
                                        ------------------------<PAGE>

                                                                     Exhibit 4.4

THE WARRANT EVIDENCED OR CONSTITUTED HEREBY, AND ALL SHARES OF COMMON STOCK
ISSUABLE HEREUNDER, HAVE BEEN AND WILL BE ISSUED WITHOUT REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("THE ACT") AND MAY NOT BE SOLD, OFFERED FOR
SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED WITHOUT REGISTRATION UNDER THE ACT
UNLESS EITHER (i) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL, IN FORM AND
SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT
REGISTRATION IS NOT REQUIRED IN CONNECTION WITH SUCH DISPOSITION OR (ii) THE
SALE OF SUCH SECURITIES IS MADE-PURSUANT TO SECURITIES AND EXCHANGE COMMISSION
RULE 144.

             WARRANT TO PURCHASE COMMON STOCK OF LOGICVISION, INC.
                            (Subject to Adjustment)

NO.

     THIS CERTIFIES THAT, for value received,           , or its permitted
registered assigns ("Holder"), is entitled, subject to the terms and conditions
                     ------
of this Warrant, at any time or from time to time after January 13, 1999 (the
"Effective Date"), and before 5:00 p.m. Pacific Time on January 13, 2009,
subject early termination pursuant to an Early Termination Event (the

"Expiration Date") to purchase from  LogicVision, Inc., a California corporation
----------------
(the "Company"),                 (      ) shares of Common Stock of the Company
at a price per share of Fifty Cents ($0.50) (the "Purchase Price" ).  Both the
                                                  --------------
number of shares of Common Stock purchasable upon exercise of this Warrant and
the Purchase Price are subject to adjustment and change as provided herein.
This Warrant is issued pursuant to that certain Securities Purchase Agreement,
dated January 13, 1999 (the "Purchase Agreement"), between the Company and
                             ------------------
Holder.

1.   CERTAIN DEFINITIONS. As used in this Warrant the following terms shall have
the following respective meanings:

     "Early Termination Event" shall be the closing of a Sale of the Company.
      -----------------------
In the event of a proposed transaction of the kind described above, the Company
shall notify Holder in writing at least thirty (30) days prior to the
consummation of such event or transaction.  However, if the Holder has sent a
Notice of Exercise on or before the expiration of the Exercise Period and the
Holder is prevented from exercising the Warrant on or before the end of the
Exercise Period due to any applicable waiting periods imposed by the Hart-Scott-
Rodino Antitrust Improvements Act of 1976 (the "HSR Act Restrictions"), the
Holder may complete the process of exercising the Warrant, for a period of ten
(10) days following termination of the HSR Act Restrictions.

     "Fair Market Value" of a share of Common Stock as of a particular date
      -----------------
shall mean:

          (a) If traded on a securities exchange or the Nasdaq National Market,
the Fair Market Value shall be deemed to be the average of the closing prices of
the Common Stock of the Company on such exchange or market over the 5 business
days ending immediately prior to
<PAGE>

the applicable date of valuation;

          (b) If actively traded over-the-counter, the Fair Market Value shall
be deemed to be the average of the closing bid prices over the 30-day period
ending immediately prior to the applicable date of valuation; and

          (c) If there is no active public market, the Fair Market Value shall
be the value thereof, as agreed upon by the Company and the Holder; provided,
however, that if the Company and the Holder cannot agree on such value, such
value shall be determined by an independent valuation firm experienced in
valuing businesses such as the Company and jointly selected in good faith by the
Company and the Holder. Fees and expenses of the valuation firm shall be paid
for by the Company.

     "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
      -------
1976.

     "IPO" shall mean the Company's first firm commitment underwritten public
      ---
offering of the Company's Common Stock pursuant to a registration statement
filed with the Securities and Exchange Commission.

     "Registered Holder" shall mean any Holder in whose name this Warrant is
      -----------------
registered upon the books and records maintained by the Company.

