Document:

[EXECUTION VERSION]

                      AMENDMENT TO NOTE PURCHASE AGREEMENT

                            Dated as of April 8, 2004

 U.S. ENERGY BIOGAS CORP. (as successor to Zahren Alternative Power Corporation)
                          AVON ENERGY PARTNERS, L.L.C.
                                 BMC ENERGY LLC
                           BARRE ENERGY PARTNERS, L.P.
                         BRICKYARD ENERGY PARTNERS, LLC
                         BROOKHAVEN ENERGY PARTNERS, LLC
                             BURLINGTON ENERGY, INC.
                        CAPE MAY ENERGY ASSOCIATES, L.P.
                            COUNTRYSIDE GENCO, L.L.C.
                        DEVONSHIRE POWER PARTNERS, L.L.C.
                         DIXON/LEE ENERGY PARTNERS, LLC
                 DUNBARTON ENERGY PARTNERS, LIMITED PARTNERSHIP
                  ILLINOIS ELECTRICAL GENERATION PARTNERS, L.P.
                ILLINOIS ELECTRICAL GENERATION PARTNERS II, L.P.
                         LAFAYETTE ENERGY PARTNERS, L.P.
                              MORRIS GENCO, L.L.C.
                              OCEANSIDE ENERGY INC.
                         ONONDAGA ENERGY PARTNERS, L.P.
                        POWER GENERATION (SUFFOLK), INC.
                       RESOURCES GENERATING SYSTEMS, INC.
                       RIVERSIDE RESOURCE RECOVERY, L.L.C.
                        ROXANNA RESOURCE RECOVERY, L.L.C.
                          STREATOR ENERGY PARTNERS, LLC
                          SUFFOLK ENERGY PARTNERS, L.P.
                       SUFFOLK TRANSMISSION PARTNERS, L.P.
                          TAYLOR ENERGY PARTNERS, L.P.
                          TUCSON ENERGY PARTNERS, L.P.
                         UPPER ROCK ENERGY PARTNERS, LLC
  BIOGAS FINANCIAL CORPORATION (formerly known as Zahren Financial Corporation)
                        ZAPCO ENERGY TACTICS CORPORATION
                           ZAPCO ILLINOIS ENERGY, INC.
                                ZFC ENERGY, INC.
<TABLE>
<CAPTION>
<S><C>
Canadian $89,830,030.00, 11.00% Amended Senior Secured Notes Series A Due April 30, 2019
Canadian $17,169,970.00, 11.00% Amended Senior Secured Notes Series B Due April 30, 2019
</TABLE>

                      AMENDMENT TO NOTE PURCHASE AGREEMENT

         This AMENDMENT, dated April 8, 2004 (this "Amendment"), among the Loan
Parties (as defined below) and the Lender (as defined below), is made to the
Hancock Note Purchase Agreement (as defined below), the ABB Loan Agreement (as
defined below) and the AJG Loan Agreement (as defined below).

SECTION 1.        AMENDMENT.

         (a) Subject to satisfaction of the conditions precedent set forth in
         Section 2, the Schedules and Exhibits to each of the Hancock Note
         Purchase Agreement, the ABB Loan Agreement and the AJG Loan Agreement
         are hereby amended in their entirety and replaced with the Schedules
         and Exhibits to this Amendment, each of which Schedules and Exhibits
         shall be considered a Schedule or Exhibit, as applicable, to the
         Agreement (as defined below).

         (b) Subject to satisfaction of the conditions precedent set forth in
         Section 2, each of the Hancock Note Purchase Agreement, the ABB Loan
         Agreement and the AJG Loan Agreement shall be amended in its entirety
         to read as follows:

                               "TABLE OF CONTENTS
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SECTION                                                                                                        PAGE
1.       AUTHORIZATION OF NOTES...................................................................................3
2.       SALE, PURCHASE AND EXCHANGE OF NOTES.....................................................................4
3.       REPRESENTATIONS AND WARRANTIES OF THE LOAN PARTIES.......................................................4
         3.1.     Organization; Business and Qualification........................................................4
         3.2.     Power and Authorization.........................................................................4
         3.3.     Disclosure......................................................................................5
         3.4.     Organization and Ownership of Shares of Subsidiaries; Affiliates................................6
         3.5.     Financial Statements............................................................................6
         3.6.     No Undisclosed Liabilities......................................................................6
         3.7.     Compliance with Governmental Requirements.......................................................7
         3.8.     Permits.........................................................................................7
         3.9.     Litigation; No Default..........................................................................7
         3.10.    Taxes...........................................................................................8
         3.11.    Title to Collateral; Liens......................................................................8
         3.12.    Intellectual Property...........................................................................9
         3.13.    Compliance with ERISA...........................................................................9
         3.14.    Private Offering by the Loan Parties............................................................9
         3.15.    Use of Proceeds; Margin Regulations............................................................10
         3.16.    Existing Indebtedness; Future Liens............................................................10
         3.17.    Foreign Assets Control Regulations, etc........................................................10
         3.18.    Status under Certain Statutes..................................................................10
         3.19.    Environmental Matters..........................................................................11
         3.20.    Burdensome Restrictions; Other Contracts.......................................................13
</TABLE>

                                       i

<TABLE>
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         3.21.    Location of Loan Parties.......................................................................13
         3.22.    Brokers and Finders............................................................................13
         3.23.    Project Documents..............................................................................13
         3.24.    Insurance......................................................................................14
         3.25.    Utility Service Available......................................................................14
         3.26.    Remedies Adequate..............................................................................14
         3.27.    Projects.......................................................................................14
         3.28.    Defaults; Events of Default....................................................................15
         3.29.    Lines of Business..............................................................................15
         3.30.    Pro Forma Projections; Operating Budget........................................................15
         3.31.    Illinois Subsidy Program.......................................................................15
         3.32.    Conduct of Business in Ordinary Course.........................................................15
4.       REPRESENTATIONS OF THE Lender...........................................................................16
         4.1.     Incorporation and Status.......................................................................16
         4.2.     Corporate Power of the Lender and Due Authorization............................................16
         4.3.     No Approvals...................................................................................16
         4.4.     No Contravention...............................................................................16
         4.5.     Residence of the Lender........................................................................16
         4.6.     Purchase for Investment........................................................................16
         4.7.     Existing Loans.................................................................................17
         4.8.     Pending Proceedings............................................................................17
         4.9.     Brokers and Finders............................................................................17
5.       INFORMATION AS TO LOAN PARTIES..........................................................................17
         5.1.     Financial Statements and Other Reports.........................................................17
         5.2.     Officers Certificate...........................................................................20
         5.3.     Inspection.....................................................................................21
         5.4.     Notices by Governmental Authority..............................................................21
6.       PAYMENT.................................................................................................22
         6.1.     Principal and Interest Payments................................................................22
         6.2.     Mandatory Prepayments..........................................................................22
         6.3.     Lender's Call..................................................................................23
         6.4.     Optional Prepayments...........................................................................24
         6.5.     Application of Prepayments.....................................................................24
         6.6.     Notice of Prepayment...........................................................................25
         6.7.     Maturity; Surrender, etc.......................................................................25
         6.8.     Purchase of Notes..............................................................................25
7.       AFFIRMATIVE COVENANTS...................................................................................25
         7.1.     Maintenance of Existence and Rights; Continuation of Business..................................25
         7.2.     Compliance with Governmental Requirements......................................................25
         7.3.     Maintenance and Operation of the Projects......................................................26
         7.4.     Insurance......................................................................................26
         7.5.     Payment of Taxes, Fees and Claims..............................................................26
         7.6.     Pension Plans..................................................................................27
         7.7.     Enforcement of Rights..........................................................................27
         7.8.     Maintenance of Records.........................................................................27
         7.9.     Intellectual Property..........................................................................27
</TABLE>

                                       ii

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         7.10.    Use of Proceeds................................................................................27
         7.11.    Property Rights................................................................................27
         7.12.    Indemnification................................................................................28
         7.13.    Illinois Reimbursement Obligations.............................................................28
         7.14.    Environmental Matters..........................................................................29
         7.15.    Distributions..................................................................................29
         7.16.    Deposits.......................................................................................29
         7.17.    Foreign Exchange Hedging Agreements............................................................29
8.       NEGATIVE COVENANTS......................................................................................29
         8.1.     Business Activities............................................................................30
         8.2.     Indebtedness...................................................................................30
         8.3.     Liens..........................................................................................31
         8.4.     Investments....................................................................................31
         8.5.     Acquisitions...................................................................................32
         8.6.     Restricted Payments............................................................................32
         8.7.     Consolidation; Merger and Change of Control....................................................32
         8.8.     Asset Dispositions.............................................................................33
         8.9.     Modification of Certain Agreements.............................................................33
         8.10.    Transactions with Affiliates...................................................................34
         8.11.    Negative Pledges, Restrictive Agreements.......................................................34
         8.12.    Accounting Changes.............................................................................35
         8.13.    Limitation on Sale and Leaseback Transactions..................................................35
         8.14.    ERISA..........................................................................................35
         8.15.    Changes to Subordinated Debt...................................................................35
         8.16.    Loan Documents.................................................................................35
         8.17.    Prepayment of Subordinated Debt................................................................35
         8.18.    Indebtedness of Others.........................................................................36
         8.19.    Qualifying Facility; Regulation................................................................36
         8.20.    Use of Proceeds................................................................................36
         8.21.    New Subsidiaries; Transfers of Interests.......................................................36
         8.22.    Line of Business...............................................................................37
         8.23.    Purchase Option................................................................................37
         8.24.    Settlements....................................................................................37
         8.25.    Fixed Charge Coverage Ratio....................................................................37
         8.26.    Speculative Transactions.......................................................................37
9.       GUARANTy................................................................................................37
         9.1.     Guaranty.......................................................................................37
         9.2.     Demand by the Lender...........................................................................38
         9.3.     Enforcement of Guaranty........................................................................39
         9.4.     Waivers........................................................................................39
         9.5.     Benefits of Guaranty...........................................................................39
         9.6.     Modification of Notes, etc.....................................................................39
         9.7.     Reinstatement..................................................................................40
         9.8.     Waiver of Subrogation, etc.....................................................................40
         9.9.     Election of Remedies, etc......................................................................41
         9.10.    Continuing Guaranty............................................................................41
</TABLE>

                                      iii

<TABLE>
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         9.11.    Savings Clause.................................................................................41
10.      DEFAULT.................................................................................................42
         10.1.    Events of Default..............................................................................42
         10.2.    Acceleration...................................................................................45
         10.3.    Default Remedies...............................................................................45
         10.4.    Specific Performance...........................................................................46
         10.5.    Application of Proceeds........................................................................46
11.      REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES...........................................................46
         11.1.    Registration of Notes..........................................................................46
         11.2.    Transfer and Exchange of Notes.................................................................47
         11.3.    Replacement of Notes...........................................................................47
12.      PAYMENTS ON NOTES.......................................................................................47
         12.1.    Place of Payment...............................................................................47
         12.2.    Home Office Payment............................................................................48
13.      EXPENSES, ETC...........................................................................................48
         13.1.    Transaction Expenses...........................................................................48
         13.2.    Issue Taxes....................................................................................49
         13.3.    Survival.......................................................................................49
14.      Authority of RESOURCES..................................................................................49
15.      EXCLUDED ASSETS.........................................................................................49
16.      SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT............................................50
17.      AMENDMENT AND WAIVER....................................................................................50
         17.1.    Requirements...................................................................................50
         17.2.    Binding Effect, etc............................................................................50
18.      NOTICES.................................................................................................50
19.      REPRODUCTION OF DOCUMENTS...............................................................................51
20.      CONFIDENTIAL INFORMATION................................................................................51
21.      LIABILITY AND WAIVER....................................................................................52
         21.1.    No Liability of Lender.........................................................................52
         21.2.    No Liability of the Fund.......................................................................52
         21.3.    Non-Recourse...................................................................................52
22.      MISCELLANEOUS...........................................................................................53
         22.1.    Successors and Assigns.........................................................................53
         22.2.    Payments Due on Non-Business Days..............................................................53
         22.3.    Severability...................................................................................54
         22.4.    Construction...................................................................................54
         22.5.    Counterparts...................................................................................54
         22.6.    Governing Law..................................................................................54
         22.7.    Accounting Terms and Determinations............................................................55
         22.8.    Cooperation with Public Offering...............................................................55
         22.9.    No Third-Party Beneficiaries...................................................................56
         22.10.   Currency Conversion and Indemnity..............................................................56
2.       CONDITIONS PRECEDENT....................................................................................56
         2.1.     Authorization..................................................................................57
         2.2.     Existing Loan Assignments......................................................................57
</TABLE>
                                       iv

<TABLE>
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         2.3.     Acquisition Agreement..........................................................................57
         2.4.     AJG IEGP Loan Transaction......................................................................57
         2.5.     Consents and Approvals.........................................................................58
         2.6.     UCC Searches...................................................................................58
         2.7.     Closing Date Certificate.......................................................................58
         2.8.     Evidence of Insurance..........................................................................58
         2.9.     Other Conditions...............................................................................58
         2.10.    Opinions of Counsel............................................................................59
         2.11.    Closing Fees, Expenses.........................................................................59
         2.12.    Pension, Tax and Labor Matters.................................................................59
         2.13.    Environmental Laws.............................................................................59
         2.14.    Funding of Accounts............................................................................59
         2.15.    Representations and Warranties, Covenants......................................................59
         2.16.    No Adverse Developments........................................................................59
         2.17.    Performance; No Default or Event of Default....................................................60
         2.18.    Purchase Permitted by Applicable Law, etc......................................................60
         2.19.    Changes in Corporate Structure.................................................................60
         2.20.    Proceedings and Documents......................................................................60
         2.21.    Additional Documentation.......................................................................60
         2.22.    Covenants to Satisfy Conditions Precedent......................................................61
         2.23.    Termination....................................................................................62
3.       COUNTERPARTS............................................................................................62
4.       Governing Law...........................................................................................62

</TABLE>
                                       V

SCHEDULES & EXHIBITS
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SCHEDULE A                 --       Defined Terms
SCHEDULE B                 --       The Projects
SCHEDULE 2.2               --       Certain Cash Reserves and Letters of Credit
SCHEDULE 3.1               --       Jurisdictions of Incorporation and Foreign Qualification
SCHEDULE 3.2               --       Consents and Waivers
SCHEDULE 3.3               --       Portions of Preliminary Prospectus
SCHEDULE 3.4               --       Subsidiaries
SCHEDULE 3.5               --       Financial Statements
SCHEDULE 3.6               --       Liabilities and Obligations of Loan Parties and Subsidiaries
SCHEDULE 3.11              --       Financing Statements
SCHEDULE 3.15              --       Use of Proceeds
SCHEDULE 3.16(a)           --       Existing Indebtedness, Waivers and Defaults
SCHEDULE 3.19              --       Property on National Priorities List
SCHEDULE 3.26              --       Governmental Requirements Affecting Realization Upon Collateral
SCHEDULE 3.27              --       Status of Projects
SCHEDULE 3.32              --       Conduct other than in the Ordinary Course of Business
SCHEDULE 6.1               --       Payments of Principal Debt on Monthly Payment Dates
SCHEDULE 7.4               --       Required Insurance
SCHEDULE 8.4               --       Permitted Investments
SCHEDULE 8.10              --       Transactions With Affiliates

EXHIBIT A                  --       Form of Note
EXHIBIT B                  --       Form of Security Agreement Amendment
EXHIBIT C                  --       Form of Mortgage Amendment
EXHIBIT D                  --       Form of Assignment
EXHIBIT E                  --       Form of Closing Date Certificate
EXHIBIT F                  --       Pro Forma Projections
EXHIBIT G                  --       Form of Subordination Agreement
</TABLE>
                                       vi

                            U.S. ENERGY BIOGAS CORP.
                 and Certain Subsidiaries and Affiliates Thereof
                           One North Lexington Avenue
                          White Plains, New York 10601
<TABLE>
<CAPTION>
<S><C>
Canadian $89,830,030.00, 11.00% Amended Senior Secured Notes Series A Due April 30, 2019
Canadian $17,169,970.00, 11.00% Amended Senior Secured Notes Series B Due April 30, 2019
</TABLE>

                                                        As of April 8, 2004

Countryside Canada Power Inc., a federal Canadian corporation.

Ladies and Gentlemen:

         U.S. ENERGY BIOGAS CORP., a Delaware corporation (the "Issuer"), AVON
ENERGY PARTNERS, L.L.C., an Illinois limited liability company ("Avon"), BMC
ENERGY LLC, a Delaware limited liability company ("BMC"), BARRE ENERGY PARTNERS,
L.P., a Delaware limited partnership ("Barre"), BRICKYARD ENERGY PARTNERS, LLC,
a Delaware limited liability company ("Brickyard"), BROOKHAVEN ENERGY PARTNERS,
LLC, a New York limited liability company ("Brookhaven"), BURLINGTON ENERGY,
INC., a Vermont corporation ("Burlington"), CAPE MAY ENERGY ASSOCIATES, L.P., a
Delaware limited partnership ("Cape May"), COUNTRYSIDE GENCO, L.L.C., a Delaware
limited liability company ("Countryside"), DEVONSHIRE POWER PARTNERS, L.L.C., an
Illinois limited liability company ("Devonshire"), DIXON/LEE ENERGY PARTNERS,
LLC, a Delaware limited liability company ("Dixon"), DUNBARTON ENERGY PARTNERS,
LIMITED PARTNERSHIP, a New Hampshire limited partnership ("Dunbarton"), ILLINOIS
ELECTRICAL GENERATION PARTNERS, L.P., a Delaware limited partnership ("IEGP"),
MORRIS GENCO, L.L.C., a Delaware limited liability company ("Morris"), ILLINOIS
ELECTRICAL GENERATION PARTNERS II, L.P. ("IEGP II"), a Delaware limited
partnership, LAFAYETTE ENERGY PARTNERS, L.P., a New Jersey limited partnership
("Lafayette"), OCEANSIDE ENERGY INC., a New York corporation ("Oceanside"),
ONONDAGA ENERGY PARTNERS, L.P., a New York limited partnership ("Onondaga"),
POWER GENERATION (SUFFOLK), INC., a Delaware corporation ("Power (Suffolk)"),
RESOURCES GENERATING SYSTEMS, INC., a New York corporation ("Resources"),
RIVERSIDE RESOURCE RECOVERY, L.L.C., an Illinois limited liability company
("Riverside"), ROXANNA RESOURCE RECOVERY, L.L.C., an Illinois limited liability
company ("Roxanna"), STREATOR ENERGY PARTNERS, LLC, a Delaware limited liability
company ("Streator"), SUFFOLK ENERGY PARTNERS, L.P., a Virginia limited
partnership ("Suffolk"), SUFFOLK TRANSMISSION PARTNERS, L.P., a Delaware limited
partnership ("Suffolk Transmission"), TAYLOR ENERGY PARTNERS, L.P., a
Pennsylvania limited partnership ("Taylor"), TUCSON ENERGY PARTNERS, L.P., a
Delaware limited partnership ("Tucson"), UPPER ROCK ENERGY PARTNERS, LLC, a
Delaware limited liability company ("Upper Rock"), BIOGAS FINANCIAL CORPORATION
(formerly known as Zahren Financial Corporation), a Connecticut corporation

("ZFC"), ZAPCO ENERGY TACTICS CORPORATION, a Delaware corporation ("Tactics"),
ZAPCO ILLINOIS ENERGY, INC., a Delaware corporation ("ZIE"), and, collectively
with Avon, Barre, Brickyard, Brookhaven, Burlington, Cape May, Countryside,
Devonshire, Dixon, Dunbarton, Lafayette, Morris, Oceanside, Onondaga, Riverside,
Roxanna, Streator, Suffolk, Suffolk Transmission, Taylor, Tucson and Upper Rock,
the "Project Owners" and each a "Project Owner"), and ZFC ENERGY, INC., a
Delaware corporation ("ZFC Energy" and, collectively with BMC, IEGP, IEGP II,
Power (Suffolk), Resources, ZFC, Tactics and the Project Owners, the
"Guarantors"), agree with the Lender as follows:

Introduction:

         On or about November 30, 1999 and on or about October 13, 2000, the
Other Guarantors and the Former Hancock Issuers issued to the Hancock Purchasers
(i) $45,584,497 Senior Secured Notes, Series A and (ii) $10,000,000 Senior
Secured Notes Series B (collectively the "Hancock Notes" and, together with all
of the Hancock Purchaser's rights relating thereto, the "Hancock Loan") in
accordance with a Note Purchase Agreement, dated as of November 30, 1999 (as
amended and supplemented prior to the date hereof, the "Hancock Note Purchase
Agreement"), among the Other Guarantors, the Former Hancock Issuers and the
Hancock Purchasers.