     "Sale of the Company" shall mean a merger of the Company with or into any
      -------------------
other corporation or corporations (or other Person) in which the shareholders of
this Company immediately before the merger do not hold more than 50% of the
voting power of the surviving corporation immediately after the merger, a
statutory share exchange with any other corporation, or a sale, conveyance or
disposition of all or substantially all of the assets of this Company in which
shareholders of this Company immediately before such exchange hold neither more
than 50% of the voting power of this Company immediately after such exchange nor
more than 50% of the voting power of an entity which holds more than 50% of the
voting power of this Company immediately after the exchange, an exclusive
license of all or substantially all of the Company's intellectual property used
in generating all or substantially all of the Company's revenues for the Company
or the effectuation by this Company of a transaction or series of related
transactions in which more than 50% of the voting power of this Company is
disposed of (a "Sale of the Company").

     "Warrant" as used herein, shall include this Warrant and any warrant
      -------
delivered in substitution or exchange therefor as provided herein.

     "Common Stock" shall mean the Common Stock of the Company and any other
      ------------
securities at any time receivable or issuable upon exercise of this Warrant.

2.   EXERCISE OF WARRANT

     2.1.  Payment.  Subject to compliance with the terms and conditions of this
           -------
Warrant and applicable securities laws, this Warrant may be exercised, in whole
or in part at any time or from time to time, on or before the Expiration Date by
the delivery (including, without limitation, delivery by facsimile) of the form
of Notice of Exercise attached hereto as Exhibit I (the "Notice of

                                       2
<PAGE>

Exercise"), duly executed by the Holder, at the principal office of the Company,
and as soon as practicable after such date, surrendering

          (a) this Warrant at the principal office of the Company, and

          (b) payment, (i) in cash (by check) or by wire transfer, (ii) by
cancellation by the Holder of indebtedness of the Company to the Holder; or
(iii) by a combination of Common_Stock (i) and (ii), of an amount equal to the
product obtained by multiplying the number of shares of Common Stock being
purchased upon such exercise by the then effective Purchase Price (the "Exercise
Amount"), except that if Holder is subject to HSR Act Restrictions (as defined
in Section 2.5 below), the Exercise Amount shall be paid to the Company within
five (5) business days of the termination of all HSR Act Restrictions.

     2.2. Net Issue Exercise.  In lieu of the payment methods set forth in
          ------------------
Section 2.1 (b) above, the Holder may elect to exchange all or some of the
Warrant for shares of Common Stock equal to the value of the amount of the
Warrant being exchanged on the date of exchange.  If Holder elects to exchange
this Warrant as provided in this Section 2.2, Holder shall tender to the Company
the Warrant for the amount being exchanged, along with written notice of
Holder's election to exchange some or all of the Warrant, and the Company shall
issue to Holder the number of shares of the Common Stock computed using the
following formula:

          X = Y (A-B)
              -------
                 A

          Where X = the number of shares of Common Stock to be issued to Holder.

          Y = the number of shares of Common Stock purchasable under the amount
          of the Warrant being exchanged (as adjusted to the date of such
          calculation).

          A = the Fair Market Value of one share of the Company's Common Stock.

          B = Purchase Price (as adjusted to the date of such calculation).

          All references herein to an "exercise" of the Warrant shall include an
exchange pursuant to this Section 2.2. Upon receipt of a written notice of the
Company's intention to raise capital by selling shares of Common Stock in an IPO
(the "IPO Notice"), which notice shall be delivered to Holder at least forty-
      ----------
five (45) but not more than ninety (90) days before the anticipated date of the
filing with the Securities and Exchange Commission of the registration statement
associated with the IPO, the Holder shall promptly notify the Company whether or
not the Holder will exercise this Warrant pursuant to this Section 2.2 prior to
consummation of the IPO. Notwithstanding whether or not an IPO Notice has been
delivered to Holder or any other provision of this Warrant to the contrary, if
Holder decides to exercise this Warrant while a registration statement is on
file with the Securities and Exchange Commission (the "SEC") in connection with
                                                       ---
the IPO, this Warrant shall be deemed exercised on the consummation of the IPO
and the Fair Market Value of a share of Common Stock will be the price at which
one share of Common Stock was sold to the public in the IPO. If Holder has
elected to exercise this Warrant

                                       3
<PAGE>

pursuant to this Section 2.2 while a registration statement is on file with the
Securities and Exchange Commission in connection with an IPO and the IPO is not
consummated, then Holder's exercise of this Warrant shall not be effective
unless Holder confirms in writing Holder's intention to go forward with the
exercise of this Warrant.