         On or about April 30, 2001, BMC, Brookhaven and Countryside issued to
ABB Energy Capital LLC ("ABB") (i) a $8,900,000 Promissory Note and (ii) a
$600,000 Promissory Note (collectively, the "ABB Notes" and, together with all
of ABB's rights relating thereto, the "ABB Loan") in accordance with a
Construction and Term Loan Agreement, dated as of April 30, 2001 (as amended and
supplemented prior to the date hereof, the "ABB Loan Agreement"), among BMC,
Brookhaven, Countryside and ABB.

         On or about May 9, 2001, BMC and Morris issued to AJG Financial
Services, Inc. ("AJG" and, collectively with the Hancock Purchasers and ABB, the
"Existing Lenders") (i) a $2,000,000 Promissory Note, (ii) a $2,500,000
Promissory Note and (iii) a $500,000 Promissory Note (the "AJG Notes" and,
together with all of AJG's rights relating hereto, the "AJG Loan") in accordance
with a Term Loan Agreement, dated as of March 30, 2001 (as amended and
supplemented prior to the date hereof, the "AJG Loan Agreement"), among BMC,
Morris and AJG. The Hancock Loan, the ABB Loan and the AJG Loan shall be
referred to collectively as the "Existing Loans", and the Hancock Notes, the ABB
Notes and the AJG Notes shall be referred to collectively as the "Existing
Notes".

         On the Closing Date and immediately prior to the execution and delivery
of the Amendment, dated as of April 8, 2004, among the Loan Parties and the
Lender, the Lender and the Issuer entered into (i) an Assignment and Assumption
Agreement, dated the date hereof (the "Hancock Assignment"), with the Hancock
Purchasers, pursuant to which the Hancock Purchasers assigned to the Lender all
of their rights and obligations with respect to the Hancock Loan, (ii) an
Assignment and Assumption Agreement, dated the date hereof (the "ABB
Assignment"), with the "Lender" under and as defined in the ABB Loan Agreement,
pursuant to which such "Lender" assigned to the Lender all of its rights and
obligations with respect to the ABB Loan, and (iii) an Assignment and Assumption
Agreement, dated the date hereof (the "AJG Assignment" and, collectively with
the Hancock Assignment and the ABB Assignment, the "Existing Loan Assignments"),
with AJG, pursuant to which AJG assigned to the Lender all of its rights and
obligations with respect to the AJG Loans.

                                      2

1.       AUTHORIZATION OF NOTES.

         The Issuer authorizes the issuance of (i) Canadian $89,830,030.00
aggregate principal amount of its 11.00% Amended Senior Secured Notes Series A
Due April 30, 2019 (the "Series A Notes") and (ii) Canadian $17,169,970.00
aggregate principal amount of its 11.00% Amended Senior Secured Notes Series B
Due April 30, 2019 (the "Series B Notes", and, together with the Series A Notes
and any notes issued in substitution therefor pursuant to Section 11, the
"Notes"), which shall collectively amend and be exchanged for the Existing
Notes.

         Each Note will bear interest on the unpaid principal balance thereof,
from the date of the Notes or the most recent date to which interest thereon has
been paid, until the same is due and payable, at 11.00% per annum (calculated on
the basis of a 365/366 day year). Interest and scheduled principal payments on
each Note will be payable monthly on the last day of each calendar month (the
"Monthly Payment Date") in each year beginning on April 30, 2004 and ending on
the Maturity Date. The Notes will amortize and mature and be payable in
accordance with Section 6. Payments of principal, premium, if any, and, to the
extent permitted by law, interest not made when due will bear interest from the
date such payment was due until paid at the Default Rate. The Notes shall be
substantially in the form set out in Exhibit A with such changes thereto, if
any, as may be approved by the parties hereto. Certain capitalized terms used in
this Agreement are defined in Schedule A; references to a "Schedule" or an
"Exhibit" are, unless otherwise specified, to a Schedule or an Exhibit attached
to this Agreement.

         The BMC Parties will secure the Notes in accordance with that certain
Amendment, dated as of the date hereof (the "BMC Group Security Agreement
Amendment" and, together with the Security Agreement Amendment, the "Security
Agreement Amendments") and in the form of Exhibit B, among the BMC Parties and
the Lender, which amends (i) that certain Security Agreement, dated as of May 2,
2001, among BMC, Morris and AJG and (ii) that certain Cash Collateral Pledge and
Security Agreement, dated as of April 30, 2001, among BMC, Brookhaven,
Countryside and ABB (as from time to time amended, including by the BMC Group
Security Agreement Amendment, the "Amended BMC Group Security Agreement").

         The Other Guarantors will secure the Notes in accordance with that
certain Amendment, dated as of the date hereof (the "Security Agreement
Amendment") and in the form of Exhibit B, among the Issuer, the Other
Guarantors, the Lender and Countryside Canada Power Inc. (as successor to The
Chase Manhattan Bank), as trustee, which amends and assigns to the Lender that
certain Indenture of Trust and Security Agreement, dated as of November 30, 1999
(as from time to time amended, including by the Security Agreement Amendment,
the "Amended Security Agreement") among the Other Guarantors, the Former Hancock
Issuers, the Hancock Purchasers and Countryside Canada Power Inc. (as successor
to The Chase Manhattan Bank), as trustee.

         Barre, Burlington, Cape May, Devonshire, Lafayette, Oceanside,
Onondaga, Suffolk and Suffolk Transmission (collectively, the "Mortgagors") will
secure the Notes, upon execution and delivery of each Mortgage Amendment, which
amend and assign to the Lender those certain Open-End Mortgages, Assignments of
Leases and Rents and Security Agreements, dated as of November 30, 1999 (as
amended, including by the Mortgage Amendments, the "Amended Mortgages"), made by
the Mortgagors in favor of The Chase Manhattan Bank, as trustee, as mortgagee.

                                       3

         AJG will secure the Notes in accordance with that certain Amendment
dated as of the date hereof (as amended and/or supplemented from time to time,
the "AJG Security Agreement Amendment"), by AJG and the Lender, which amends
that certain Security Agreement, Pledge and Assignment, dated as of November 30,
1999 (as amended, including by the AJG Security Agreement Amendment, the
"Amended AJG Security Agreement"), made by AJG in favor of The Chase Manhattan
Bank, as trustee.

2.       SALE, PURCHASE AND EXCHANGE OF NOTES.

         Subject to the terms and conditions of this Agreement, at the Closing:

         2.1. The Issuer shall execute, issue and deliver to the Lender the
Notes against (i) surrender by the Lender of the Existing Loans to the Issuer
and (ii) the Lender's cash advance of Canadian $31,330,028.00 in additional loan
proceeds to the Issuer (the "Advance"). On the date of issuance, the Principal
Debt of the Series A Notes shall be equal to Canadian $89,830,030.00 and the
Principal Debt of the Series B Notes shall be equal to Canadian $17,169,970.00.

         2.2. The Lender will release to the Loan Parties, AJG and Cinergy Corp.
certain cash reserves and letters of credit set forth in Schedule 2.2 held by
the Hancock Purchasers, ABB and AJG as collateral for the Existing Notes and
transferred to the Lender in connection with its purchase of the Existing Loans.

3.       REPRESENTATIONS AND WARRANTIES OF THE LOAN PARTIES.

         Each Loan Party represents and warrants to the Lender that:

3.1.     Organization; Business and Qualification.

         Such Loan Party, together with its general partner or manager, if any,
is a corporation, limited partnership, or limited liability company duly
organized, validly existing and in good standing under the laws of its State of
organization and is duly qualified as a foreign corporation, limited partnership
or limited liability company, as the case may be, and in good standing under
each other jurisdiction in which (i) such Loan Party owns its properties or (ii)
the conduct of its business requires such qualification, other than those
jurisdictions where the failure to be so qualified or in good standing could
not, individually or in the aggregate, reasonably be expected to cause a
Material Adverse Effect. Each jurisdiction in which such Loan Party, together
with its general partner or manager, if any, is incorporated, and in which it is
required to be qualified and in good standing, is set forth in Schedule 3.1.

3.2. Power and Authorization.

(a) Such Loan Party has the corporate, partnership or limited liability company
power and authority, as applicable, to own, license or lease the properties and
assets it purports to own, license or lease and to conduct its business as now

                                      4

conducted and as presently proposed to be conducted and to incur the
Indebtedness evidenced by the Notes. The execution, delivery and performance by
such Loan Party of this Agreement and each of the other Operative Documents to
which it is or will become a party (i) have been or will be, as the case may be,
duly authorized and constitute or will constitute, as the case may be, valid
obligations of such Loan Party, legally binding upon it and enforceable in
accordance with its terms, except as enforcement may be limited by Debtor Relief
Laws or by equitable principles relating to or limiting creditors' rights
generally, and (ii) do not require any approval of such Loan Party that has not
been obtained, or the approval of any trustee or holders of any obligation or
Indebtedness of such Loan Party that has not been obtained, and do not, and will
not, contravene any Governmental Requirement, such Loan Party's Organic
Documents, or constitute a default under any indenture, mortgage, deed of trust,
loan, purchase or credit agreement, lease or any other agreement or instrument
to which such Loan Party is a party or by which such Loan Party or its
properties may be bound or affected, or result in the creation of any Lien
(other than Permitted Liens) upon any property of such Loan Party except where
the failure to obtain such approval or such contravention or default
individually or in the aggregate could not be reasonably expected to cause a
Material Adverse Effect.

(b) To such Loan Party's Best Knowledge, the list of consents and waivers set
forth in Schedule 3.2 contains all consents and waivers, and such list contains
all material consents and waivers, required for the consummation of the
transactions contemplated under the Existing Loan Assignments and the Loan
Documents (including, without limitation, consents and waivers necessary or
desirable in connection with the grant and perfection of the Liens granted under
the Security Documents and for the Lender to exercise and enforce its rights and
remedies under the Loan Documents), and such list contains no material
misstatement or inaccuracy or materially misleading information and does not
omit any information the omission of which would be materially misleading.

(c) All consents and waivers set forth in Schedule 3.2 have been obtained and
are in full force and effect as of the Closing Date except as described in such
Schedule. No consent of any Person and no consent, permit, license, approval or
authorization of, or giving notice to, filing, registration or declaration with,
any Governmental Authority is required in connection with such Loan Party's
execution, delivery or performance of, or the validity or enforceability of any
Project Document to which such Loan Party is a party, except those (i) that have
been duly obtained or made and are in full force and effect, (ii) that are not
yet required or (iii) the failure of which to obtain, individually or in the
aggregate, could not be reasonably expected to cause a Material Adverse Effect.

3.3. Disclosure.

         As of the Closing Date, to such Loan Party's Best Knowledge, no
representation or warranty of such Loan Party contained in this Agreement, the
Financial Statements, the other Loan Documents or any other material document,
certificate or written statement furnished to the Lender by or on behalf of such
Loan Party for use in connection with the transactions contemplated by this
Agreement contains any untrue statement of fact or omits to state a fact
necessary in order to make the statements contained herein or therein not
misleading in any material respect in light of the circumstances in which the

                                       5

same were made. Attached hereto as Schedule 3.3 are pages from the Preliminary
Long Form Prospectus (the "Preliminary Prospectus") relating to the offering of
the Trust Units by the Fund, portions of which have been highlighted to reflect
the particular information describing the Loan Parties, the Subsidiaries of the
Loan Parties and the Projects (the "Issuer Information"). Such Loan Party has
had an opportunity to review the Issuer Information. To such Loan Party's Best
Knowledge, the Issuer Information does not contain any untrue statement of a
material fact or omit to state any fact necessary to make the statements made
therein not misleading at the time they were made and in light of the
circumstances under which they were made. Except as disclosed herein and
therein, since September 30, 2003, there has been no Material Adverse Effect.

3.4. Organization and Ownership of Shares of Subsidiaries; Affiliates.

(a) Schedule 3.4 contains (except as noted therein) complete and correct lists
of the Subsidiaries of such Loan Party, showing, as to each of its Subsidiaries,
the correct name thereof, the jurisdiction of its organization, and the
percentage of shares of each class of its capital stock or similar equity
interests outstanding owned by such Loan Party and each other Subsidiary of such
Loan Party.

(b) All of the outstanding shares of capital stock or similar equity interests
of each Subsidiary shown in Schedule 3.4 as being owned by such Loan Party and
its Subsidiaries have been validly issued, are fully paid and nonassessable and
are owned by such Loan Party or its Subsidiaries free and clear of any Lien
(except as otherwise disclosed in such Schedule).

(c) Each of its Subsidiaries identified in Schedule 3.4 is a corporation or
other legal entity duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization, and is duly qualified as a foreign
corporation or other legal entity and is in good standing in each jurisdiction
in which such qualification is required by law, other than those jurisdictions
as to which the failure to be so qualified or in good standing could not,
individually or in the aggregate, reasonably be expected to cause a Material
Adverse Effect. Each such Subsidiary has the corporate or other power and
authority to own or hold under lease the properties it purports to own or hold
under lease and to transact the business it transacts and proposes to transact.

(d) None of its Subsidiaries is a party to, or otherwise subject to any legal
restriction or any agreement (other than this Agreement, the Security Documents
and customary limitations imposed by corporate, limited partnership and limited
liability company law statutes) restricting the ability of such Subsidiary to
pay dividends out of profits or make any other similar distributions of profits
to any of the Loan Parties or Subsidiaries that own outstanding shares of
capital stock or similar equity interests of such Subsidiary.

3.5. Financial Statements.

         The consolidated carve-out financial statements of the USEB Operating
Assets contained in Schedule 3.5, including the footnotes thereto (the
"Financial Statements"), (i) are accurate, correct and complete in all material
respects and are in accordance with the books of account and records of the
Issuer and (ii) present fairly (subject, in the case of the Financial Statements
for the nine-month period ended on September 30, 2003, to year-end adjustments)
in all material respects, the assets, liabilities and financial position of the
USEB Operating Assets as at September 30, 2003, December 31, 2002, 2001, and
2000 and for the nine-month period ended September 30, 2003 and for the years
ended December 31, 2002, 2001 and 2000 in each case prepared in accordance with
U.S. GAAP.

                                       6
3.6.     No Undisclosed Liabilities.

         Except for the liabilities and obligations set forth on Schedule 3.6 or
in the Financial Statements or current liabilities incurred in the Ordinary
Course of Business, there are no liabilities or obligations of any nature
(whether known or unknown and whether absolute, accrued, contingent or
otherwise) of such Loan Party or any of its Subsidiaries that would reasonably
be expected to exceed $750,000 in the aggregate.

3.7. Compliance with Governmental Requirements.

(a) Neither such Loan Party nor any of its Subsidiaries has (i) violated any
Governmental Requirements and no such violation has been alleged pursuant to
written notification, (ii) failed to file in a timely manner all reports,
documents and other materials required to be filed by it with any Governmental
Authority (and the information contained in each of such filings is true,
correct and complete in all material respects), including without limitation all
such reports, documents and other materials required under PURPA or under
Section 8-403.1 of the Illinois Revised Statutes and the regulations thereunder,
or (iii) failed to retain all records and documents required to be retained by
it pursuant to any Governmental Requirement, other than such violation, alleged
violation or failure to file or retain which could not, individually or in the
aggregate, reasonably be expected to cause a Material Adverse Effect.

(b) The operation of the Projects in accordance with the Project Documents does
not violate or contravene any Governmental Requirements. No Project (i) is in
violation of any Governmental Requirements and no such violation has been
alleged pursuant to written notification, (ii) has failed to file in a timely
manner all reports, documents and other materials required to be filed by it
with any Governmental Authority (and the information contained in each of such
filings is true, correct and complete in all material respects) or (iii) has
failed to retain all records and documents required to be retained by it
pursuant to any Governmental Requirements, other than the violation, alleged
violation, the failure to file or retain that could not, individually or in the
aggregate, reasonably be expected to cause a Material Adverse Effect.

3.8. Permits.

         As of the Closing Date, each Applicable Permit has been duly obtained
and is in full force and effect, is final, and, based on current regulations, is
not subject to appeal or judicial, governmental or other review. A copy of each
Applicable Permit has been delivered to the Lender.

3.9. Litigation; No Default.

(a) There is no judgment, action, investigation, claim, complaint, notice of
violation, injunction, order, decree, directive, action, suit, arbitration or
proceeding or labor disputes pending or, to such Loan Party's Best Knowledge,
threatened pursuant to written notification in any court or before or by any
Governmental Authority, arbitrator, board or authority (i) against or affecting
such Loan Party, any of its Subsidiaries, any Project or any Collateral

                                       7

involving any claim in any amount or (ii) involving the validity, enforceability
or priority of any Operative Document at law or in equity.

(b) Neither such Loan Party nor any of its Subsidiaries is in default under any
agreement (including, without limitation, any Operative Document), bond, note,
indenture, mortgage, loan agreement, order or judgment or any ordinance,
resolution or decree and to which it is a party or by which it is bound, or any
other agreement or other instrument Material to such Loan Party by which it or
any of the properties or assets owned by it or used in the conduct of its
business is affected.

3.10. Taxes.

         Such Loan Party and each of its Subsidiaries has filed all United
States federal and state tax returns and reports and all other tax returns and
reports with each appropriate Governmental Authority in all jurisdictions in
which such returns and reports are required to be filed, and such returns and
reports accurately reflect the taxes, assessments and charges of such Loan Party
and each of its Subsidiaries for the periods covered thereby to the extent
Material to such Loan Party. Such Loan Party and each of its Subsidiaries has
paid all taxes, assessments and other charges that have become due to any
Governmental Authority having jurisdiction over such Loan Party or Subsidiary or
any of its properties, and no tax Liens (other than tax Liens constituting
Permitted Liens) have been filed and no claims are being asserted against such
Loan Party or Subsidiary or any properties of such Loan Party or Subsidiary.
None of the federal or state income tax returns of such Loan Party or Subsidiary
is under audit. Neither such Loan Party nor any of its Subsidiaries has any
knowledge of any unpaid taxes, assessments or charges that may be due and
payable against it or any of its properties, or any basis for any other tax or
assessment, which individually or in the aggregate could reasonably be expected
to cause a Material Adverse Effect. The charges, accruals and reserves on the
books of each Loan Party and each Subsidiary of a Loan Party in respect of
Federal, state or other taxes for all fiscal periods are adequate to the extent
Material.

3.11. Title to Collateral; Liens.

(a) Subject to Permitted Liens, such Loan Party is the sole owner of each item
of the Collateral it purports to own, including without limitation the
Collateral reflected in the most recent Financial Statements of such Loan Party,
having good and valid title thereto, free and clear of any and all Liens other
than those created by the Security Documents and Permitted Liens.

(b) The Security Documents create a valid security interest in the Collateral
therein purported to be pledged or mortgaged, as applicable, by such Loan Party
in favor of the Lender, enforceable against third parties, and when the
financing statements listed on Schedule 3.11 and the Mortgage Amendments have
been filed or recorded, as applicable, in the offices listed in Schedule 3.11,
will constitute perfected Liens senior in right to all other creditors and
subject to no prior Liens (other than Permitted Liens) and will secure the
payment of the Obligations. All action necessary to perfect such Liens and
security interests in each item of the Collateral has been duly taken or will be
taken in accordance with the Loan Documents prior to the issuance, exchange and
purchase of the Notes contemplated hereby. Such Liens and security interests are
or shall be, upon the taking of all such actions, entitled to all of the rights,
priorities and benefits afforded by the UCC or other relevant law as enacted in

                                       8

any relevant jurisdiction to constitute perfected security interests. No further
action will be required to maintain and preserve such Lien and security
interests other than the filing of continuation statements required by the UCC,
and the taking of all actions required to be taken under the Loan Documents.

(c) The Project Owners own (i) good and marketable title or (ii) valid easements
in and to or license rights or leasehold estates in and to the Project Land
sufficient to own, operate and maintain the Projects, free and clear of all
Liens other than Permitted Liens; and no filing or recording with any
Governmental Authority or agency is necessary to establish, protect and perfect
such title or any other right, title or interest of (x) such Loan Party, as
against any other Person, or (y) the Lender, as against such Loan Party or any
other Person, in any jurisdiction, under the Operative Documents, all of which
filings and recordations have been made or will have been made on or before the
Closing Date. As of the Closing Date, no Person will hold or have any right to
acquire an interest (other than a Permitted Lien) in the Project Land that may
encumber the Projects or any portion thereof or that would cause a Material
Adverse Effect. To such Loan Party's Best Knowledge, the Projects are located
entirely on the Project Land, and neither the Projects nor any portion thereof
encroaches upon any interest in property to which the Loan Parties do not have
rights sufficient to permit the encroachment.

3.12. Intellectual Property.

         Except in instances where there would be no Material Adverse Effect:

(a) such Loan Party and each of its Subsidiaries owns or possesses all licenses,
permits, franchises, authorizations, Intellectual Property, or other proprietary
rights and technology or rights thereto to construct and operate the Projects
and to operate its business as now conducted and as presently proposed to be
conducted, without any known conflict with the rights of others;

(b) no product of such Loan Party or any of its Subsidiaries (including, without
limitation, the Projects) infringes upon any license, permit, franchise,
authorization, patent, copyright, service mark, trademark, trade name or other
right owned by any other Person; and

(c) there is no violation by any Person of any right of such Loan Party or any
of its Subsidiaries with respect to any patent, copyright, service mark,
trademark, trade name or other right owned or used by such Loan Party or any
such Subsidiary.

3.13. Compliance with ERISA.

(a) Neither such Loan Party nor any of its ERISA Affiliates has operated and
administered any Pension Plan. Neither such Loan Party nor any of its ERISA
Affiliates has incurred any liability pursuant to Title I or IV of ERISA or the
penalty or excise tax provisions of the Code relating to employee benefit plans
(as defined in Section 3 of ERISA), and no event, transaction or condition has
occurred or exists that would reasonably be expected to result in the incurrence
of any such liability by such Loan Party or any of its ERISA Affiliates, or in
the imposition of any Lien on any of the rights, properties or assets of such
Loan Party or any of its ERISA Affiliates, in either case pursuant to Title I or
IV of ERISA or to such penalty or excise tax provisions or to Section 401(a)(29)
or 412 of the Code, other than such liabilities or Liens as would not be
individually or in the aggregate Material.

                                       9

(b) The expected postretirement benefit obligations (determined as of the last
day of each Loan Party's most recently ended fiscal year in accordance with
Financial Accounting Standards Board Statement No. 106, without regard to
liabilities attributable to continuation coverage mandated by section 4980B of
the Code) of such Loan Party and its Subsidiaries are not Material.

3.14. Private Offering by the Loan Parties.

         Neither such Loan Party nor anyone acting on its behalf has offered the
Notes or any similar securities for sale to, or solicited any offer to buy any
of the same from, or otherwise approached or negotiated in respect thereof with,
any person other than the Lender. Neither such Loan Party nor anyone acting on
its behalf has taken, or will take, any action that would subject the issuance
or sale of the Notes to the registration requirements of Section 5 of the
Securities Act.

3.15.    Use of Proceeds; Margin Regulations.

         Such Loan Party (if applicable) will apply the Advance as set forth in
Schedule 3.15. None of the transactions contemplated in this Agreement
(including the use of the proceeds from the sale of the Notes) will result in a
violation of Section 7 of the Securities Exchange Act of 1934, as amended, or
any related regulations, including Regulations T, U and X of the Board of
Governors of the Federal Reserve System. No Loan Party owns any margin
securities or margin stock as defined in such Regulations T, U and X. No part of
the proceeds from the sale of the Notes hereunder has been or will be used,
directly or indirectly, for the purpose of buying or carrying, any margin
security within the meaning of said Regulations T, U and X, for the purpose of
reducing or retiring any indebtedness that was originally incurred to purchase
or carry any such "margin security" or for any other purpose that might cause
the Notes to be considered "purpose credit(s)" within the meaning of said
Regulations T, U and X.

3.16. Existing Indebtedness; Future Liens.

(a) Except as described therein, Part A of Schedule 3.16(a) sets forth a
complete and correct list of all outstanding Indebtedness of such Loan Party and
its Subsidiaries as of December 31, 2003, since which date, to the extent
Material, there has been no change in the amounts, interest rates, sinking
funds, installment payments or maturities of the Indebtedness of such Loan Party
or its Subsidiaries. Except as described in Part B of such Schedule, neither
such Loan Party nor any of its Subsidiaries is in default and no waiver of
default is currently in effect, in the payment of any principal or interest on
any Indebtedness of such Loan Party or Subsidiary and no event or condition
exists with respect to any Indebtedness of any Loan Party or any of its
Subsidiaries that would permit (or that with notice or the lapse of time, or
both, would permit) one or more Persons to cause such Indebtedness to become due
and payable before its stated maturity or before its regularly scheduled dates
of payment.

(b) Neither such Loan Party nor any of its Subsidiaries has agreed or consented
to cause or permit in the future (upon the happening of a contingency or

                                       10

otherwise) any of its property, whether now owned or hereafter acquired, to be
subject to a Lien other than a Permitted Lien.

3.17. Foreign Assets Control Regulations, etc.

         Neither the sale of the Notes by such Loan Party hereunder nor any use
of the proceeds thereof, nor any other action taken or to be taken by any Loan
Party, has violated or will violate the Trading with the Enemy Act, as amended,
or any of the foreign assets control regulations of the United States Treasury
Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling
legislation or executive order relating thereto.

3.18. Status under Certain Statutes.

(a) Neither such Loan Party nor any of its Subsidiaries is an "investment
company" or a company "controlled" by an investment company, within the meaning
of the Investment Company Act of 1940, as amended. On the Closing Date, each of
the Projects (other than the Cape May Project and the Tucson Project, the
Garland Project and the SPSA II (Transco) Project) will be a "qualifying
facility" within the meaning of PURPA and the regulations thereunder and will be
eligible for all the benefits of 18 C.F.R. Sections 292.601 and 292.602. Neither
such Loan Party nor any of its Subsidiaries is or will be (i) an "electric
utility company," a "gas utility company," a "public utility company," a
"holding company," a "subsidiary company" of a holding company or an "associate
company" of a holding company under the PUHCA; (ii) subject to the FPA (other
than those sections referred to in 16 U.S.C. ss.ss. 799-803, 808, 813,
824a-3(e), 824d and 18 C.F.R. Section 292.601(c)) or the NGA or (iii) subject to
rate, financial, organizational or other regulation as a "public utility," a
"local distribution company," an "electrical load serving entity" or similar
entity under the laws of the jurisdiction of its organization or location by
virtue in any such case, of (A) the construction of, or the Loan Parties'
ownership, operation or maintenance of, the Projects or (B) the Loan Parties'
execution, delivery or performance of any of the Operative Documents or their
exercise of any of their rights thereunder. Except for the Certification Notices
and annual filings with the ICC with respect to the Illinois Projects, such Loan
Party is not required to obtain or effect any further filing, approval, permit
or license from or with the FERC or any other Governmental Authority for the
construction, ownership or operation of the Projects or the conduct of its
business in accordance with the provisions of the Operative Documents, including
any Power Purchase Agreement. The execution, delivery and performance of the
Project Documents according to the terms thereof by such Loan Party party
thereto does not and will not prevent each of the Projects (other than the Cape
May Project, the SPSA II (Transco) Project and the Tucson Project) from being
owned and operated as a "qualifying facility" as contemplated by the Project
Documents.

(b) The Lender will not, solely by reason of (i) the purchase of the Notes and
(ii) the transactions contemplated by the Loan Documents, be deemed by any
Governmental Authority having jurisdiction to be or otherwise become (A) an
"electric utility company," a "gas utility company," a "public utility company,"
a "holding company," a "subsidiary company" of a holding company or an
"associate company" of a holding company under the PUHCA, (B) subject to the FPA
or NGA or (C) subject to regulation as a "public utility," a "local distribution
company," an "electrical load serving entity" or similar entity under the laws
of any state.

                                       11

(c) No consent or approval of, giving notice to, filing or registration with, or
taking of any action in respect of or by, any federal, state or local
governmental authority or agency or any other Person was, is, or as of the
Closing Date will be, required with respect to the purchase of the Existing
Notes and the issuance of the Notes or the making or securing of the Advance
except as have been, or will have been on the Closing Date, duly obtained, given
or accomplished and that will on the Closing Date be final and not subject to
appeal or further review and copies of which shall have been delivered to the
Lender prior to the Closing Date.

3.19. Environmental Matters.

(a) All facilities and property owned, operated or leased by such Loan Party or
any of its Subsidiaries have been, and continue to be, owned, operated or leased
by such Loan Party or such Subsidiary in compliance with all Environmental Laws,
except for such violations that, singly or in the aggregate, could not
reasonably be expected to cause a Material Adverse Effect.

(b) There are no pending and, to such Loan Party's Best Knowledge, there have
been no past, and/or threatened (i) claims, complaints, notices or requests for
information received by such Loan Party or any of its Subsidiaries with respect
to any alleged violation of any Environmental Law that could reasonably be
expected to cause a Material Adverse Effect; or (ii) claims, complaints, notices
or requests for information received by such Loan Party or any of its
Subsidiaries regarding potential liability under any Environmental Law that
could reasonably be expected to cause a Material Adverse Effect.

(c) There have been no Releases of Hazardous Materials in violation of any
Environmental Law or that could, singly or in the aggregate, reasonably be
expected to cause a Material Adverse Effect.

(d) Such Loan Party and each of its Subsidiaries has been issued, and is in
material compliance with, all Permits relating to environmental matters and
necessary or desirable for their businesses, except when the failure to have or
comply with the foregoing could not, singly or in the aggregate, reasonably be
expected to cause a Material Adverse Effect.

(e) Except as set forth on Schedule 3.19, no property now or previously owned,
operated or leased by such Loan Party or any of its Subsidiaries is listed or
(to the best of their knowledge) proposed for listing on the National Priorities
List promulgated pursuant to CERCLA, on the CERCLIS or on any similar state list
of sites requiring investigation or clean-up.

(f) Neither such Loan Party nor any of its Subsidiaries has transported or
arranged for the transportation of any Hazardous Material other than in
accordance with Governmental Requirements or, to its knowledge, to any location
that is listed or (to the best of their knowledge) proposed for listing on the
National Priorities List promulgated pursuant to CERCLA, on the CERCLIS or on
any similar state list or that is the subject of federal, state or local
enforcement actions or other investigations that may lead to claims against such
Loan Party or such Subsidiary thereof for any remedial work, damage to natural
resources or personal injury (including claims under CERCLA).

                                     12

(g) There are no polychlorinated biphenyls or friable asbestos present at any
property now or previously owned, leased or operated by such Loan Party or any
of its Subsidiaries in material violation of Environmental Law or that could,
singly or in the aggregate, reasonably be expected to cause a Material Adverse
Effect.

(h) Such Loan Party would not be deemed to be the "owner" or "operator" of any
landfill for purposes of CERCLA or any other Environmental Law or held
responsible for any Release of any Hazardous Material from the landfill on which
any Project is located except for Releases of Hazardous Materials resulting
proximately form the acts or omissions of such Loan Party.

(i) To the Issuer's Best Knowledge, no conditions exist at, on or under any
Project that, with the passage of time, the giving of notice or both, would give
rise to liability of any Loan Party under any Environmental Law that would
reasonably be expected to have a Material Adverse Effect.

3.20. Burdensome Restrictions; Other Contracts.

         Except for the terms of the Operative Documents and the Applicable
Permits and related statutes, rules and regulations, no contract, lease,
agreement or other instrument to which any Loan Party or any of its Subsidiaries
is a party or by which it or any of its properties is bound, restricts such Loan
Party's or Subsidiary's ability to own, operate and maintain any Project in a
manner that could reasonably be expected to result in a Material Adverse Effect.

3.21.    Location of Loan Parties.

         The jurisdiction in which such Loan Party is located for purposes of
Sections 8-110(d), 9-301 and 9-307 of the UCC is set forth next to such Loan
Party's name in Part A of Schedule 3.1.

3.22.    Brokers and Finders.

         Other than as disclosed to the Lender in writing prior to the Closing
Date, no broker's or finder's fee or commission will be payable with respect to
any of the transactions contemplated hereby and such Loan Party shall be solely
responsible for and shall pay all such broker's or finder's fees or commissions.
Such Loan Party shall indemnify, pay and hold the Lender harmless from and
against any claim, demand or liability for broker's and/or finder's fees alleged
to have been incurred in connection with any of the transactions contemplated
hereby and any expenses, including, without limitation, reasonable attorneys'
fees, arising in connection with any such claim, demand or liability. No other
similar fees or commissions will be payable by any Loan Party for any other
services rendered to such Loan Party or ancillary to the transactions
contemplated hereby.

3.23. Project Documents.

(a) Each Project Document to which such Loan Party is a party (together with the
other Project Documents for the applicable Project) constitutes the entire

                                       13

agreement of the respective parties thereto with respect to the subject matter
thereof and no respective party thereto shall be bound except in accordance
therewith.

(b) Each Project Document to which such Loan Party is a party is in full force
and effect and constitutes the valid contract of the parties thereto,
enforceable against the parties thereto in accordance with its terms, except as
enforcement may be limited by Debtor Relief Laws or by equitable principles
relating to or limiting creditors' rights generally, each of the parties thereto
has executed such Project Document with full power, authority and capacity to
contract, to the Loan Party's Best Knowledge no default has occurred and is
continuing under such Project Document that individually or in the aggregate
could reasonably be expected to create a Material Adverse Effect and such
Project Document is in full force and effect. Such Loan Party has not assigned
any of its right, title or interest in or under such Project Document except in
accordance with the Loan Documents.

(c) The obligations of each party to each Project Document to which such Loan
Party is a party, as stated therein, are effective and are not, nor are they
claimed to be, subject to any claims or any defenses, counterclaims or setoffs
against such Loan Party, to the extent Material. No event of force majeure under
such Project Document has occurred and is continuing that could reasonably be
expected to result in the termination of such Project Document or to cause a
Material Adverse Effect.

(d) The copies of the Project Documents furnished to the Lender by the Loan
Parties are true, complete and correct as of the Closing Date. None of the
Project Documents has been modified or amended since its delivery to the Lender
or made the subject of a waiver or consent by such Loan Party, except by a
written instrument, a copy of which as been furnished to the Lender.

(e) With respect to each Project Document to which such Loan Party is a party,
there are no existing conditions that would give rise thereunder to any defense
to payment or to any claim or any right of setoff, counterclaim, recoupment or
rescission that is Material.

(f) Each Project Document to which such Loan Party is a party creates, or will
create, in each Project Owner and Tactics, rights sufficient to safely own, use,
maintain and operate the applicable Project in accordance with Prudent
Engineering and Operating Practices for the remaining useful life of such
Project as set forth in Schedule 3.27 or the expiration of the Project
Documents.

3.24. Insurance.

         Such Loan Party is in compliance, to the extent Material, with all
requirements set forth in the Operative Documents to maintain insurance. All
insurance policies held by such Loan Party or any of its Subsidiaries are in
full force and effect and all premium payments required by such policies are
current.
                                       14

3.25.    Utility Service Available.

         Electricity and other utility services and all roadway access and fuel,
transmission and power connection services required for the construction (as
applicable), operation and maintenance of the Projects for their intended
purposes are available on the Project Land.

3.26.    Remedies Adequate.

         Subject to the terms of the Project Documents to which such Loan Party
is a party and all applicable laws, ordinances, regulations, permits and orders
listed on Schedule 3.26, in the event that the Lender exercised its rights after
an Event of Default with respect to the Collateral purported to be pledged or
mortgaged by such Loan Party pursuant to the applicable Security Documents, and
succeeded to such Loan Party and performed its obligations under such Project
Documents, the Lender's rights would be sufficient to permit it or a Person
succeeding to its rights on a sale of such Collateral to operate and maintain
such Projects and sell the output thereof to the same extent as such Loan Party
now operates such Projects and sells the output thereof or presently propose to
operate such Projects and sell the output thereof.

3.27. Projects.

(a) The descriptions of the Projects set forth in Schedule B and all information
regarding the Projects furnished to the Lender by or on behalf of such Loan
Party are true and accurate in all material respects, contain no materially
misleading information and do not omit any information the omission of which
would be materially misleading; provided this representation excludes any
projections, forward looking statements or predictions of future events.

(b) Except as set forth in Schedule 3.27, each of the Projects has received all
inspections and certifications currently required by any Governmental
Requirement, and to such Loan Party's Best Knowledge, to the extent Material,
there are no physical defects or performance deficiencies in the Projects, other
than ordinary wear and tear consistent with similar assets of a similar age. To
such Loan Party's Best Knowledge, the Independent Engineer's Report does not
contain any untrue statement of a material fact or omit to state any fact
necessary to make the statements made therein not misleading at the time they
were made and in light of the circumstances under which they were made.

3.28. Defaults; Events of Default.

No Default or Event of Default has occurred and is continuing.

3.29.    Lines of Business.

         Each of the Project Owners is engaged solely in the ownership,
operation and maintenance of its Project. Tactics is engaged solely in the
operation and maintenance of certain of the Projects pursuant to the Project
Documents. The Issuer is engaged solely in the businesses of alternative energy,
cogeneration, power marketing and landfill-related products and services. IEGP
and IEGP II are engaged solely in the business of owning, operating and
maintaining certain of the Illinois Projects. Each of the other Loan Parties is

                                       15

engaged solely in the direct and indirect ownership of the Project Owners and
other alternative energy-related businesses.

3.30.    Pro Forma Projections; Operating Budget.

         The Pro Forma Projections accurately set forth the results of operation
of the USEB Operating Assets projected by the Issuer. The Pro Forma Projections
are (i) based on reasonable assumptions as to all legal and factual matters
material to the estimates set forth therein and (ii) consistent with the
provisions of the Operative Documents. The Operating Budget forecasts the
projected capital, maintenance and operating funding requirements of the USEB
Operating Assets through December 31, 2005 and is (A) based on reasonable
assumptions as to all legal and factual matters material to the estimates set
forth therein and (B) consistent with the provisions of the Operative Documents.