     2.3.  "Easy Sale" Exercise.  In lieu of the payment methods set forth in
            -------------------
Section 2.1(b) above, when permitted by law and applicable regulations
(including Nasdaq and NASD rules), the Holder may pay the Exercise Amount
through a "same day sale" commitment from the Holder (and if applicable a
broker-dealer that is a member of the National Association of Securities Dealers
(a "NASD Dealer")), whereby the Holder irrevocably elects to exercise this
Warrant and to sell at least that number of Shares so purchased to pay the
Exercise Amount (and up to all of the Shares so purchased) and the Holder (or,
if applicable, the NASD Dealer) commits upon sale (or, in the case of the NASD
Dealer, upon receipt) of such Shares to forward the Exercise Amount directly to
the Company, with any sale proceeds in excess of the Exercise Amount being for
the benefit of the Holder.

     2.4.  Stock Certificates: Fractional Shares.  As soon as practicable on or
           -------------------------------------
after the date this Warrant is exercised, the Company shall issue and deliver to
the person or persons entitled to receive the same a certificate or certificates
for the number of whole shares of Common Stock issuable upon such exercise,
together with cash in lieu of any fraction of a share equal to such fraction of
the current Fair Market Value of one whole share of Common Stock as of the date
of exercise of this Warrant.  No fractional shares or scrip representing
fractional shares shall be issued upon an exercise of this Warrant.

     2.5.  HSR Act.  The Company hereby acknowledges that exercise of this
           -------
Warrant by Holder may subject the Company and/or the Holder to the filing
requirements of the HSR Act and that Holder may be prevented from exercising
this Warrant until the expiration or early termination of all waiting periods
imposed by the HSR Act ("HSR Act Restrictions").  If on or before the Expiration
Date Holder has sent the Notice of Exercise to Company and Holder has not been
able to complete the exercise of this Warrant prior to the Expiration Date
because of HSR Act Restrictions, the Holder shall be entitled to complete the
process of exercising this Warrant in accordance with the procedures contained
herein notwithstanding the fact that completion of the exercise of this Warrant
would take place after the Expiration Date.

     2.6.  Partial Exercise; Effective Date of Exercise.  In case of any partial
           --------------------------------------------
exercise of this Warrant, the Company shall cancel this Warrant upon surrender
hereof and shall execute and deliver a new Warrant of like tenor and date for
the balance of the shares of Common Stock purchasable hereunder.  This Warrant
shall be deemed to have been exercised immediately prior to the close of
business on the date of its surrender for exercise as provided above.  However,
if Holder is subject to HSR Act filing requirements this Warrant shall be deemed
to have been exercised on the date immediately following the date of the
expiration of all HSR Act Restrictions. The person entitled to receive the
shares of Common Stock issuable upon exercise of this Warrant shall be treated
for all purposes as the holder of record of such shares as of the close of
business on the date the Holder is deemed to have exercised this Warrant.

                                       4
<PAGE>

     2.7.  Sale of the Company.  In the Event of a Sale of the Company, the
           -------------------
Company shall give written notice to the Holder of such Sale of the Company not
less than thirty (30) days prior to the closing date thereof.  This Warrant
shall automatically be exercised pursuant to Section 2.2 above immediately
preceding the closing of such Sale of the Company (the "Sale"), if not
previously exercised, unless the Holder shall notify the Company prior to the
Sale that this Warrant is not to be so exercised; provided that noting in this
sentence shall extend the term of the Warrant beyond the Expiration Date.  The
exercise pursuant to this Section 2.7 shall be contingent upon the actual
closing of the Sale of the Company.  If such closing does not occur, the
exercise pursuant to this Section 2.7 shall not be effected.

3.   VALID ISSUANCE: TAXES. All shares of Common Stock issued upon the exercise
of this Warrant shall be validly issued, fully paid and non-assessable, and the
Company shall pay all taxes and other governmental charges that may be imposed
in respect of the issue or delivery thereof. The Company shall not be required
to pay any tax or other charge imposed in connection with any transfer involved
in the issuance of any certificate for shares of Common Stock in any name other
than that of the Registered Holder of this Warrant, and in such case the Company
shall not be required to issue or deliver any stock certificate or security
until such tax or other charge has been paid, or it has been established to the
Company's reasonable satisfaction that no tax or other charge is due.