3.31.    Illinois Subsidy Program.

         Each of the Illinois Projects is qualified for the benefits of Section
8-403.1 of the Illinois Revised Statutes and the regulations thereunder and has
made all filings required thereby. The amounts currently on deposit in each ICC
Account, and the amounts to be deposited in accordance with the Amended Security
Agreements on the Closing Date, are reasonably expected to be sufficient, after
giving effect to reasonably projected earnings thereon (based on assumptions
that the Lender has acknowledged are reasonable), to fund the corresponding
Illinois Reimbursement Obligations that have accrued through the Closing Date.

3.32.    Conduct of Business in Ordinary Course.

         Except as disclosed in Schedule 3.32, since September 30, 2003, the
business related to the USEB Operating Assets has been carried on in the
Ordinary Course of Business.

4.       REPRESENTATIONS OF THE Lender.

4.1.     Incorporation and Status.

         The Lender is duly incorporated and existing under the laws of Canada.
The Lender is a Person referred to in paragraph (aa) of the definition of
"accredited investor" in Ontario Securities Commission Rule 45-501 for the
purposes of consummating the purchase and exchange of Notes in accordance with
this Agreement. The Lender is duly qualified to carry on its business in each
jurisdiction in which the conduct of its business or the ownership, leasing or
operation of its property and assets, requires such qualification, except to the
extent that any failure to be so qualified, either individually or in the
aggregate, would not cause a materially adverse effect on the (i) business
assets, operations, properties or condition (financial or otherwise) of the
Lender, (ii) ability of the Lender to perform its obligations under the Loan
Documents, or (ii) the Lender's security interest in any material portion of the
Collateral or the priority of such security interest.

                                       16

4.2.     Corporate Power of the Lender and Due Authorization.

         The Lender has the power and capacity to enter into and perform its
obligations under the Loan Documents to which the Lender is a party and to carry
out the transactions contemplated in the Loan Documents. Each of this Agreement
and the Loan Documents to which the Lender is a party have been duly authorized,
executed and delivered by the Lender and is a legal, valid and binding
obligation of the Lender, enforceable against the Lender in accordance with its
terms, subject to exceptions as to applicable bankruptcy, insolvency and similar
laws and the availability of equitable remedies.

4.3.     No Approvals.

         No consent, approval, authorization or order of, and no filing,
registration or recording with, any Governmental Authority is required in
connection with the execution and delivery by the Lender of this Agreement and
the Loan Documents to which the Lender is a party or the performance by the
Lender of its obligations hereunder and thereunder or the consummation by the
Lender of the transactions contemplated herein and therein.

4.4.     No Contravention.

         The execution and delivery by the Lender of this Agreement and the Loan
Documents to which the Lender is a party, the performance by the Lender of its
obligations hereunder and thereunder and the compliance by the Lender with the
other provisions hereof and thereof does not and will not contravene, breach or
result in any default under its organizational documents or under any mortgage,
indenture, lease, agreement, other legally binding instrument, license, permit,
statute, regulation, order, judgment, decree or law to which the Lender is a
party or by which the Lender is bound.

4.5.     Residence of the Lender.

         The Lender is not a non-resident of Canada within the meaning of the
Income Tax Act (Canada).

4.6.     Purchase for Investment.

         The Lender represents that it is purchasing or exchanging the Notes for
its own account, for one or more separate accounts maintained by the Lender or
for the account of one or more pension or trust funds and not with a view to the
distribution thereof, provided that the disposition of the Lender's or their
property shall at all times be within the Lender's or their control. The Lender
understands that the Notes have not been registered under the Securities Act and
may be resold only if registered pursuant to the provisions of the Securities
Act or if an exemption from registration is available, except under
circumstances where neither such registration nor such an exemption is required
by law, and that the Loan Parties are not required to register the Notes.

                                       17

4.7.     Existing Loans.

         The Lender, immediately prior to the exchange of the Existing Notes for
the Notes pursuant to Section 2.1, was, the sole legal and beneficial owner of
the Existing Loans, and has not assigned, charged, pledged or otherwise granted
any right or claim to any of its rights, title and interests in and to the
Existing Loans, to any Person. Upon consummation of the transactions
contemplated by this Agreement, the Lender will surrender and exchange the
Existing Loans to the Loan Parties free and clear of any Liens.

4.8.     Pending Proceedings.

         No proceedings are (i) pending against the Lender or (ii) to the best
of the Lender's knowledge, threatened against the Lender before any relevant
Governmental Authority that, in the aggregate, will materially and adversely
affect (A) the Existing Loans or (B) any action taken or to be taken by the
Lender under this Agreement.

4.9.     Brokers and Finders.

         No broker, finder or other entity acting under the Lender's authority
is entitled to any broker's commission or other fee in connection with the
transactions contemplated by this Agreement for which Loan Parties could be
responsible.

5.        INFORMATION AS TO LOAN PARTIES.

5.1.      Financial Statements and Other Reports.

(a)       The Issuer shall cause to be furnished to the Lender, as soon as
          available, and in any event within thirty (30) days after the end of
          each Fiscal Quarter (except the last) of each Fiscal Year of the
          Issuer, copies of the consolidated balance sheet each of (A) the
          Issuer and its Consolidated Subsidiaries and (B) the USEB Operating
          Assets (on a carve out basis) as of the end of such Fiscal Quarter,
          and statements of income, retained earnings and changes in cash flow
          of each of (x) the Issuer and its Consolidated Subsidiaries and (y)
          the USEB Operating Assets (on a carve out basis) for that Fiscal
          Quarter and for the portion of the Fiscal Year ending with such
          period, in each case setting forth in comparative form the figures for
          the corresponding period of the preceding Fiscal Year in reasonable
          detail, and certified by the Senior Financial Officer of the Issuer as
          being true and correct and as having been prepared in accordance with
          U.S. GAAP, subject to year-end audit adjustments. Such financial
          statements for the USEB Operating Assets shall be accompanied by a
          narrative report from the Issuer's management, prepared in a form that
          complies with the requirements of Form 51-102F1 of National Instrument
          51-102 - Continuous Disclosure Obligations ("Form 51-102F1") of the
          Canadian securities regulators. The Issuer shall use its commercially
          reasonable efforts to provide such supplemental information to the
          Lender that is reasonably required for the Lender to reconcile the
          quarterly statements with Canadian GAAP.

(b)       The Issuer shall cause to be furnished to the Lender, as soon as
          available, and in any event no later than sixty (60) days after the
          end of each Fiscal Year of the Issuer:

                                       18

(i)       copies of the audited consolidated balance sheet of the Issuer and its
          Consolidated Subsidiaries and the USEB Operating Assets (on a
          carve-out basis) as of the end of such Fiscal Year and statements of
          income, retained earnings and changes in cash flow of the Issuer and
          its Consolidated Subsidiaries and the USEB Operating Assets for that
          Fiscal Year, setting forth in comparative form the respective figures
          as of the end of and for the previous Fiscal Year, to be prepared in
          accordance with U.S. GAAP consistently applied all in reasonable
          detail and certified by the Senior Financial Officer of the Issuer as
          being true and correct and as having been prepared in accordance with
          U.S. GAAP;

(ii)      copies of unaudited statements of income, retained earnings and
          changes in cash flow for the USEB Operating Assets (on a carve-out
          basis) for that Fiscal Year, setting forth in comparative form the
          figures for such Fiscal Year in (A) the most recent Pro Forma
          Projections and (B) the annual Operating Budget, to be prepared in
          accordance with U.S. GAAP consistently applied all in reasonable
          detail and certified by the Senior Financial Officer of the Issuer as
          being true and correct and as having been prepared in accordance with
          U.S. GAAP; and

(iii)     a narrative report, from the Issuer's management, on the financial
          results of each Fiscal Year of the USEB Operating Assets prepared in a
          form that complies with the requirements of Form 51-102F1. The Issuer
          shall use its commercially reasonable efforts to provide such
          supplemental information to the Lender that is reasonably required for
          the Lender to reconcile the consolidated financial statements with
          Canadian GAAP.

(c)       The Issuer shall submit a copy of the annual Operating Budget prior to
          December 1 for each subsequent calendar year operating period. The
          Lender may, if necessary and after consultation with the Issuer,
          retain the Independent Engineer to review the Operating Budget as it
          relates to the maintenance of power generation equipment or
          technical-oriented operations. The Issuer will reimburse the Lender
          for up to $10,000 of annual costs incurred by the Lender in connection
          with the services provided by the Independent Engineer in such
          capacity.

(d)       The Issuer shall submit a copy of the updated Pro Forma Projections,
          which shall include a prospective calculation of the Fixed Charge
          Coverage Ratio, prior to December 1 for each subsequent calendar year
          covering the period commencing on January 1 of such subsequent
          calendar year and extending for a period with respect to each Project
          for the shorter of fifteen years from the Closing Date or the
          projected remaining useful life of such Project prepared in good faith
          and based on reasonable assumptions.

(e)       The Issuer shall provide to the Lender, (i) annually, all information
          that the Issuer, were it a reporting issuer under the Securities Act
          (Ontario), would be required to include in any annual information form
          or other report submitted to the Ontario Securities Commission and
          (ii) promptly after such occurrence, a report of any material change
          (as defined under the Securities Act (Ontario) in its affairs.

(f)       The Issuer shall deliver or cause to be delivered copies of each of
          the following, if Material, promptly upon its becoming available: (i)

                                     19

          any notice or claim by any Governmental Authority pertaining to any
          Loan Party or any Project, (ii) all regular and periodic reports
          pertaining to any Project filed by such Loan Party with any
          Governmental Authority or that the Lender may from time to time
          request, and (iii) copies of all notices, reports or other
          correspondence received or sent by such Loan Party under any Project
          Document or that the Lender may from time to time reasonably request.
          Each Loan Party shall deliver to the Lender, promptly upon their
          becoming available, all press releases and other written statements
          made available by such Loan Party to the public concerning
          developments in the business of such Loan Party.

(g)       Each Loan Party shall cause to be furnished to the Lender as soon as
          available all such other reports, schedules or information, or
          excerpts therefrom, including, without limitation, engineering reports
          relating to the Projects or the ability of such Loan Party to perform
          its obligations hereunder and under the other Loan Documents as the
          Lender may reasonably request from time to time, if such have already
          been prepared by such Loan Party.

(h)       In conjunction with the delivery of the financial statements set forth
          in this Section and otherwise promptly upon any Loan Party obtaining
          knowledge of any of the following events or conditions, such Loan
          Party shall deliver a certificate executed by a Responsible Officer
          specifying the nature and period of existence of any of the following
          conditions or events and what action such Loan Party has taken, is
          taking and proposes to take with respect to: (i) any Default or Event
          of Default, or any condition or event that constitutes a default or an
          event of default or a default under any agreement to which a Gasco is
          a party; (ii) any action, suit, proceeding, investigation, loss or
          arbitration affecting any Loan Party, Project or Collateral in excess
          of $250,000 in the aggregate or that has or could reasonably be
          expected to cause a Material Adverse Effect; (iii) any event or
          condition that has or could reasonably be expected to cause a Material
          Adverse Effect; or (iv) any damage, to the extent Material, to the
          Collateral or, to the Loan Party's Best Knowledge, any condemnation
          proceeding affecting any of the Collateral, or any legal challenge to
          any Applicable Permit.

(i)       Each Loan Party shall deliver or cause to be delivered to the Lender
          copies, promptly upon becoming available, of all proposed material
          amendments to a Project Document to which such Loan Party is a party
          or that is related to a Project of such Loan Party.

(j)       Each Loan Party shall promptly, and in any event within five days
          after a Responsible Officer becoming aware of any of the following,
          deliver to the Lender a written notice setting forth the nature
          thereof and the action, if any, that such Loan Party or an ERISA
          Affiliate proposes to take with respect thereto:

(i)       with respect to any Plan, any reportable event, as defined in section
          4043(b) of ERISA and the regulations thereunder, for which notice
          thereof has not been waived pursuant to such regulations as in effect
          on the date hereof; or

(ii)      the taking by the PBGC of steps to institute, or the threatening by
          the PBGC of the institution of, proceedings under section 4042 of
          ERISA for the termination of, or the appointment of a trustee to
          administer, any Plan, or the receipt by any Loan Party or any ERISA
          Affiliate of a notice from a Multiemployer Plan that such action has
          been taken by the PBGC with respect to such Multiemployer Plan; or

                                       20

(iii)     any event, transaction or condition that could result in the
          incurrence of any liability by any Loan Party or any ERISA Affiliate
          pursuant to Title I or IV of ERISA or the penalty or excise tax
          provisions of the Code relating to employee benefit plans, or in the
          imposition of any Lien on any of the rights, properties or assets of
          any Loan Party or any ERISA Affiliate pursuant to Title I or IV of
          ERISA or such penalty or excise tax provisions, if such liability or
          Lien, taken together with any other such liabilities or Liens then
          existing, could reasonably be expected to cause a Material Adverse
          Effect.

(k)       To the extent any Governmental Authority regulating the Lender or any
          Canadian stock exchange on which the Fund is listed requires the
          delivery of the Lender's financial statements in a time period that is
          shorter than the time period in effect on the date hereof, the Loan
          Parties shall use their commercially reasonable best efforts to
          provide the applicable financial statements that are required to be
          delivered hereunder to the Lender within any reasonable time period
          requested by the Lender that conforms to the changes in the applicable
          Law.

(l)       Promptly upon any Loan Party's becoming aware of any Event of Default,
          the Issuer shall provide to the Lender, on behalf of such Loan Party,
          written notice thereof.

5.2.      Officers Certificate.

         Each set of reports and statements delivered pursuant to Sections
5.1(a) and (b) hereof shall be accompanied by a certificate of a Senior
Financial Officer of the Issuer setting forth:

(a) Covenant Compliance. The information (including detailed calculations)
required in order to establish whether the Loan Parties were in compliance with
the requirements of Sections 8.2, 8.6, 8.8 and 8.25 during the Fiscal Quarter or
Fiscal Year covered by the statements then being furnished (including with
respect to each such Section, where applicable, the calculations of the maximum
or minimum amount, ratio or percentage, as the case may be, permissible under
the terms of such Sections, and the calculation of the amount, ratio or
percentage then in existence); and

(b) Event of Default. A statement that such officer has reviewed the relevant
terms hereof and has made, or caused to be made, under his or her supervision, a
review of the transactions and conditions of the Loan Parties and their
Subsidiaries from the beginning of the quarterly or annual period covered by the
statements then being furnished to the date of the certificate and that such
review shall not have disclosed the existence during such period of any
condition or event that constitutes a Default or an Event of Default or, if any
such condition or event existed or exists (including, without limitation, any
such event or condition resulting from the failure of any Loan Party or
Subsidiary to comply with any Environmental Law), specifying the nature and
period of existence thereof and what action such Loan Party shall have taken or
proposes to take with respect thereto.

5.3. Inspection.

         Each Loan Party shall permit the representatives of the Lender:

                                     21

(a) No Default. If no Default or Event of Default then exists, at the expense of
the Lender and upon reasonable prior notice to the Issuer, to visit each Project
and the principal executive office of each Loan Party, to verify the validity,
amount or any other matter relating to any Collateral by mail, telephone or
otherwise, inspect the Collateral, all books and records related thereto (and to
make extracts from and copies of such books and records) and the premises upon
which any of the Collateral is located, discuss the affairs, finances and
accounts of the Loan Parties with the Loan Parties' Responsible Officers, and
(with the consent of the Loan Parties, which consent will not be unreasonably
withheld) its independent public accountants, and (with the consent of the Loan
Parties, which consent will not be unreasonably withheld) to visit the other
offices and properties of the Loan Parties and Subsidiaries, all at such
reasonable times and as often as may be reasonably requested in writing; and

(b) Default. If a Default or Event of Default then exists, at the expense of the
Loan Parties to visit and inspect each Project, any of the offices or properties
of each Loan Party or any of its Subsidiaries, to verify the validity, amount or
any other matter relating to any Collateral by mail, telephone or otherwise,
inspect the Collateral, all books and records related thereto (and to make
extracts from and copies of such books and records) and the premises upon which
any of the Collateral is located, examine all their respective books of account,
records, reports and other papers, to make copies and extracts therefrom, and to
discuss their respective affairs, finances and accounts with their respective
Responsible Officers and independent public accountants (and by this provision
the Loan Parties authorize said accountants to discuss the affairs, finances and
accounts of the Loan Parties and their Subsidiaries), all at such times and as
often as may be requested.

(c) Environmental Inspection and Testing. Without limiting the generality of the
foregoing, to visit (at the Lender's sole expense) each Project and, based upon
a reasonable belief that Hazardous Materials are present at a Project site, to
conduct testing and remove any Hazardous Materials, and the costs of such
testing and removal shall be payable by the Loan Parties and shall become part
of the Obligations; provided, however, that the Loan Parties shall not be
required to pay the costs of more than one testing for Hazardous Materials per
Project in the same calendar year unless a Default or an Event of Default shall
exist at the time of such testing or shall have arisen as a result of such
testing.

5.4. Notices by Governmental Authority.

         Each Loan Party shall timely comply with and promptly furnish to the
Lender true and complete copies of any notice or claim by any Governmental
Authority, to the extent Material, pertaining to such Loan Party, any Project or
any Collateral and any notice or order from the FERC or the ICC regarding any
Project or any written notice from any Person that legal action may be or has
been initiated challenging the eligibility of any of the Projects as a
Qualifying Facility. Each Loan Party shall promptly notify the Lender of any
eminent domain action or similar proceeding affecting any Project or any fire or
other casualty resulting in more than $250,000 (or such lower amount for any
Project, if Material) in damage affecting any Project.

                                       22

6.        PAYMENT.

6.1.      Principal and Interest Payments.

(a)       The Issuer agrees that the Principal Debt shall be due and payable in
          monthly installments as set forth on Schedule 6.1 for the applicable
          period on each Monthly Payment Date during the term hereof, commencing
          on April 30, 2004, and ending on the Maturity Date.

(b)       The Issuer agrees to pay interest in respect of the unpaid principal
          amount of the Notes from the date advanced until the Notes are paid in
          full at a rate per annum equal to 11.00%. Such interest shall be
          calculated on the basis of a 365/366-day year for the actual number of
          days elapsed.

(c)       The Issuer agrees that the accrued and unpaid interest on the Notes
          shall be payable monthly in arrears on each Monthly Payment Date and,
          in addition, upon any prepayment (on the amount prepaid), and at
          maturity (whether by acceleration or otherwise). If all or part of the
          amounts due to be paid on a Monthly Payment Date is not paid by the
          Issuer on the Monthly Payment Date, then such overdue amount shall
          bear interest at a rate per annum equal to the Default Rate to the
          extent permitted by applicable law.

(d)       Payments of the Obligations shall be applied in the order and manner
          specified in this Agreement or in the other Loan Documents; provided,
          however, if no order is otherwise specified, then payments shall be
          applied first, to any past due payments on the Notes, second, to pay
          accrued and unpaid interest on the Notes, and third, to pay Principal
          Debt, and any partial payment shall be applied to the outstanding and
          unpaid principal installments on a pro rata basis between the Series A
          Notes and the Series B Notes and fourth to the remaining Obligations
          in the order and manner determined by the Loan Parties.