4.   ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES. The number of shares of
Common Stock issuable upon exercise of this Warrant (or any shares of stock or
other securities or property receivable or issuable upon exercise of this
Warrant) and the Purchase Price are subject to adjustment upon occurrence of the
following events:

     4.1.  Adjustment for Stock Splits, Stock Subdivisions or Combinations of
           ------------------------------------------------------------------
Shares.  The Purchase Price of this Warrant shall be proportionally decreased
------
and the number of shares of Common Stock issuable upon exercise of this Warrant
(or any shares of stock or other securities at the time issuable upon exercise
of this Warrant) shall be proportionally increased to reflect any stock split or
subdivision of the Company's Common Stock.  The Purchase Price of this Warrant
shall be proportionally increased and the number of shares of Common Stock
issuable upon exercise of this Warrant (or any shares of stock or other
securities at the time issuable upon exercise of this Warrant) shall be
proportionally decreased to reflect any combination of the Company's Common
Stock.

     4.2.  Adjustment for Dividends or Distributions of Stock or Other
           -----------------------------------------------------------
Securities or Property.  In case the Company shall make or issue, or shall fix a
----------------------
record date for the determination of eligible holders entitled to receive, a
dividend or other distribution with respect to the Common Stock (or any shares
of stock or other securities at the time issuable upon exercise of the Warrant)
payable in (a) securities of the Company or (b) assets (excluding cash dividends
paid or payable solely out of retained earnings), then, in each such case, the
Holder of this Warrant on exercise hereof at any time after the consummation,
effective date or record date of such dividend or other distribution, shall
receive, in addition to the shares of Common Stock (or such other stock or
securities) issuable on such exercise prior to such date, and without the
payment of additional consideration therefor, the securities or such other
assets of the Company to

                                       5
<PAGE>

which such Holder would have been entitled upon such date if such Holder had
exercised this Warrant on the date hereof and had thereafter, during the period
from the date hereof to and including the date of such exercise, retained such
shares and/or all other additional stock available by it as aforesaid during
such period giving effect to all adjustments called for by this Section 4.

     4.3.  Reclassification.  If the Company, by reclassification of securities
           ----------------
or otherwise, shall change any of the securities as to which purchase rights
under this Warrant exist into the same or a different number of securities of
any other class or classes, this Warrant shall thereafter represent the right to
acquire such number and kind of securities as would have been issuable as the
result of such change with respect to the securities that were subject to the
purchase rights under this Warrant immediately prior to such reclassification or
other change and the Purchase Price therefore shall be appropriately adjusted,
all subject to further adjustment as provided in this Section 4.  No adjustment
shall be made pursuant to this Section 4.3 upon any conversion or redemption of
the Common Stock which is the subject of Section 4.5.

     4.4.  Adjustment for Capital Reorganization: Merger Consolidation.  In case
           -----------------------------------------------------------
of any capital reorganization of the capital stock of the Company (other than a
combination, reclassification, exchange or subdivision of shares otherwise
provided for herein), or any merger or consolidation of the Company with or into
another corporation, or the sale of all or substantially all the assets of the
Company then, and in each such case, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that the
Holder of this Warrant shall thereafter be entitled to receive upon exercise of
this Warrant, subject to an Early Termination Event, during the period specified
herein and upon payment of the Purchase Price then in effect, the number of
shares of stock or other securities or property of the successor corporation
resulting from such reorganization, merger, consolidation, sale or transfer that
a holder of the shares deliverable upon exercise of this Warrant would have been
entitled to receive in such reorganization, consolidation, merger, sale or
transfer if this Warrant had been exercised immediately before such
reorganization, merger, consolidation, sale or transfer, all subject to further
adjustment as provided in this Section 4.  The foregoing provisions of this
Section 4.4 shall similarly apply to successive reorganizations, consolidations,
mergers, sales and transfers and to the stock or securities of any other
corporation that are at the time receivable upon the exercise of this Warrant.
If the per-share consideration payable to the Holder hereof for shares in
connection with any such transaction is in a form other than cash or marketable
securities, then the value of such consideration shall be determined in good
faith by the Company's Board of Directors.  In all events, appropriate
adjustment (as determined in good faith by the Company's Board of Directors)
shall be made in the application of the provisions of this Warrant with respect
to the rights and interests of the Holder after the transaction, to the end that
the provisions of this Warrant shall be applicable after that event, as near as
reasonably maybe, in relation to any shares or other property deliverable after
that event upon exercise of this Warrant.