6.2.      Mandatory Prepayments.

(a)       Unless otherwise agreed to by the Issuer and the Lender in writing,
          concurrently with the occurrence of the following events
          (collectively, the "Special Events"):

(i)       The receipt by the Loan Parties or any Subsidiary thereof of any Net
          Cash Proceeds from any insurance claim made with regard to a casualty
          loss with respect to any Project;

(ii)      The receipt by the Loan Parties or any Subsidiary thereof of Net Cash
          Proceeds of any condemnation, seizure or similar action with respect
          to any Project;

(iii)     The receipt by the Loan Parties or any Subsidiary thereof of the Net
          Cash Proceeds from a Buyout; or

(iv)      The receipt by the Loan Parties or any Subsidiary thereof of the Net
          Cash Proceeds of any sale of (A) any assets of the Loan Parties or any
          Subsidiary thereof (other than any assets sales that constitute a
          Buyout) or (B) any interest in any Project by the Issuer or any
          Subsidiary thereof,
                                       23

         the Issuer shall prepay the Notes, in the order and manner specified in
Section 6.6 and in accordance with Section 6.5, in an amount equal to 100% of
the Net Cash Proceeds realized by the Loan Parties from such Special Event.

(b)       Notwithstanding anything to the contrary to this Agreement, this
          Section 6.2 shall not apply to:

(i)       (A) any sales made in the Ordinary Course of Business, (B)
          dispositions of worn out or obsolete assets (the Net Cash Proceeds
          from which dispositions do not exceed $1,000,000 in the aggregate),
          (C) dispositions of Excluded Assets, (D) sales of Emissions Credit
          Proceeds or (E) any sales of Section 29 tax credits or allowances with
          respect to greenhouse gases,

(ii)      any sales among or between any combination of wholly-owned
          Subsidiaries of any Loan Party and the Loan Parties,

(iii)     any sale of assets with respect to which the Net Cash Proceeds from
          such Special Event received by the Loan Parties or the applicable
          Subsidiary of a Loan Party are less than or equal to $3,000,000 when
          aggregated with the Net Cash Proceeds from such Special Event received
          from all other assets sales excluded solely pursuant to this clause
          (ii) and occurring after the Closing Date,

(iv)      insurance claims, condemnation claims or Buyouts with respect to which
          the Net Cash Proceeds from such Special Event received by the Loan
          Parties or the applicable Subsidiary since the Closing Date are less
          than or equal to $3,000,000 in the aggregate, or

(v)       any insurance claim, condemnation claim, Buyout or sale of assets, if
          the Net Cash Proceeds from such Special Event are reinvested within
          180 days in alternative energy, cogeneration or landfill-related
          business including, without limitation, restoration, repair,
          replacement, improvement or expansion of then existing Projects and,
          after giving effect to any reinvestment, at least 100% of the average
          Fixed Charge Coverage Ratio in the most recent Pro-Forma Projections
          is maintained through the remaining term of the Notes on a
          consolidated basis.

6.3.      Lender's Call

         The Notes shall be subject to mandatory prepayment in whole on each
Anniversary Date during the period commencing with the tenth Anniversary Date
and ending on the fourteenth Anniversary Date (a "Prepayment Anniversary Date"),
if the Lender delivers a notice of demand for prepayment to the Loan Parties not
more than 360 days and not less than 180 days prior to such Prepayment
Anniversary Date. If the Lender exercises its right to require prepayment under
this Section, the Issuer shall have the right, but not the obligation, to
deliver a notice to the Lender, not less than 30 days prior to the applicable
Prepayment Anniversary Date, stating that, in lieu of making the prepayment
under this Section, the Issuer or its designee shall purchase all of the Notes
and Lender's rights under the Loan Documents on the applicable Prepayment
Anniversary Date for a cash purchase price equal to the amount that would have

                                       24

been due to the Lender if the Notes had been prepaid on the Prepayment
Anniversary Date in accordance with this Section plus any incremental costs
(including, without limitation, taxes) incurred by the Lender arising from the
assignment in excess of the costs that would have been incurred in connection
with the mandatory prepayment. On or before the applicable Prepayment
Anniversary Date, the parties to such purchase transaction shall execute an
Assignment Agreement substantially in the form of Exhibit D.

6.4.     Optional Prepayments.

         Each of the Notes shall be subject to optional prepayment by the
Issuer, in whole or in part, (i) from the Closing Date through the Maturity Date
in connection with a transaction involving a Change of Control of the Issuer
and/or Change of Control of substantially all of the Guarantors, or (ii)
commencing on the fifth Anniversary Date through the Maturity Date.

6.5. Application of Prepayments.

(a) Any prepayments made by the Issuer with the Net Cash Proceeds from a Special
Event described in Section 6.2(a)(i) or (ii), pursuant to a Special Event
described in Section 6.2(a)(iii) that results from a Buyout pursuant to the
exercise by any counterparty to any Power Purchase Agreement or landfill gas
owner site lease of such counterparty's right under such agreement to terminate
such agreement while the applicable Loan Party is not in default under such
agreement, or pursuant to a Lender's call under Section 6.3 shall be applied,
first, to any past due payments on the applicable Notes, second, to pay accrued
and unpaid interest on the applicable Notes, and third, to prepay the Principal
Debt on the applicable Notes, and any partial prepayment shall be applied to the
outstanding and unpaid principal installments on a pro rata basis between the
Series A Notes and the Series B Notes.

(b) Any prepayments made by the Issuer with the Net Cash Proceeds from a Special
Event described in Section 6.2(a)(iii) that results from the voluntary action of
any Loan Party or a Buyout pursuant to the exercise by any counterparty to any
Power Purchase Agreement or landfill gas owner site lease of such counterparty's
right under such agreement to terminate such agreement while the applicable Loan
Party is in default under such agreement, or as provided in Section 6.2(a)(iv)
or 6.4, shall be applied, first, to pay any past due payments on the Notes,
second, to pay accrued and unpaid interest on the Notes, and third, to prepay
the Principal Debt on the Notes, together with the Make Whole Amount, and any
partial prepayment shall be applied to the outstanding and unpaid principal
installments in the inverse order of their maturities on a pro rata basis
between the Series A Notes and the Series B Notes.

(c) Any partial prepayments of the Notes shall be in an amount equal to $100,000
(or, if less, the unpaid Principal Debt of such Notes) or a greater integral
multiple of $100,000.

(d) The Loan Parties and the Lender acknowledge that the Make Whole Amount is
(i) intended to compensate the Lender for the amount of the Lender's actual
damages or loss, which would be difficult to calculate at the time of
prepayment, and (ii) the Make Whole Amount is a reasonable approximation of
damages or losses that will be suffered by the Lender in the event of a
prepayment and are stipulated by both parties in the interest of avoiding
litigation at the time of prepayment.

                                       25

6.6. Notice of Prepayment.

         The Issuer will give to the Lender written notice of any prepayment of
the Notes not less than 30 days nor more than 60 days before the date fixed for
prepayment, specifying (i) such date, (ii) the section of this Agreement under
which the prepayment is to be made, (iii) the Series of Notes that are to be
prepaid, and (iv) the amount of principal, interest, and premium with respect to
the Notes to be prepaid on such date. In addition, for prepayments to be made
pursuant to Section 6.2, such notice shall include the projected Fixed Charge
Coverage Ratio after giving effect to the transactions contemplated thereby,
which projection must be reasonably acceptable to the Lender. Two Business Days
prior to such prepayment, the Issuer shall deliver to the Lender a notice
specifying the calculation of such projected Fixed Charge Coverage Ratio (which
must also be reasonably acceptable to the Lender), as of the specified
prepayment date. Any such notice of prepayment will be irrevocable.

6.7.     Maturity; Surrender, etc.

         In the case of each prepayment of Notes pursuant to this Article, the
principal amount of each Note to be prepaid shall mature and become due and
payable on the date fixed for such prepayment, together with interest on such
principal amount accrued to such date or the applicable premium, if any. From
and after such date, unless the Issuer shall fail to pay such principal amount
when so due and payable, together with the interest or premium, if any, as
aforesaid, interest on such principal amount shall cease to accrue. No Note
shall be issued in lieu of any prepaid principal amount of any Note.

6.8.     Purchase of Notes.

         The Issuer will not, and will not permit any Affiliate, to purchase,
redeem, prepay or otherwise acquire, directly or indirectly, any of the
outstanding Notes except upon the payment or prepayment of the Notes in
accordance with the terms of this Agreement and the Notes. The Issuer will
promptly cancel all Notes that it or any of its Affiliates acquire pursuant to
any payment, prepayment or purchase of Notes pursuant to any provision of this
Agreement, and no Notes may be issued in substitution or exchange for any such
Notes.

7.       AFFIRMATIVE COVENANTS.

         Each Loan Party covenants that so long as any of the Notes are
outstanding:

7.1.     Maintenance of Existence and Rights; Continuation of Business.

         Such Loan Party and each of its Subsidiaries shall preserve and
maintain its existence as a corporation, limited partnership or limited
liability company, as applicable (under state law and for federal income tax
purposes), and, to the extent Material, maintain its rights, permits, franchises
and privileges under the laws of its jurisdiction of organization.

7.2.     Compliance with Governmental Requirements.

         Such Loan Party shall comply with all Governmental Requirements
relating to such Loan Party and any Collateral pledged by such Loan Party and,

                                       26

to the extent of any capacity of such Loan Party with respect thereto, each
Project, including without limitation all Environmental Laws, and will obtain
and maintain in effect all approvals of any Governmental Authority necessary to
the ownership of their respective properties or to the conduct of their
respective businesses, in each case to the extent necessary to ensure that
non-compliance with such approvals of any Governmental Authority could not,
individually or in the aggregate, reasonably be expected to cause a Material
Adverse Effect.

7.3.     Maintenance and Operation of the Projects.

         Such Loan Party will acquire, develop, operate and construct the
applicable Projects and the related transmission facilities in material
conformity with all Project Documents (including any manufacturer's warranties),
Prudent Engineering and Operating Practices, prudent construction practices, and
all approvals of any Governmental Authority. Such Loan Party will maintain and
preserve the applicable Projects and the related transmission facilities in good
working order and condition (including without limitation, inventories, spare
parts and system redundancies), ordinary wear and tear excepted. Such Loan Party
will not effect any alterations to the applicable Projects or any related
transmission facilities that adversely affect their value, operation or useful
life in a materially adverse manner without the prior consent of the Lender.

7.4. Insurance.

(a) Such Loan Party shall maintain, or cause to be maintained, the insurance
coverage described in Schedule 7.4 and shall be responsible for the
insurance-related requirements specified therein.

(b) Such Loan Party shall take all necessary action within its power to ensure
that such Loan Party maintains at all times all insurance policies as required
under the Project Documents to which it is a party.

7.5. Payment of Taxes, Fees and Claims.

         Except as set forth below in this Section, such Loan Party and each of
its Subsidiaries shall pay or cause to be paid in a timely manner when due all
taxes, assessments, fees, claims and other charges incurred and payable by it.
Notwithstanding the preceding sentence, such Loan Party and each of its
Subsidiaries may contest any taxes or assessments levied by any Governmental
Authority and, so long as such contest is being diligently pursued by
appropriate proceedings and does not cause a Material Adverse Effect or
constitute a default under or breach of any of the Project Documents, such
contest on the part of such Loan Party or Subsidiary shall not be an Event of
Default; provided, however, that during the pendency of any such contest
involving a disputed amount in excess of $100,000 with respect to such Loan
Party or Subsidiary, any applicable Project or any of its Collateral, such Loan
Party or Subsidiary shall furnish to the Lender an indemnity bond satisfactory
to the Lender or other security acceptable to the Lender in an amount equal to
any unpaid amount being contested plus a reasonable additional sum to cover
possible costs, interest and penalties, or should such contest not involve a
liquidated amount, in an amount reasonably acceptable to the Lender; provided
that such Loan Party and each Subsidiary shall pay any amount adjudged by a
court of competent jurisdiction to be due, with all costs, interest and
penalties thereon, before such becomes a Lien (other than Permitted Lien) on any

                                       27

Project or any Collateral. Such Loan Party shall pay when due all costs and
expenses required to be paid by this Agreement, including, without limitation,
all fees for filing or recording any Loan Documents including, without
limitation, all taxes (except Excluded Taxes) and filing fees in connection with
the execution, delivery or recordation of any Lien and the execution, issuance
and delivery of the Loan Documents and the Notes.

7.6.     Pension Plans.

         If such Loan Party or any of its Subsidiaries has in effect, or
hereafter institutes, any Pension Plan, then the following warranty and
covenants shall be applicable during the period any such Pension Plan shall be
in effect: (i) such Loan Party hereby warrants on behalf of itself and/or its
Subsidiaries, as applicable, that no fact that might constitute grounds for the
involuntary termination of the Pension Plan, or for the appointment by the
appropriate United States District Court of a trustee to administer the Pension
Plan, exists on the Closing Date; (ii) such Loan Party hereby covenants on
behalf of itself and/or its Subsidiaries, as applicable, that throughout the
existence of such Pension Plan, such Loan Party's or Subsidiaries' contributions
under the Pension Plan will meet the minimum funding standards required by ERISA
and such Loan Party or Subsidiaries will not institute a distress termination of
the Pension Plan; and (iii) such Loan Party covenants on behalf of itself and/or
its Subsidiaries, as applicable, that it will send to the Lender a copy of any
notice of a Reportable Event required by ERISA to be filed with the Department
of Labor or the Pension Benefit Guaranty Corporation, at the time that such
notice is so filed.

7.7.     Enforcement of Rights.

         Such Loan Party and each of its Subsidiaries shall use commercially
reasonable efforts to enforce any rights it has against any third party
including, without limitation, any rights the failure of which to enforce could
reasonably be expected to cause a Material Adverse Effect. To the extent that
any other Person has a right to enforce any rights against any third party as to
which the failure to enforce such rights could cause a Material Adverse Effect,
such Loan Party or Subsidiary shall use all commercially reasonable efforts to
cause such Person to enforce such rights.

7.8.     Maintenance of Records.

         Such Loan Party and each of its Subsidiaries will keep proper records
and books of account, in which full and correct entries shall be made of all
financial transactions of such Loan Party, the assets and business of such Loan
Party or Subsidiary, and all costs and expenses incurred by such Loan Party or
Subsidiary, in accordance with U.S. GAAP and will maintain all records required
with respect to compliance with Governmental Requirements.

7.9.     Intellectual Property.

         Except where a failure to do so would not cause a Material Adverse
Effect, such Loan Party and each of its Subsidiaries will obtain and maintain
all licenses, permits, franchises, authorizations, Intellectual Property, or
other proprietary rights and technology or rights thereto, that are necessary in
connection with the construction, operation and maintenance of the Projects

                                       28

and/or the ownership or leasing of its properties and the conduct of its
business as now conducted or as presently proposed to be conducted.

7.10.    Use of Proceeds.

         Such Loan Party will use the cash proceeds from the Advance solely for
the purposes expressly set forth in Section 3.15.

7.11.    Property Rights.

         Such Loan Party and each of its Subsidiaries will maintain good and
valid title in and to all of its real property, including the land, easements,
leases, licenses and other rights constituting the Project Land, and good and
valid rights to all its other property, subject only to Permitted Liens.

7.12. Indemnification.

(a) Such Loan Party hereby indemnifies and holds harmless the Lender and its
directors, officers, employees, Affiliates, agents, successors and assigns from
and against any and all losses, claims, damages, liabilities, costs and expenses
(including, without limitation, fees and disbursements of counsel, amounts paid
in settlement and court costs) which may be incurred by or asserted against any
such indemnified Person in connection with or arising out of or in any way
relating to or resulting from (i) any violation of any Environmental Laws or
from any Environmental Claim in connection with the Notes, the transactions
contemplated by the Loan Documents, any Loan Party or any of the Project Land
and (ii) for any violation of any confidentiality provision of any Project
Document, and each Loan Party hereby agrees to reimburse each such indemnified
Person for any reasonable legal or other expenses incurred in connection with
investigating, defending or participating in any action or proceeding out of
which any such losses, claims, damages, liabilities or expenses may arise.
Notwithstanding anything herein to the contrary, no Loan Party shall be liable
or responsible for losses, claims, damages, costs and expenses incurred by any
indemnified Person that a court of competent jurisdiction has found resulted
primarily from such person's own bad faith, negligence or willful misconduct. If
for any reason the indemnification provided for herein is unavailable to any
Person or insufficient to hold it harmless as and to the extent contemplated
hereby, each Loan Party hereby agrees to contribute to the amount paid or
payable by such Person as a result of such loss, claim, damage, liability or
expense in such proportion as is appropriate to reflect the relative benefits
received by such Loan Party, on the one hand, and such indemnified Person, on
the other hand, and also the respective fault of such Loan Party, on the one
hand, and such indemnified Person, on the other hand, as the case may be, as
well as any other relevant equitable considerations.

(b) Notwithstanding anything to the contrary herein, the indemnity provided
above is intended to survive the payment or transfer of the Notes, the
termination of this Agreement, and the reconveyance, foreclosure or release of
the Collateral to the Loan Parties with respect to any and all claims,
obligations, liabilities, losses, damages, penalties, actions, suits, costs and
expenses (including attorneys' fees) of whatever kind and nature, whether or not
well-founded, meritorious or unmeritorious, demanded, asserted or claimed
against any indemnified Person by third parties; provided, however, that to the
extent such indemnity survives such reconveyance, foreclosure or release, the
obligations thereunder shall be unsecured, and provided, further that no Loan

                                     29

Party shall be required to indemnify against or hold any indemnified Person
harmless from any claim, obligation, liability, loss, damage, penalty, action,
suit, cost or expense to the extent caused from the bad faith, negligence or
willful misconduct of such indemnified Person.

7.13. Illinois Reimbursement Obligations.

         If required by law, such Loan Party will file a proposed schedule for
payment of the Illinois Reimbursement Obligations for each Illinois Project in
which such Loan Party has an ownership interest, which proposed schedule will be
approved by the Lender, at such a time as to make it reasonably likely that the
ICC will issue its approval of such schedule at least one year prior to the time
when the first payment of the Illinois Reimbursement Obligations for such
Illinois Project will come due.

7.14.    Environmental Matters.

         At its sole cost and expense, such Loan Party shall comply with and
shall cause all other occupants of the Project Land (including the Gascos), to
the extent that such other occupants are under its control, to comply with all
Environmental Laws now in effect or hereafter enacted with respect to the
Release, generation, removal, transportation, storage and handling of Hazardous
Materials. Such Loan Party shall promptly notify the Lender if any Responsible
Officer of such Loan Party shall become aware of the release of any Hazardous
Materials on or near any Project Land in violation of any Environmental Law
and/or if any Responsible Officer of such Loan Party shall become aware that any
act or omission of such Loan Party could reasonably be expected to give rise to
a claim that any Project Land is in violation of any Environmental Laws, which
claim, if enforced by a court of competent jurisdiction, would have a Material
Adverse Effect, and/or if any Responsible Officer of such Loan Party shall
become aware of any condition on or near the Project Land that could reasonably
be expected to have been caused by such Loan Party that shall pose a threat to
the health, safety or welfare of humans. To the extent required by contractual
arrangements with the lessor or the owners and operators of landfills, such Loan
Party shall promptly remove all Hazardous Materials that violate any
Environmental Law from any Project Land under its control, such removal and the
ultimate disposal of such Hazardous Materials to be performed in accordance with
all applicable federal, state and local laws, statutes, rules and regulations.
Such Loan Party shall pay immediately when due the cost of removal of any
Hazardous Materials and shall keep the Project Land under its control free of
any lien imposed pursuant to any Environmental Laws now in effect or hereinafter
enacted.

7.15.    Distributions.

         Each Subsidiary of such Loan Party shall make Distributions to its
owners (by way of legally authorized and declared dividends or distributions, as
applicable) or its members, from Net Distributable Cash Flow or Net Cash
Proceeds whenever such Net Distributable Cash Flow or Net Cash Proceeds is
received by or available to such Subsidiary, after all required payments of
expenses of such Subsidiary, except to the extent such Distributions are
otherwise prohibited by any applicable laws or any Project Document to which
such Subsidiary may be a party.

                                       30

7.16.    Deposits.

         Such Loan Party and each of its Subsidiaries shall make all deposits
into its applicable Debt Service Reserve Account and ICC Account as required
under Sections 4.02(a) and (b) of the applicable Amended Security Agreement.

7.17.    Foreign Exchange Hedging Agreements.

         The Issuer will enter into foreign exchange hedging arrangements, the
notional amount of which arrangements, (i) until at least the third Anniversary
Date, shall be equal to 100% of the scheduled monthly Debt Service payments, and
(ii) after the third Anniversary Date, shall be equal to at least 75% of the
scheduled monthly Debt Service payments.

8.       NEGATIVE COVENANTS.

         Each Loan Party covenants that so long as any of the Notes are
outstanding:

8.1.     Business Activities.

         Such Loan Party will not engage in any business activity other than the
business described for it in Section 3.29 and business activities reasonably
incidental thereto.

8.2.     Indebtedness.

         Neither any Loan Party nor any of its Subsidiaries will create, incur,
assume or suffer to exist or otherwise become or be liable in respect of any
Indebtedness, other than, without duplication, the following:

(a) Indebtedness in respect of the Notes, the Loan Documents and other
Obligations;

(b) Indebtedness listed on Schedule 3.16(a), including the Subordinated
Indebtedness, and any refinancings or renewals thereof if (i) the principal
amount of the refinanced or renewed Indebtedness does not exceed the outstanding
principal amount of the Indebtedness being so refinanced or renewed (the
"Original Indebtedness") immediately prior to the consummation of such
refinancing or renewal, as the case may be, (ii) such refinanced or renewed
Indebtedness is secured by not more than the same collateral with not more than
the same rights with respect thereto and remains subject to an agreement
continuing such subordination, (iii) the Fixed Charge Coverage Ratio on a
consolidated Pro Forma basis will, based on reasonable assumptions and giving
effect to the incurrence of such Indebtedness, comply with the Fixed Charge
Coverage Ratio covenant set forth in Section 8.25, as at the end of each Fiscal
Quarter during the remaining term of the Notes, which certificate has been
approved by the Lender in its reasonable discretion (and adjusted to include
Development Projects); (iv) the average life to maturity of the refinanced or
renewed Indebtedness is at least equal to the average life to maturity of the
Original Indebtedness, where the term "average life to maturity" shall refer to
the weighted-average time to the return of principal; and (v) the Lender does
not exercise its right of first offer respecting such Indebtedness set forth in
Section 4 of the Improvement Agreement.

                                       31

(c) non-interest bearing trade accounts payable and accrued obligations incurred
in the Ordinary Course of Business;

(d) Indebtedness with respect to Excluded Assets of the Issuer, if non-recourse
as to all Loan Parties;

(e) Illinois Reimbursement Obligations;

(f) any Indebtedness permitted under the Improvement Agreement;

(g) any purchase money debt and capital lease obligations in an aggregate
principal amount for all such Indebtedness incurred not to exceed $2,000,000
outstanding at any one time; and

(h) any Indebtedness not otherwise permitted hereunder, if (i) no Default or
Event of Default exists on the date such Indebtedness is to be incurred, (ii)
such Loan Party or Subsidiary has provided the Lender with a certificate of a
Senior Financial Officer of the Issuer certifying that (A) the Fixed Charge
Coverage Ratio of the USEB Operating Assets, on a carve-out pro forma basis,
based on reasonable assumptions and giving effect to the incurrence of such
Indebtedness; complies with the Fixed Charge Coverage Ratio covenant set forth
in Section 8.25 as at the end of each Fiscal Quarter during the remaining term
of the Notes, which certificate has been approved by the Lender in its
reasonable discretion, (and adjusted to include Development Projects), (iii)
such Indebtedness is either (x) non-recourse as to all Loan Parties and
Subsidiaries or (y) subordinated in right of payment and lien as to the
Indebtedness in respect of the Notes and other Obligations in accordance with a
subordination agreement in form and content satisfactory to the Lender in its
reasonable discretion, and (iv) the Lender does not exercise its right of first
offer respecting such Indebtedness set forth in Section 4 of the Improvement
Agreement.

8.3. Liens.

         Such Loan Party will not create, incur, assume, suffer to exist or
agree or consent to cause or permit in the future (upon the happening of a
contingency or otherwise) any Lien upon any of its property, revenues, assets,
(including the ownership interests in any Subsidiary held by such Loan Party)
whether now owned or hereafter acquired, except Permitted Liens.

8.4.     Investments.

         Such Loan Party will not make, incur, assume or suffer to exist any
Investment, except:

(a) Investments existing on the Closing Date and identified in Schedule 8.4;

(b) any evidence of Indebtedness, maturing not more than one year after the date
of acquisition thereof by a Loan Party or any Subsidiary of any Loan Party,
issued or guaranteed by the United States Government;

(c) commercial paper, maturing not more than nine months from the date of
acquisition thereof by a Loan Party or any of its Subsidiaries and rated at

                                       32

least A2 by Standard & Poor's Corporation or P2 by Moody's Investors Service,
Inc., which is issued by a corporation (other than an Affiliate of any Loan
Party) organized under the laws of any state of the United States or of the
District of Columbia; or

(d) any certificate of deposit, time deposit, eurodollar deposit, overnight bank
deposit or bankers acceptance, maturing not more than one year after the date of
acquisition thereof by a Loan Party or any of its Subsidiaries, which is issued
by a commercial banking institution (i) that is a member of the Federal Reserve
System (ii) that has a combined capital and surplus and undivided profits of not
less than $1,000,000,000, (iii) the short-term obligations of which are rated at
least A2 by Standard & Poor's Corporation or P2 by Moody's Investors Service,
Inc., and (iv) that is insured by the Federal Deposit Insurance Corporation;

(e) without duplication, Investments permitted under the Amended Security
Agreement to which such Loan Party is a party, including without limitation
investments respecting the Debt Service Reserve Account, the Construction
Reserve Account and such Loan Party's ICC Account (if applicable);

(f) Investments by such Loan Party paid to another Loan Party with amounts
received by such Loan Party from outside sources;

(g) the AJG IEGP Loan Transaction;

(h) Investments permitted by the Improvement Agreement;

(i) Investments in Persons engaged in the lines of business described in Section
3.29, without taking into account reinvestments of insurance, condemnation or
termination proceeds contemplated by Section 6.2; and

(j) Investments that are not otherwise permitted hereunder and that in the
aggregate do not exceed $3,000,000 at any time during the term of the Notes.

8.5. Acquisitions.

         Neither such Loan Party nor any of its Subsidiaries shall engage in the
acquisition of the assets or the ownership interests of any Person other than
(i) acquisition of the assets or ownership interests of another Loan Party or
Subsidiary of a Loan Party, (ii) acquisitions that do not exceed $3,000,000 on a
cumulative aggregate basis or (iii) acquisitions approved by the Lender, such
approval not to be unreasonably withheld.

8.6.      Restricted Payments.

(a)       The Issuer covenants that, it shall not (i) declare, pay or make any
dividend or distribution (in cash, property or obligations) on any shares of any
class of capital stock or in respect of the Convertible Royalty Interest (now or
hereafter outstanding), or on any warrants, options or other rights with respect
to any shares of any class of capital stock or in respect of the Convertible

                                       33

Royalty Interest, or (ii) apply any funds, property or assets to the purchase,
redemption, sinking fund or other retirement of, or agree to purchase or redeem,
any shares of any class of capital stock (now or hereafter outstanding) or the
Convertible Royalty Interest (collectively "Restricted Payments") unless (A) no
Default or Event of Default exists on the date of such Restricted Payment, and
(B) each Loan Party has deposited its relevant Debt Service Reserve Minimum
Amount and Illinois Reimbursement Minimum Amount, as required by Sections 4.02
(a) and (b) of each Amended Security Agreement, as of the date of such
Restricted Payment. Notwithstanding anything in this Agreement to the contrary,
if the conditions set forth in (A) and (B) of the foregoing sentence have been
fulfilled, then to the extent that the Issuer receives proceeds from a Special
Event described in Section 6.2(b), the Issuer may declare, pay or make any
dividend or distribution (in cash property or obligations) on shares of any
class of capital stock or in respect of the Convertible Royalty Interest if,
after giving effect to the removal of the cash flow of the assets subject to
such Special Event, the Fixed Charge Coverage Ratio is at least 1.5:1.00.

(b)       The Issuer covenants that, if an Event of Default shall have occurred
          and be continuing, it shall make no payments with respect to any
          Subordinated Indebtedness.

(c)       Notwithstanding the foregoing, this Section shall not be deemed to
          supersede the payment provisions of Article IV of any Amended Security
          Agreement.

8.7.      Consolidation; Merger and Change of Control.

(a)       Other than as set forth in Section 8.5 or paragraphs (i) and (ii)
          below, neither such Loan Party nor any of its Subsidiaries shall
          liquidate or dissolve, consolidate or amalgamate with, or merge into
          or with, any other corporation, or purchase, acquire all or any
          substantial part of the assets or stock of any Person or otherwise
          permit a Change of Control respecting such Loan Party or Subsidiary
          without the prior written consent of the Lender, which consent shall
          not unreasonably be withheld; provided, however:

(i)       any Loan Party may consolidate or amalgamate with, merge into or with,
          acquire the assets or stock of, or engage in a Change of Control
          involving, solely another Loan Party or Loan Parties, provided,
          however, that in any such consolidation, amalgamation or merger
          involving the Issuer, the Issuer shall be the surviving entity; and

(ii)      any Change of Control transaction involving solely the Issuer and its
          shareholders at the Closing Date (or wholly owned subsidiaries of such
          shareholders or Persons that own 100% of the ownership interests of
          such shareholders) shall be permitted without the consent of the
          Lender.

8.8.      Asset Dispositions.

         Neither such Loan Party nor any of its Subsidiaries will sell,
transfer, lease, contribute or otherwise convey or dispose of, all or any part
of its assets (including accounts receivable and capital stock of such Loan
Party's Subsidiaries) to any Person unless:

(a) if such sale, transfer, lease, contribution, conveyance or disposition of
assets is voluntarily made by such Loan Party and constitutes a Special Event
described in Section 6.2, (x) the mandatory prepayment requirements of Section
6.2(a) are fulfilled (y) the cash proceeds of such Special Event constitute at
least 75% of the proceeds of such Special Event and (z) the proceeds of such
Special Event equal the fair market value of the subject assets;

                                       34

(b) such sale, transfer, lease, contribution, conveyance or disposition of
assets constitutes an event described in Section 6.2(b);

(c) such sale, transfer, lease, contribution, conveyance or disposition of
assets is made in connection with (i) licensing of Intellectual Property in the
Ordinary Course of Business or (ii) leases or subleases of real property not
materially interfering with the conduct of business of such Loan Party or
Subsidiary;

(d) such sale, transfer, lease, contribution, conveyance or disposition of
assets is made with respect to issued and outstanding shares of common stock or
partnership or membership interests in such Loan Party or any of its
Subsidiaries and such sale does not constitute a Change in Control;

(e) such sale, transfer, lease, contribution, conveyance or disposition of
assets is entered into in connection with the replacement of engines at the
Morris Project and the Countryside Project; or

(f) the Net Cash Proceeds of such sale, transfer, lease, contribution,
conveyance or disposition of assets (not otherwise permitted under this
Section), when calculated on a cumulative, aggregate basis, do not exceed
$3,000,000 in value.

8.9. Modification of Certain Agreements.

         Neither such Loan Party nor any of its Subsidiaries will:

(a) consent to any amendment, supplement or other modification of any of the
terms or provisions contained in, or applicable to, any Organic Document or
Project Document of such Loan Party or any of its Subsidiaries, which (i)
violates the terms of this Agreement or any other Operative Document, (ii) may
reasonably be expected to materially adversely effect the rights, interests or
privileges of the Lender or its ability to realize upon, enforce the terms of or
assign any such Organic Document or Project Document or (iii) results in the
imposition or expansion in any material respect of any restriction or burden on
the Loan Parties or any Subsidiary. Such Loan Party and each such Subsidiary
will, prior to entering into any amendment, addition or other modification of
any of such Organic Document or Project Document, deliver to the Lender
reasonably in advance of the execution thereof, any final or execution copy of
amendments, supplements, additions or other modifications to such documents, and
agrees not to take any such action with respect to any such documents, in
contravention of the terms hereof;

(b) enter into any amendment, waiver or release with respect to, terminate, or
fail to take any commercially reasonable action to enforce, any Project Document
to which such Loan Party is a party unless (i) such new Project Document,
amendment, waiver, release, termination or failure to act would not cause a
Material Adverse Effect or (ii) such termination by a Third Party is permitted
under the terms of such contract. The Issuer shall make any prepayments required
under Section 6.2 in connection with any termination permitted under this
Section.

                                       35

8.10. Transactions with Affiliates.

         No Loan Party or Subsidiary shall enter into any transaction,
including, without limitation, the purchase, sale, transfer, lease or exchange
of property or the rendering or purchase of any service to or from any Affiliate
of any Loan Party or Subsidiary (for the purposes of this Section 8.10 only,
including the Excluded Assets), except in the ordinary course of, and pursuant
to the reasonable requirements of, such Loan Party's or Subsidiary's business
and on reasonable terms substantially equivalent to terms available in a
comparable arm's-length transaction with an unaffiliated Person; provided,
however, that Loan Parties and Subsidiaries may enter into non arm's-length
transactions with other Loan Parties and with their own Subsidiaries. This
Section shall not be construed to prohibit, impair or affect any contract or
investment in effect on the Closing Date or otherwise permitted by this
Agreement including, without limitation, the contracts and instruments set forth
on Schedule 8.10 or renewal or replacement thereof or to limit the right of any
Loan Party to enter into operation and maintenance contracts with any other Loan
Party, in each case, on terms and conditions substantially comparable to those
contained in contracts existing on the Closing Date and provided to the Lender
and otherwise in accordance with this Agreement.

8.11.    Negative Pledges, Restrictive Agreements.

         Neither such Loan Party nor any of its Subsidiaries will enter into any
agreement (excluding any Loan Document as in effect on the date hereof)
prohibiting:

(a) the ability of any Loan Party to amend or otherwise modify any Loan Document
(except as pursuant to (i) that certain Acknowledgement and Consent, dated as of
the date hereof, made by the Issuer in favor of the Eligible Fund Lender and
(ii) that certain Acknowledgement and Consent, dated as of the date hereof, by
the Lender and the Loan Parties in favor of the Eligible Fund Lender); or

(b) the ability of any Subsidiary to make any payments, directly or indirectly,
to any Loan Party by way of dividends, advances, repayments of loans or
advances, reimbursements of management and other intercompany charges, expenses
and accruals or other returns on investments, or any other agreement or
arrangement that restricts the ability of any such Subsidiary to make any
payment, directly or indirectly, to any Loan Party.

8.12. Accounting Changes.

         Neither such Loan Party nor any of its Subsidiaries shall change its
Fiscal Year without the prior consent of the Lender. Neither such Loan Party nor
any of its Subsidiaries shall make or permit any change in accounting policies
or reporting practices except as required or permitted by U.S. GAAP or, if not
permitted by U.S. GAAP, with the prior consent of the Lender.

8.13.    Limitation on Sale and Leaseback Transactions.

         Neither such Loan Party nor any of its Subsidiaries will enter into any
arrangement with any Person whereby in a substantially contemporaneous
transaction such Loan Party or Subsidiary sells all or substantially all of its
right, title and interest in an asset and, in connection therewith, acquires or
leases back the right to use such asset.

                                       36

8.14.    ERISA.

         Neither such Loan Party nor any of its ERISA Affiliates shall:

(a) engage in any transaction in connection with which it could be subject to
either a material civil penalty assessed pursuant to the provisions of Section
502 of ERISA or a material tax imposed under the provisions of Section 4975 of
the Code; or

(b) terminate any Pension Plan in a "distress termination" under Section 4041 of
ERISA, or take any other action that could result in a material liability of any
Loan Party or Subsidiary or any ERISA Affiliate to the PBGC.

8.15. Changes to Subordinated Debt.

         Neither such Loan Party nor any of its Subsidiaries shall, without the
prior written consent of the Lender, amend or modify (whether by waiver or
otherwise), any agreement or instrument related to any Subordinated Indebtedness
so as to increase the rate of interest payable with respect to such Subordinated
Indebtedness or that otherwise has a Material Adverse Effect, provided, however,
that such Loan Party may prepay any principal of or interest on such
Subordinated Indebtedness as set forth in Section 8.17.

8.16.    Loan Documents.

         Neither such Loan Party nor any of its Subsidiaries shall take or, to
the extent of such Loan Party's or Subsidiary's power, permit any other Person
to take, any action (or omit to take any action) which would be in violation of
the arrangements provided in the Loan Documents.

8.17.    Prepayment of Subordinated Debt.

         Such Loan Party shall not be permitted to prepay optionally any
Subordinated Indebtedness other than from (i) the proceeds of sales of any
common stock or preferred stock of the Issuer that is otherwise permitted
hereunder (provided that the terms of any such preferred stock shall be
reasonably acceptable to the Lender) or (ii) the proceeds of the issuance of
Indebtedness of the Issuer issued to refinance Subordinated Indebtedness
(provided that (A) the holder of such Indebtedness shall have become a party to
the Subordination Agreement on or prior to the date of issuance of such
Indebtedness on substantially the same terms as its predecessor is bound or on
such other terms as are satisfactory to the Lender in its sole discretion, (B)
the principal amount of such Indebtedness shall not exceed the outstanding
principal amount of the Subordinated Indebtedness being so refinanced
immediately prior to the date of issuance of such Indebtedness, and (C) the
maturity date and the weighted average life to maturity of such Indebtedness
shall not be less than the maturity date and weighted average life to maturity
of the Subordinated Indebtedness being so refinanced immediately prior to the
date of issuance of such Indebtedness).

                                     37

8.18.    Indebtedness of Others.

         Neither such Loan Party nor any of its Subsidiaries will purchase,
repurchase or otherwise acquire any Indebtedness of other Persons other than in
connection with the AJG IEGP Loan Transaction.

8.19. Qualifying Facility; Regulation.

(a) Such Loan Party shall not take any action or fail to take any action that
would cause any of the Projects (other than the Cape May Project, the SPSA II
(Transo) Project or the Tucson Project) to fail to be a "qualifying facility"
within the meaning of PURPA or Title 18, Code of Federal Regulations, Part 292,
Subpart B or that would cause any of the Illinois Projects to fail to be a
"qualified solid waste energy facility" under Section 8-403.1 of the Illinois
Revised Statutes and the rules thereunder, to the extent that such statutes and
rules are applicable to the Projects.

(b) Such Loan Party will not take any action (or omit to take any action that it
has the authority to take) which could reasonably be expected to result in the
representation in Section 3.18 becoming untrue as a result of such action or
omission.

8.20. Use of Proceeds.

         Such Loan Party shall not apply the cash proceeds of the sale or
exchange of the Notes other than as provided in Schedule 3.15 or apply any part
of such proceeds directly or indirectly, and whether immediately, incidentally
or ultimately, for the purpose of buying or carrying any margin security within
the meaning of Regulations T, U and X of the Board of Governors of the Federal
Reserve System, for the purpose of reducing or retiring any indebtedness
originally incurred for such purpose, or for any purpose that violates or is
inconsistent with the provisions of said Regulations T, U and X.

8.21. New Subsidiaries; Transfers of Interests.

(a) Neither such Loan Party nor any of its Subsidiaries shall create or suffer
to exist any Subsidiary not in existence on the Closing Date, except for any
Subsidiary that relates solely to the Excluded Assets or the Improvement
Agreement, without the prior consent of the Lender.