     4.5.  Conversion of Common Stock.  In case all or any portion of the
           --------------------------
authorized and outstanding shares of Common Stock of the Company are redeemed or
converted or reclassified into other securities or property pursuant to the
Company's Articles of Incorporation or otherwise, or the Common Stock otherwise
ceases to exist, then, in such case, the Holder of this Warrant, upon exercise
hereof at any time after the date on which the Common Stock is so redeemed or
converted, reclassified or ceases to exist (the "Termination Date'), shall
receive, in lieu of the number of shares

                                       6
<PAGE>

of Common Stock that would have been issuable upon such exercise immediately
prior to the Termination Date, the securities or property that would have been
received if this Warrant had been exercised in full and the Common Stock
received thereupon had been simultaneously converted immediately prior to the
Termination Date, all subject to further adjustment as provided in this Warrant.
Additionally, the Purchase Price shall be immediately adjusted to equal the
quotient obtained by dividing (x) the aggregate Purchase Price of the maximum
number of shares of Common Stock for which this Warrant was exercisable
immediately prior to the Termination Date by (y) the number of shares of Common
Stock of the Company for which this Warrant is exercisable immediately after the
Termination Date, all subject to further adjustment as provided herein.

5.   CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment in the
Purchase Price, or number or type of shares issuable upon exercise of this
Warrant, the Chief Financial Officer or Controller of the Company shall compute
such adjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such adjustment and showing in detail the facts upon
which such adjustment is based, including a statement of the adjusted Purchase
Price. The Company shall promptly send (by facsimile and by either first class
mail, postage prepaid or overnight delivery) a copy of each such certificate to
the Holder.

6.   LOSS OR MUTILATION. Upon receipt of evidence reasonably satisfactory to the
Company of the ownership of and the loss, theft, destruction or mutilation of
this Warrant, and of indemnity reasonably satisfactory to it, and (in the case
of mutilation) upon surrender and cancellation of this Warrant, the Company will
execute and deliver in lieu thereof a new Warrant of like tenor as the lost,
stolen, destroyed or mutilated Warrant.

7.   RESERVATION OF COMMON STOCK. The Company hereby covenants that at all times
there shall be reserved for issuance and delivery upon exercise of this Warrant
such number of shares of Common Stock or other shares of capital stock of the
Company as are from time to time issuable upon exercise of this Warrant and,
from time to time, will take all steps necessary to amend its Articles of
Incorporation to provide sufficient reserves of shares of Common Stock issuable
upon exercise of this Warrant. All such shares shall be duly authorized, and
when issued upon such exercise, shall be validly issued, fully paid and non-
assessable, free and clear of all liens, security interests, charges and other
encumbrances or restrictions on sale and free and clear of all preemptive
rights, except encumbrances or restrictions arising under federal or state
securities laws. Issuance of this Warrant shall constitute full authority to the
Company's officers who are charged with the duty of executing stock certificates
to execute and issue the necessary certificates for shares of Common Stock and
Common Stock upon the exercise of this Warrant.

8.   TRANSFER AND EXCHANGE. Subject to the terms and conditions of this Warrant
and compliance with all applicable securities laws, this Warrant and all rights
hereunder may be transferred to any Registered Holder's parent, subsidiary or
affiliate, in whole or in part, on the books of the Company maintained for such
purpose at the principal office of the Company referred to above, by the
Registered Holder hereof in person, or by duly authorized attorney, upon
surrender of this Warrant properly endorsed and upon payment of any necessary
transfer tax or other governmental charge imposed upon such transfer. Upon any
permitted partial transfer, the

                                       7
<PAGE>

Company will issue and deliver to the Registered Holder a new Warrant or
Warrants with respect to the shares of Common Stock not so transferred. Each
taker and holder of this Warrant, by taking or holding the same, consents and
agrees that when this Warrant shall have been so endorsed, the person in
possession of this Warrant may be treated by the Company, and all other persons
dealing with this Warrant, as the absolute owner hereof for any purpose and as
the person entitled to exercise the rights represented hereby, any notice to the
contrary notwithstanding; provided, however that until a transfer of this
Warrant is duly registered on the books of the Company, the Company may treat
the Registered Holder hereof as the owner for all purposes.