(b) Neither such Loan Party nor any of its Subsidiaries shall sell, transfer,
lease, contribute or otherwise convey or dispose of all or any part of any
ownership interest it may have in another Loan Party without the prior consent
of the Lender, except in accordance with Section 8.7 and 8.8.

8.22. Line of Business.

         Neither such Loan Party nor any of its Subsidiaries shall cease or
change its line of business as set forth in Section 3.29 without the consent of
the Lender, which, in the case of cessations of a line of business, shall not be
unreasonably withheld.
                                       38

8.23.    Purchase Option.

         Such Loan Party will not exercise any purchase or lease option or right
to acquire additional assets (other than in the Ordinary Course of Business)
under any Project Document or otherwise without first obtaining the consent of
the Lender except for the acquisition of assets relating to the Development
Projects, Repowering Projects (as defined in the Improvement Agreement), or
Gascos or as otherwise expressly permitted under the Loan Documents; provided
that the foregoing restriction shall not apply to the exercise by Resources of
its option to purchase an interest in IEGP and IEGP II from AJG.

8.24.    Settlements.

         Neither such Loan Party nor any of its Subsidiaries shall enter into,
or consent to, one or more settlement agreements or arrangements with respect to
any litigation, dispute or regulatory proceeding involving any Loan Party or
Subsidiary, if such agreement or agreements hold such Loan Party or any
Subsidiary liable for an amount in excess of $2,000,000 (or an amount in excess
of $5,000,000, when aggregated with the liability of any Loan Party or any
Subsidiary under any other settlement agreements or arrangements occurring after
the Closing Date).

8.25.    Fixed Charge Coverage Ratio.

         The Issuer will not permit the Fixed Charge Coverage Ratio to be less
than (i) 1.10:1 as at the end of any Fiscal Quarter ending on or after June 30,
2004 but on or prior to December 31, 2004, (ii) 1.15:1 as at the end of any
Fiscal Quarter ending on or after March 31, 2005 but on or prior to December 31,
2005, and (iii) 1.25:1 as at the end of any Fiscal Quarter ending on or after
March 31, 2006. The Fixed Charge Coverage Ratio will be tested as at the last
day of each full Fiscal Quarter during which any of the Notes are outstanding.

8.26.    Speculative Transactions.

         No Loan Party will enter into any Swap Agreement or derivative
transaction of any kind for speculative purposes; provided, however, that
nothing in this Article VIII shall be construed as prohibiting the transactions
required by Section 7.17.

9.        GUARANTY.

9.1.      Guaranty.

(a)       In consideration of the indirect benefit received from the Advance and
          for other good and valuable consideration, each Guarantor hereby
          absolutely and irrevocably guarantees to the Lender and its
          successors, endorsees, transferees and assigns the prompt payment
          (whether at stated maturity, by acceleration or otherwise) and
          performance of (i) the Notes and the other Obligations, including (A)
          all principal of and interest (including any interest that accrues
          after the commencement of any case, proceeding or other action
          relating to the bankruptcy, insolvency or reorganization of the
          Issuer, whether or not such interest constitutes an allowable claim)
          on any Note issued pursuant to this Agreement and (B) all other
          amounts payable and all obligations to be performed by the Issuer
          under this Agreement or any other Loan Document and (ii) any renewals
          or extensions of any of the foregoing (collectively, the "Guaranteed
          Obligations").
                                     39

(b)       Each Guarantor agrees that this is a guaranty of payment and
          performance and not of collection, and that its obligations hereunder
          shall be absolute, irrespective of, and unaffected by:

(i)       the genuineness, validity, regularity, enforceability or any future
          amendment of, or change in, the Notes, this Agreement or any other
          Loan Document or any other agreement, document or instrument to which
          any Loan Party is or are or may become a party;

(ii)      the absence of any action to enforce the Notes, this Agreement or any
          other Loan Document or the waiver or consent by the Lender with
          respect to any of the provisions of any Loan Document; or

(iii)     any other action or circumstances that might otherwise constitute a
          legal or equitable discharge or defense of a surety or guarantor
          (other than payment in full);

         it being agreed by each Guarantor that its obligations hereunder shall
         not be discharged until the payment and performance, in full, of the
         Guaranteed Obligations.

(c) Each Guarantor expressly waives all rights it may now or in the future have
under any statute, or at common law, or at law or in equity, or otherwise, to
compel the Lender to proceed in respect of the Guaranteed Obligations against
the Issuer or any other Person before proceeding against, or as a condition to
proceeding against, such Guarantor. Each Guarantor further expressly waives and
agrees not to assert or take advantage of any defense based upon the failure of
the Lender to commence an action in respect of the Guaranteed Obligations
against the Issuer, any Guarantor or any other Person. Each Guarantor agrees
that any notice or directive given at any time to the Lender by the Issuer, any
Guarantor or any other Person that is inconsistent with the waivers in the
preceding two sentences shall be null and void and may be ignored by the Lender,
and, in addition, may not be pleaded or introduced as evidence in any litigation
relating to the obligations of such Guarantor under this Article for the reason
that such pleading or introduction would be at variance with the written terms
hereof, unless the Lender has specifically agreed otherwise in writing. The
foregoing waivers are of the essence of the transaction contemplated by the Loan
Documents and, but for this provisions of this Article and such waivers, the
Lender would decline to purchase the Notes.

9.2.     Demand by the Lender.

         In addition to the terms of the guaranty set forth in Section 9.1, and
in no manner imposing any limitation on such terms, if the then outstanding
principal amount of the Guaranteed Obligations is declared to be immediately due
and payable (or automatically becomes immediately due and payable), then the
Guarantors are required to pay to the Lender the entire outstanding Guaranteed
Obligations due and owing to the Lender, subject to the requirements of section
9.3. Payment by the Issuer shall be credited and applied upon the Guaranteed
Obligations and shall be made in immediately available federal funds to an
account as set forth in Section 12.2.

                                       40

9.3.     Enforcement of Guaranty.

         Except as otherwise provided in this Agreement, in no event shall the
Lender have any obligation (although it is entitled, at its option) to proceed
against the Issuer, any Guarantor or any other Person or any real or personal
property pledged to secure the Guaranteed Obligations before proceeding against
any Guarantor, and the Lender may proceed, prior or subsequent to, or
simultaneously with, the enforcement of the Lender's rights hereunder, to
exercise any right or remedy that it may have against the Issuer or any such
other Person or against any property, real or personal, as a result of any lien
that it may have as security for all or any portion of the Guaranteed
Obligations. Notwithstanding anything to the contrary in this Agreement, no
payments may be required from any Guarantor under this Article unless and until
(i) the Lender has provided notice to the Issuer and the Guarantors of an Event
of Default and (ii) a period of ten days has elapsed after such notice has been
received by the Issuer and the Guarantors (provided, however, that the
requirements of this sentence need not be met if an Event of Default described
in Section 10.01(h)(ii)-(iv) has occurred).

9.4.     Waivers.

         In addition to the waivers contained in Section 9.1(c), each Guarantor
waives, and agrees that it shall not at any time insist upon, plead or in any
manner whatever claim or take the benefit or advantage of, any appraisal,
valuation, stay, extension, marshalling of assets or redemption laws, or
exemption, whether now or at any time hereafter in force, which may delay,
prevent or otherwise affect the performance by it of its obligations under, or
the enforcement by the Lender of, the provisions of this Article. Each Guarantor
further hereby waives diligence (whether for non-payment or protest or of
acceptance, maturity, extension of time, change in nature or form of the
Guaranteed Obligations, acceptance of the guaranty by the Lender and acceptance
of security, release of security, composition or agreement arrived at as to the
amount of, or the terms of, the Guaranteed Obligations, notice of adverse change
in any Loan Party's financial condition or any other fact that might materially
increase the risk to the Guarantors) with respect to any of the Guaranteed
Obligations and, to the extent permitted by applicable law, waives the benefit
of all provisions of law that are or might be in conflict with the terms of this
Article. Each Guarantor represents, warrants and agrees that its obligations
under this Article are not and shall not be subject to any counterclaims,
offsets or defenses of any kind against the Lender, or, until the Guaranteed
Obligations have been satisfied in full, the Loan Parties or any other guarantor
of the Guaranteed Obligations now existing or that may arise in the future.

9.5.     Benefits of Guaranty.

         The provisions of this Article are for the benefit of the Lender and
its successors, transferees, endorsees and assigns and nothing herein contained
shall impair, as among the Loan Parties, the obligations of the Issuer under the
Notes and the Loan Documents.

9.6.     Modification of Notes, etc.

         If the Lender shall at any time or from time to time, with or without
the consent of, or notice to, each Guarantor:

                                       41

(a) change or extend the manner, place or terms of payment of, or renew or alter
all or any portion of, the Guaranteed Obligations, including, without
limitation, the Notes and the other Obligations of the Issuer;

(b) take any action under or in respect of the Notes or the Loan Documents in
the exercise of any remedy, power or privilege contained therein or available to
it at law, equity or otherwise, or waive or refrain from exercising any such
remedies, powers or privileges;

(c) amend or modify, in any manner whatsoever, the Notes or the Loan Documents;

(d) extend or waive the time for any of the Issuer's or other Person's
performance of, or compliance with, any term, covenant or agreement on its part
to be performed or observed under the Notes or the other Loan Documents, or
waive such performance or compliance or consent to a failure of, or departure
from, such performance or compliance;

(e) take and hold security or collateral for the payment of the Guaranteed
Obligations or sell, exchange, release, dispose of, or otherwise deal with, any
property pledged, mortgaged or conveyed, or in which the Lender may have been
granted a lien, to secure to the Lender any Indebtedness of the Loan Parties or
any other guarantor of any of the Guaranteed Obligations;

(f) release anyone who may be liable in any manner for the payment of any
amounts owed to the Lender by any Loan Party or other guarantor of any of the
Guaranteed Obligations;

(g) modify or terminate the terms of any intercreditor or subordination
agreement pursuant to which claims of other creditors of any Loan Party or other
guarantor of any of the Guaranteed Obligations are subordinated to the claims of
the Lender; or

(h) apply any sums by whomever paid or however realized to any amounts owing to
the Lender by any Loan Party or other guarantor of the Guaranteed Obligations,
in such manner as the Lender shall determine in its discretion;

then the Lender shall not incur any liability to any Guarantor as a result
thereof, and no such action shall impair or release the obligations of any
Guarantor under this Article.

9.7.     Reinstatement.

         To the extent permitted by law, the provisions of this Article shall
remain in full force and effect and continue to be effective in the event any
petition is filed by or against any Loan Party for liquidation or
reorganization, in the event any Loan Party becomes insolvent or makes an
assignment for the benefit of creditors or in the event a receiver or trustee is
appointed for all or any significant part of the assets of any Loan Party, and
shall continue to be effective or be reinstated, as the case may be, if at any
time payment and performance of the Guaranteed Obligations or any part thereof
is, pursuant to applicable law, rescinded or reduced in amount, or must
otherwise be restored or returned by the Lender, whether as a "voidable
preference", "fraudulent conveyance" or otherwise, all as though such payment or
performance had not been made. In the event that any payment of the Guaranteed
Obligations, or any part thereof, is rescinded, reduced, restored or returned,
the Guaranteed Obligations or part thereof so rescinded, restored or returned

                                       42

shall be reinstated, and the Guaranteed Obligations shall be deemed reduced only
by such amount paid and not so rescinded, reduced, restored or returned.

9.8.     Waiver of Subrogation, etc.

         Upon the making by any Guarantor of any payment hereunder in respect of
the Guaranteed Obligations, such Guarantor shall be subrogated to the rights of
the Lender against the Issuer with respect to such payment; provided that such
Guarantor shall not enforce any right to receive any payment by way of
subrogation, reimbursement, contribution or setoff resulting from such payment
until all of the Guaranteed Obligations have been paid in full. If any amount
shall be paid to any Guarantor on account of such subrogation, reimbursement,
contribution or setoff rights, such amount shall be held in trust for the
benefit of the Lender and any other holders of the Guaranteed Obligations and
shall forthwith be paid to the Lender and all other holders of Guaranteed
Obligations to be credited and applied upon the Guaranteed Obligations, whether
matured or unmatured, in accordance with the terms of the Notes and this
Agreement.

9.9.     Election of Remedies, etc.

         Any election of remedies that results in the denial or impairment of
the right of the Lender to seek a deficiency judgment against the Issuer shall
not impair any Guarantor's obligations to pay the full amount of the Guaranteed
Obligations. In the event the Lender shall bid at any foreclosure or trustee's
sale or at any private sale permitted by law or the Loan Documents, the Lender
may bid all or less than the amount of the Guaranteed Obligations and the amount
of such bid need not be paid by the Lender but shall be credited against the
Guaranteed Obligations. The amount of the successful bid at any public auction,
whether the Lender or any other party is the successful bidder, shall be
conclusively deemed to be the fair market value of the collateral and the
difference between such bid amount and the remaining balance of the Guaranteed
Obligations shall be conclusively deemed to be the amount of the Guaranteed
Obligations guaranteed under the provisions of this Article, notwithstanding
that any present or future law or court decision or ruling may have the effect
of reducing the amount of any deficiency claim to which the Lender might
otherwise be entitled but for such bidding at any such sale.

9.10.    Continuing Guaranty.

         Each Guarantor agrees that the provisions of this Article are a
continuing guaranty and shall remain in full force and effect until the payment
and performance in full of the Guaranteed Obligations.

9.11.     Savings Clause.

(a)       It is the intent of each Guarantor that its maximum obligations
          hereunder (the "Guarantor Maximum Obligation") shall be in, but not in
          excess of:

(i)       in a case or proceeding commenced by or against such Guarantor under
          Title 11 of the United States Code entitled "Bankruptcy", as now and
          hereafter in effect, or any successor statute (the "Bankruptcy Code")
          on or within one year from the date on which such Guaranteed
          Obligations are incurred, the maximum amount that would not otherwise

                                     43

          cause such Guaranteed Obligations to be avoidable or unenforceable
          against the Guarantor under Section 548 of the Bankruptcy Code; or

(ii)      in a case or proceeding commenced by or against such Guarantor under
          the Bankruptcy Code subsequent to one year from the date on which the
          Guaranteed Obligations of such Guarantor are incurred, the maximum
          amount that would not otherwise cause such Guaranteed Obligations to
          be avoidable or unenforceable against such Guarantor under any state
          fraudulent transfer or fraudulent conveyance act or statute applied in
          any such case or proceeding by virtue of Section 544 of the Bankruptcy
          Code; or

(iii)     in a case or proceeding commenced by or against such Guarantor under
          any law, statute or regulation other than the Bankruptcy Code
          (including any other bankruptcy, reorganization, arrangement,
          readjustment of debt, dissolution, liquidation or similar debtor
          relief laws or any state fraudulent transfer or fraudulent conveyance
          act or statute applied in any such case or proceeding), the maximum
          amount that would not otherwise cause the Guaranteed Obligations of
          such Guarantor to be avoidable or unenforceable against such Guarantor
          under such law, statute or regulation.

The substantive laws under which possible avoidance or unenforceability of the
Guaranteed Obligations shall be determined in any such case or proceeding shall
hereinafter be referred to as the "Avoidance Provisions."

(b)       To the extent set forth in this subsection, but only to the extent
          that the Guaranteed Obligations of such Guarantor would otherwise be
          subject to avoidance under any Avoidance Provisions if such Guarantor
          is not deemed to have received valuable consideration, fair value or
          reasonably equivalent value for such Guaranteed Obligations, and if
          such Guaranteed Obligations would render such Guarantor insolvent,
          leave such Guarantor with an unreasonably small capital to conduct its
          business or cause such Guarantor to have incurred debts (or to have
          intended to have incurred debts) beyond its ability to pay such debts
          as they mature, in each case as of the time any of the Guaranteed
          Obligations are deemed to have been incurred under the Avoidance
          Provisions, then the Guarantor Maximum Obligations shall be reduced to
          that amount that, after giving effect thereto, would not cause the
          Guaranteed Obligations, as so reduced, to be subject to avoidance
          under the Avoidance Provisions. This subsection is intended solely to
          preserve the rights of the Lender under the Notes and the other Loan
          Documents to the maximum extent that would not cause the Guaranteed
          Obligations to be subject to avoidance under the Avoidance Provisions,
          and neither such Guarantor nor any other Person shall have any right
          or claim under this subsection as against the Lender that would not
          otherwise be available to such Person under the Avoidance Provisions.

10.       DEFAULT.

10.1.     Events of Default.

(a)       The Issuer defaults in the payment of any principal, interest, or
          premium, if any, on any Note or any fees or other amounts owing under

                                       44

          this Agreement or under any other Loan Document when the same becomes
          due and payable, whether at maturity or at a date fixed for prepayment
          or by declaration or otherwise and such default is not cured within 10
          days of the Lender's notice to the Issuer of such default; or

(b)       Any Loan Party defaults in the payment of any amount owing by such
          Loan Party under any Loan Document when the same becomes due and
          payable, whether at maturity or at a date fixed for prepayment or by
          declaration or otherwise and such default is not cured within 10 days
          of the Lender's notice to such Loan Party of such default; or

(c)       Any Loan Party defaults in the performance of or compliance with any
          term contained in Section 5.1(g), 7.1, 7.2, 7.3, 7.5, 8.2, 8.4, 8.7,
          8.8, 8.9, 8.10, 8.18, 8.19 or 8.25 of this Agreement or Section 5.01,
          5.07, 5.11 or 5.12 of the Amended Security Agreement; or

(d)       Any Loan Party defaults in the performance of or compliance with any
          term contained in the Amended Security Agreement (other than those
          referred to in subsection (a), (b) or (c) above) or any other Loan
          Document, and such default is not remedied within 30 days after such
          Loan Party receives written notice of such default from the Lender;
          provided, that if such Loan Party provides notice to the Lender that
          such Loan Party is proceeding diligently to cure such default but that
          such default cannot reasonably, in such Loan Party's judgment, be
          cured within 30 days, then such Loan Party may take up to 120 days to
          cure such default without causing an Event of Default; or

(e)       Any representation or warranty made in writing by or on behalf of any
          Loan Party or by any Responsible Officer of any Loan Party in any Loan
          Document or in any writing furnished in connection with the
          transactions contemplated hereby proves to have been false or
          incorrect in any Material respect on the date as of which such
          representation or warranty was made; or

(f)       A default shall occur in the payment when due (subject to any
          applicable grace period), whether by acceleration or otherwise, of any
          Total Debt of any Loan Party in a principal amount, individually or in
          the aggregate, of $8,000,000 or more, or a default shall occur in the
          performance or observance of any obligation or condition with respect
          to secured Total Debt of any Loan Party in a principal amount,
          individually or in the aggregate, of $4,000,000 or more, if the effect
          of such default is to accelerate the maturity of any such Total Debt
          except that this subsection shall not apply to any default under the
          AGJ IEGP Loan Transaction; or

(g)       Any judgment or order for the payment of money in excess of $2,000,000
          shall be rendered against any Loan Party or any Subsidiary of any Loan
          Party, and there shall be any period of 60 consecutive days during
          which a stay of enforcement of such judgment or order, by reason of a
          pending appeal, bond, sufficient insurance coverage (acknowledged in
          writing by the insurer) or otherwise, shall not be in effect; or

(h)       Any Loan Party shall:

(i)       Generally fail to pay its debts as they become due, or admit in
          writing its inability to pay debts as they become due;

(ii)      Apply for, consent to, or acquiesce in, the appointment of a trustee,
          receiver, sequestrator, or other custodian for itself or any of its

                                       45

          property, or make a general assignment for the benefit of its
          creditors or take any corporate action authorizing, or in furtherance
          of, the foregoing;

(iii)     Consent or acquiesce, permit or suffer to exist the involuntary
          appointment of a trustee, receiver, sequestrator or other custodian
          for itself or for a substantial part of its property, and such
          trustee, receiver, sequestrator or other custodian shall not be
          discharged within 60 days, or take any corporate action authorizing,
          or in furtherance of, the foregoing; or

(iv)      Permit or suffer to exist the involuntary commencement of, or
          voluntarily commence, any bankruptcy, reorganization, debt
          arrangement, or other case or proceeding under any bankruptcy or
          insolvency laws, or permit or suffer to exist the involuntary
          commencement of, or voluntarily commence, any dissolution, winding up
          or liquidation proceeding, in each case, by or against it; provided,
          that if not commenced by it such proceeding shall be consented to or
          acquiesced in by it, or shall result in the entry of an order for
          relief or shall remain for 60 days undismissed; or

(i)       Without the consent of the Lender, any Loan Document or any Lien
          granted thereunder shall (except in accordance with the terms of such
          Loan Document), in whole or in part, terminate, cease to be effective
          or cease to be the legally valid, binding and enforceable obligation
          of each Loan Party party thereto, or any security interest in the
          Collateral purported to be pledged thereunder shall, in whole or in
          part, cease to be a perfected first priority security interest in
          favor of the Lender subject (in the case of non-possessory security
          interests only) to Permitted Liens; or

(j)       Any of the following events shall occur:

(i)       Any Loan Party or any Subsidiary of any Loan Party shall be in default
          (after giving effect to any applicable grace periods) under any
          Project Document to which it is a party and such default would
          reasonably be expected to have a Material Adverse Effect.