9.   RESTRICTIONS ON TRANSFER. The Holder, by acceptance hereof, agrees that,
absent an effective registration statement filed with the SEC under the
Securities Act of 1933, as amended (the "1933 Act), covering the disposition or
sale of this Warrant or the Common Stock issued or issuable upon exercise hereof
or the Common Stock issuable upon conversion thereof, as the case may be, and
registration or qualification under applicable state securities laws, such
Holder will not sell, transfer, pledge, or hypothecate any or all such Warrants
or Common Stock, as the case may be, unless either (i) the Company has received
an opinion of counsel, in form and substance reasonably satisfactory to the
Company, to the effect that such registration is not required in connection with
such disposition or (ii) the sale of such securities is made pursuant to SEC
Rule 144.

10.  COMPLIANCE WITH SECURITIES LAWS.  By acceptance of this Warrant, the holder
hereby represents, Warrants and covenants that any shares of stock purchased
upon exercise of this Warrant or acquired upon conversion thereof shall be
acquired for investment only and not with a view to, or for sale in connection
with, any distribution thereof; that the Holder has had such opportunity as such
Holder has deemed adequate to obtain from representatives of the Company such
information as is necessary to permit the Holder to evaluate the merits and
risks of its investment in the company; that the Holder is able to bear the
economic risk of holding such shares as may be acquired pursuant to the exercise
of this Warrant for an indefinite period; that the Holder understands that the
shares of stock acquired pursuant to the exercise of this Warrant or acquired
upon conversion thereof will not be registered under the 1933 Act (unless
otherwise required pursuant to exercise by the Holder of the registration
rights, if any, previously granted to the registered Holder) and will be
"restricted securities" within the meaning of Rule 144 under the 1933 Act and
that the exemption from registration under Rule 144 will not be available for at
least one year from the date of exercise of this Warrant, subject to
any special treatment by the SEC for exercise of this Warrant pursuant to
Section 2.2, and even then will not be available unless a public market then
exists for the stock, adequate information concerning the Company is then
available to the public, and other terms and conditions of Rule 144 are complied
with; and that all stock certificates representing shares of stock issued to the
Holder upon exercise of this Warrant or upon conversion of such shares may have
affixed thereto a legend substantially in the following form:

     THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
     SECURITIES ACT OF 1933, AS AMENDED (THE "ACT), OR UNDER THE SECURITIES LAWS
     OF ANY STATE.  THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON

                                       8
<PAGE>

     TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
     PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT
     TO REGISTRATION OR EXEMPTION THEREFROM.  INVESTORS SHOULD BE AWARE THAT
     THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
     INDEFINITE PERIOD OF TIME.  THE ISSUER OF THESE SECURITIES MAY REQUIRE AN
     OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE
     EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT
     AND ANY APPLICABLE STATE SECURITIES LAWS.

11.  NO RIGHTS OR LIABILITIES AS STOCKHOLDERS. This Warrant shall not entitle
the Holder to any voting rights or other rights as a stockholder of the Company.
In the absence of affirmative action by such Holder to purchase Common Stock by
exercise of this Warrant no provisions of this Warrant, and no enumeration
herein of the rights or privileges of the Holder hereof shall cause such Holder
hereof to be a stockholder of the Company for any purpose.

12.  REGISTRATION RIGHTS. All shares of Common Stock issuable upon exercise of
this Warrant shall be "Registrable Securities" or such other definition of
securities entitled to registration rights pursuant to the Company's Fourth
Amended and Restated Registration Rights Agreement, dated the date hereof, and
are entitled, subject to the terms and conditions of that agreement, to all
registration rights granted to holders of Registrable Securities thereunder.

13.  NOTICES. All notices and other communication from the Company to the Holder
shall be given in accordance with the Purchase Agreement

14.  HEADINGS. The headings in this Warrant are for purposes of convenience in
reference only, and shall not be deemed to constitute a part hereof.

15.  LAW GOVERNING. This Warrant shall be construed and enforced in accordance
with, and governed by, the laws of the State of California.

16.  NO IMPAIRMENT. The Company will not, by amendment of its Articles of
incorporation or bylaws, or through reorganization, consolidation, merger,
dissolution, issue or sale of securities, sale of assets or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Registered Holder of this
Warrant against impairment. Without limiting the generality of the foregoing,
the Company (a) will not increase the par value of any shares of stock issuable
upon the exercise of this Warrant above the amount payable therefor upon such
exercise, and (b) will take all such action as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and non-
assessable shares of Common Stock upon exercise of this Warrant.

17.  NOTICES OF RECORD DATE.  In case:

                                       9
<PAGE>

     17.1.  the Company shall take a record of the holders of its Common Stock
(or other stock or securities at the time receivable upon the exercise of this
Warrant), for the purpose of entitling them to receive any dividend or other
distribution, or any right to subscribe for or purchase any shares of stock of
any class or any other securities or to receive any other right; or

     17.2.  of any consolidation or merger of the Company with or into another
corporation, any capital reorganization of the Company, any reclassification of
the Capital Stock of the Company, or any conveyance of all or substantially all
of the assets of the Company to another corporation in which holders of the
Company's stock are to receive stock, securities or property of another
corporation; or

     17.3.  of any voluntary dissolution, liquidation or winding-up of the
Company; or

     17.4.  of any redemption or conversion of all outstanding Common Stock;

then, and in each such case, the Company will mail or cause to be mailed to the
Registered Holder of this Warrant a notice specifying, as the case may be, (i)
the date on which a record is to be taken for the purpose of such dividend,
distribution or right, or (ii) the date on which such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation,
winding-up, redemption or conversion is to take place, and the time, if any is
to be fixed, as of which the holders of record of Common Stock or (such stock or
securities as at the time are receivable upon the exercise of this Warrant),
shall be entitled to exchange their shares of Common Stock (or such other stock
or securities), for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up.  Such notice shall be delivered at least
thirty (30) days prior to the date therein specified.

18.  SEVERABILITY. If any term, provision, covenant or restriction of this
Warrant is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Warrant shall remain in full force and effect and shall in
no way be affected, impaired or invalidated.

19.  NO INCONSISTENT AGREEMENTS. The Company will not on or after the date of
this Warrant enter into any agreement with respect to its securities which is
inconsistent with the rights granted to the Holders of this Warrant or otherwise
conflicts with the provisions hereof. The rights granted to the Holders
hereunder do not in any way conflict with and are not inconsistent with the
rights granted to holders of the Company's securities under any other
agreements, except rights that have been waived.

20.  SATURDAYS, SUNDAYS AND HOLIDAYS. If the Expiration Date falls on a
Saturday, Sunday or legal holiday, the Expiration Date shall automatically be
extended until 5:00 p.m. the next business day.

21.  CONFIDENTIALITY AND NONDISCLOSURE. The terms and conditions of this
Warrant, including its existence (the "Warrant Terms"), shall considered
confidential information and any disclosure of the Warrant Terms shall be
governed by Section 9.5 of the Purchase Agreement.

                                       10
<PAGE>

22.  DISPUTE RESOLUTION. The parties agree to negotiate in good faith to resolve
any dispute between them regarding this Warrant. If the negotiations do not
resolve the dispute to the reasonable satisfaction of both parties, then each
party shall nominate one senior officer of the rank of Vice President or higher
as its representative. These representatives shall, within thirty (30) days of a
written request by either party to call such a meeting, meet in person and alone
(except for one assistant for each party) and shall attempt in good faith to
resolve the dispute. If the disputes cannot be resolved by such senior managers
in such meeting, the parties agree that they shall, if requested in writing by
either party, meet within thirty (30) days after such written notification for
one day with an impartial mediator and consider dispute resolution alternatives
other than litigation. If an alternative method of dispute resolution is not
agreed upon within thirty (30) days after the one day mediation, either party
may begin litigation proceedings. This procedure shall be a prerequisite before
taking any additional action hereunder.

                                       11
<PAGE>

     IN WITNESS WHEREOF, the Company has executed this Warrant as of the
Effective Date.

                                    LOGICVISION, INC.

                                    By:
                                       --------------------------------------

                                    -----------------------------------------
                                    Printed Name

                                    -----------------------------------------
                                    Title

                    SIGNATURE PAGE TO COMMON STOCK WARRANT

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