(ii)      Any Project Document shall at any time be canceled or terminated by
          any Project Owner party thereto (except following performance or
          payment in full of the obligations under, or expiration at the end of
          the term of, or a termination as of right in accordance with the terms
          and conditions of such Project Document or the replacement of such
          Project Document in accordance with the proviso of Section 7.7(d), or
          otherwise with the consent of the Lender) and (i) such termination or
          cancellation is not being contested in good faith by such Project
          Owner or the applicable Subsidiary of such Project Owner, and (ii)
          such acts, events, or circumstances have resulted, or would reasonably
          be expected to result, in a Material Adverse Effect.

(iii)     The loss, suspension or revocation of, or failure to renew, any
          Applicable Permit now held or hereafter acquired by any Project, if
          such loss, suspension, modification, revocation or failure to renew
          (together with all other such losses, suspensions, modifications,
          revocations and failures) would reasonably be expected to have a
          Material Adverse Effect.
                                       46

(k)       Any Project, other than the Cape May Project, the SPSA II (Transco)
          Project or the Tucson Project, shall cease to be a "qualifying
          facility" under PURPA or any Illinois Project shall cease to be a
          Qualified Solid Waste Energy Facility under Section 8-403.1 of the
          Illinois Revised Statutes and the regulations thereunder, and such
          event results in a Material Adverse Effect.

10.2.     Acceleration.

(a)       If an Event of Default shall have occurred and be continuing, then the
          Lender may, upon written notice to the Loan Parties, declare the
          Obligations immediately due and payable.

(b)       If any Event of Default described in Section 10.1(h)(ii) through (iv)
          shall have occurred and be continuing, then the Notes then outstanding
          shall automatically become immediately due and payable without the
          taking of any action on the part of the Lender or the giving of any
          notice with respect thereto.

(c)       Upon the occurrence of any event described in Section 10.1(a) or (c)
          above, the Notes will forthwith mature and the entire unpaid principal
          amount of such Notes plus (if applicable) the premium described in
          Section 6.2 determined in respect of such principal amount (to the
          full extent permitted by applicable law), shall all be immediately due
          and payable, in each and every case without presentment, demand,
          protest or further notice, all of which are hereby waived. Each Loan
          Party acknowledges, and the parties hereto agree, that the Lender has
          the right to maintain its investment in the Notes free from prepayment
          by the Issuer (except as herein specifically provided for) and that
          the provision for payment of a premium by the Issuer in the event that
          the Notes are prepaid or accelerated as a result of an Event of
          Default, is intended to provide compensation for the deprivation of
          such right under such circumstances.

10.3.     Default Remedies.

(a)       If an Event of Default shall have occurred and be continuing, the
          Lender may, in addition to any other rights or remedies it may have as
          a Lender under the laws of the State of New York, the UCC or other
          applicable law, and in addition to the rights and remedies provided in
          Section 10.2, take any one or more of the following remedial steps,
          subject to the provisions of applicable law:

(i)       realize upon and take possession of any Collateral, and, if and to the
          extent any of the Collateral shall not be in the possession or under
          the control of the Lender, the Lender may require the Loan Parties to
          assemble or package the Collateral and make it available to the Lender
          at a place to be designated by the Lender; or

(ii)      sell, assign, lease or otherwise dispose of the Collateral in whole or
          in part at public or private sale upon terms and conditions
          established by the Lender; or

(iii)     notify any and all parties to any of the contracts and agreements that
          constitute Collateral that the Lender has exercised its rights
          hereunder and that (to the extent not already done so) all payments
          then or thereafter owing to any Loan Party are to be made directly to
          the Lender.

                                     47

(b)       In addition to the remedies set forth above, the Lender may exercise
          its rights under the Security Documents.

(c)       No remedy conferred upon or reserved to the Lender hereunder is or
          shall be deemed to be exclusive of any other available remedy or
          remedies. Each such remedy shall be distinct, separate and cumulative,
          shall not be deemed to be inconsistent with or in exclusion of any
          other available remedy, may be exercised in the discretion of the
          Lender at any time, in any manner, and in any order, and shall be in
          addition to and separate and distinct from every other remedy given
          the Lender under the Security Documents or in connection with any
          other security interest given to the Lender by the Loan Parties with
          respect to the Collateral now or hereafter existing in favor of the
          Lender at law or in equity or by statute. Without limiting the
          generality of the foregoing, the Lender shall have the right to
          exercise any available remedy to recover any amount due and payable
          hereunder without regard to whether any other amount is due and
          payable.

10.4.     Specific Performance.

         If any Loan Party defaults in the performance of any provision of this
Agreement, the Notes or the Security Documents, which default is not cured
within the applicable cure period, if any, the Lender shall have the right and
remedy, without posting bond or other security, and in addition to the rights
and remedies provided in the Loan Documents, to have the provisions of any of
the Loan Documents specifically enforced by any court having equity
jurisdiction.

10.5.    Application of Proceeds.

         All amounts received by the Lender with respect to this Agreement, the
Notes and the Security Documents (subject, in the case of proceeds of Collateral
pledged pursuant to the BMC Group Security Agreement, to the provisions of the
Intercreditor and Subordination Agreement, dated as of April 8, 2004, by and
among the Lender, as the holder of the Series B Note, Yankee Energy Services
Company, as holder of the YESCO Note, and the Lender, as holder of the Series A
Notes) during the existence of an Event of Default shall be applied as follows:

(a) FIRST, to the payment of all fees, costs, indemnities and expenses, with
interest thereon, then owed to the Lender pursuant to the Security Documents or
this Agreement;

(b) SECOND, to the payment in full of all principal, interest or premium then
due and owing with respect to the Notes;

(c) THIRD, to the payment in full of all other amounts then owed with respect to
the Obligations; and

(d) FOURTH, to the balance, if any, to or at the written direction of the Loan
Parties.

                                     48

11. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.

11.1. Registration of Notes.

(a) The Issuer shall keep at its principal executive office a register for the
registration and registration of transfers of Notes. The name and address of
each holder of one or more Notes, each transfer of any Note and the name and
address of each transferee of one or more Notes shall be registered in such
register. Prior to due presentment for registration of transfer, the Person in
whose name any Note shall be registered shall be deemed and treated as the owner
and holder thereof for all purposes hereof, and the Loan Parties shall not be
affected by any notice or knowledge to the contrary. The Issuer shall give to
any holder of a Note that is an Institutional Investor promptly upon request
therefor, a complete and correct copy of the names and addresses of all
registered holders of Notes.

(b) No transfer shall be effective unless the requirements of this Section 11.1
and Section 11.2 are fulfilled. The requirements of this Section 11.1 and
Section 11.2 are intended to result in the Notes being in "registered form"
within the meaning of United States Treasury Regulations sections 1.871-14(c)
and 5f.103-1(c) and sections 163(f), 871(h) and 881(c) of the Code and shall be
interpreted and applied in a manner consistent therewith.

11.2. Transfer and Exchange of Notes.

         Upon surrender of any Note at the principal executive office of the
Issuer for registration of transfer or exchange (and in the case of a surrender
for registration of transfer, duly endorsed or accompanied by a written
instrument of transfer duly executed by the registered holder of such Note or
his attorney duly authorized in writing and accompanied by the address for
notices of each transferee of such Note or part thereof), the Issuer shall
execute and deliver, at its expense (except as provided below), one or more new
Notes (as requested by the holder thereof) in exchange therefor, in an aggregate
principal amount equal to the unpaid principal amount of the surrendered Note.
Each such new Note shall be payable to such Person as such holder may request
and shall be substantially in the form of Exhibit A. Each such new Note shall be
dated and bear interest from the date to which interest shall have been paid on
the surrendered Note or dated the date of the surrendered Note if no interest
shall have been paid thereon. The Issuer may require payment of a sum sufficient
to cover any stamp tax or governmental charge imposed in respect of any such
transfer of Notes. Notes shall not be transferred in denominations of less than
$100,000, provided that if necessary to enable the registration of transfer by a
holder of its entire holding of Notes, one Note may be in a denomination of less
than $100,000. Any transferee, by its acceptance of a Note registered in its
name (or the name of its nominee), shall be deemed to have made the
representations set forth in Section 4.

11.3.    Replacement of Notes.

         Upon receipt by the Issuer of evidence reasonably satisfactory to it of
the ownership, of and the loss, theft, destruction or mutilation of, any Note
(which evidence shall be, in the case of an Institutional Investor, notice from
such Institutional Investor of such ownership and such loss, theft, destruction
or mutilation), and

                                       49

(a) in the case of loss, theft or destruction, the receipt of indemnity
reasonably satisfactory to it (provided that if the holder of such Note is, or
is a nominee for, the Lender and has a minimum net worth of at least
$75,000,000, such Person's own unsecured agreement of indemnity shall be deemed
to be satisfactory), or

(b) in the case of mutilation, upon surrender and cancellation thereof, the
Issuer at its own expense shall execute and deliver, in lieu thereof, a new
Note, dated and bearing interest from the date to which interest shall have been
paid on such lost, stolen, destroyed or mutilated Note or dated the date of such
lost, stolen, destroyed or mutilated Note if no interest shall have been paid
thereon.

12. PAYMENTS ON NOTES.

12.1. Place of Payment.

         Subject to Section 12.2, payments of principal, premium, if any, and
interest becoming due and payable on the Notes shall be made in the principal
office of the Issuer. The Issuer may at any time, by notice to the Lender,
change the place of payment of the Notes so long as such place of payment shall
be either the principal office of the Issuer in the United States or the
principal office of a bank or trust company in the United States.

12.2.    Home Office Payment.

         Notwithstanding anything contained in Section 12.1 or in such Note to
the contrary, the Issuer will pay all sums becoming due on such Note for
principal, premium, if any, and interest by wire transfer to the Lender at The
Toronto-Dominion Bank, 55 King St. W. & Bay St., Toronto, Ontario M5K 1A2,
Transit # 10202-004, Swift Code TDOMCATTTOR (for payments in U.S. Dollars:
account number 7359730, ABA Number 026009593) (for payments in Canadian Dollars:
account number 5245862), or by such other method or at such other address as the
Lender shall have from time to time specified to the Issuer in writing for such
purpose, without the presentation or surrender of such Note or the making of any
notation thereon, except that upon written request of the Issuer made
concurrently with or reasonably promptly after payment or prepayment in full of
any Note, the Lender shall surrender such Note for cancellation, reasonably
promptly after any such request, to the Issuer at its principal executive office
or at the place of payment most recently designated by the Issuer pursuant to
Section 12.1. Prior to any sale or other disposition of any Note held by the
Lender or its nominee the Lender will, at its election, either endorse thereon
the amount of principal paid thereon and the last date to which interest has
been paid thereon or surrender such Note to the Issuer in exchange for a new
Note or Notes pursuant to Section 11.2. The Loan Parties will afford the
benefits of this Section to any Institutional Investor that is the direct or
indirect transferee of any Note purchased by the Lender under this Agreement and
that has made the same agreement relating to such Note as the Lender have made
in this Section.
                                       50

13.      EXPENSES, ETC.

13.1.    Transaction Expenses.

         Upon consummation of the transactions contemplated by this Agreement,
the Issuer will pay all actual incurred costs and expenses (including reasonable
fees and expenses of a special counsel, local or other counsel and other
consultants) incurred by the Lender in connection with such transactions and
with the Loan Parties prior authorization in connection with any amendments,
waivers or consents under or in respect of this Agreement or the Notes (whether
or not such amendment, waiver or consent becomes effective), including, without
limitation, (i) the costs and expenses incurred in enforcing or defending (or
determining whether or how to enforce or defend) any rights under this Agreement
or the Notes or in responding to any subpoena or other legal process or informal
investigative demand issued in connection with this Agreement or the Notes, or
by reason of being a holder of any Note, (ii) the costs and expenses, including
financial advisors' fees, incurred in connection with the insolvency or
bankruptcy of any Loan Party or Subsidiary or in connection with any work-out or
restructuring of the transactions contemplated hereby and by the Notes, and
(iii) the costs and expenses incurred in retaining a consultant to review
projections in connection with a prepayment of the Notes. The Issuer will pay,
and will save the Lender harmless from, all claims in respect of any fees, costs
or expenses if any, of brokers and finders (other than those retained by the
Lender).

13.2.    Issue Taxes.

         The Issuer will pay all amounts payable as or on account of taxes
arising in the United States or Canada, including any obligation imposed on the
Lender to withhold and remit taxes on behalf of the Loan Parties (together with
any penalties or interest relating thereto) ("Taxes") (except for Taxes computed
by reference to the Lender's net income (and any penalties or interest relating
thereto) ("Excluded Taxes")) arising to the Lender or the Loan Parties in
connection with (i) the purchase or holding by the Lender of the Existing Loans,
(ii) the issuance of the Notes (including any Advance or additional advances
thereunder), (iii) any amendment or modification to the Notes, (iv) any exchange
or sale of the Notes related to the transactions contemplated by this Agreement,
or (v) the payment or accrual of any amounts due under the Notes, and the Issuer
will indemnify the Lender and save the Lender harmless against any and all
liabilities relating to such Taxes. Without limiting the generality of the
foregoing, for greater certainty, if any amount due under the Notes becomes
subject to withholding tax, the Issuer will pay such additional amount as may be
necessary so that the net amount received by the Lender after such withholding
(and after deducting any withholding tax on such additional amount) will not be
less than the amount that the Lender would have received if such withholding tax
had not be withheld or deducted. In addition, if the Lender is required to
withhold or remit amounts in respect of which the Loan Parties are required to
indemnify the Lender under this Section, the Loan Parties will promptly provide
the Lender with sufficient funds to make such withholding or remittance (such
funds to be reimbursed to the Loan Parties only to the extent the Lender
receives a refund in respect of such withholding or remittance) and the parties
hereby declare their intention that the Lender shall be fully indemnified, on an
after-tax basis, in respect of such withholding or remittance obligation. If any
Loan Party becomes subject to withholding taxes, the Lender will, at the request
and at the expense of such Loan Party, take whatever action is reasonably
required and practicable for the Lender for such withholding taxes not to apply;
provided that the Lender shall not be required to take any action that would
decrease any amounts that would otherwise be due to it hereunder. The Lender
agrees to cooperate with the Loan Parties and to file or provide to the Loan

                                       51

Parties such forms, returns or other documentation (including but not limited to
a valid U.S. Internal Revenue Service Form W-8BEN) as may be required or
appropriate to minimize the U.S. withholding tax applicable to any payment made
or due under the Notes or any other transaction contemplated hereunder.

13.3.    Survival

         The obligations of the Loan Parties under this Article will survive the
payment or transfer of any Note, the enforcement, amendment or waiver of any
provision of this Agreement or the Notes, and the termination of this Agreement.

14.      Authority of RESOURCES.

         Each Guarantor (other than Resources) authorizes Resources to act on
its behalf under this Agreement, including with respect to giving and receiving
notices and granting consents or waivers.

15.      EXCLUDED ASSETS.

         Except as expressly stated in Section 8.10, none of the
representations, warranties, covenants (financial or other), reporting
requirements or calculations in this Agreement or any other Loan Document
includes, makes reference to or in any way contemplates the Excluded Assets. For
purposes of the Loan Documents, the Loan Parties' connection with the Excluded
Assets is disregarded in its entirety.

16.      SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.

         All representations and warranties contained herein shall survive the
execution and delivery of this Agreement and the Notes, the purchase or transfer
by the Lender of any Note or portion thereof or interest therein and the payment
of any Note, and may be relied upon by any subsequent holder of a Note,
regardless of any investigation made at any time by or on behalf of the Lender
or any other holder of a Note. All statements contained in any certificate or
other instrument delivered by or on behalf of any Loan Party pursuant to this
Agreement shall be deemed representations and warranties of such Loan Party
under this Agreement. Subject to the preceding sentence, this Agreement and the
Loan Documents embody the entire agreement and understanding between the parties
hereto and supersede all prior agreements and understandings relating to the
subject matter hereof.

17.      AMENDMENT AND WAIVER.

17.1.    Requirements.

         The Loan Documents may be amended, and the observance of any term of
the Loan Documents may be waived (either retroactively or prospectively), with
(and only with) the written consent of each of the parties hereto.

                                       52

17.2.    Binding Effect, etc.

         No amendment or waiver consented to as provided in this Article will
extend to or affect any obligation, covenant, agreement, Default or Event of
Default not expressly amended or waived or impair any right consequent thereon.
No course of dealing between the Loan Parties or any of them and the Lender nor
any delay in exercising any rights hereunder or under any Note shall operate as
a waiver of any rights of the Lender. As used herein, the term "this Agreement"
and references thereto shall mean this Agreement as it may from time to time be
amended or supplemented.

18.      NOTICES.

         All notices and communications provided for hereunder shall be in
writing and sent (i) by telecopy if the sender on the same day sends a
confirming copy of such notice by a recognized overnight delivery service
(charges prepaid), (ii) by registered or certified mail with return receipt
requested (postage prepaid), or (iii) by a recognized overnight delivery service
(with charges prepaid). Any such notice must be sent:

(a) if to the Lender or its nominee, to the Lender or it at 246 Waterloo Street,
London, Ontario N6B 2N4, Canada, Attention: Vice President Administration, with
a copy to Countryside US Power Inc., c/o U.S. Energy Systems, Inc., One North
Lexington Avenue, White Plains, NY 10601, Attention: President, or at such other
address as the Lender or it shall have specified to the Issuer in writing,

(b) if to any Loan Party, to such Loan Party at One North Lexington Avenue,
White Plains, New York 10601 to the attention of its Senior Financial Officer,
or at such other address as such Loan Party shall have specified to the Lender
in writing.

         Notices under this Article will be deemed given (x) if sent by
telecopy, when sent with confirmation of receipt, (y) if mailed, on the second
Business Day after such notice is mailed and (z) if sent by overnight delivery
service, on the next Business Day after it is sent.

19.      REPRODUCTION OF DOCUMENTS.

         This Agreement and all documents relating thereto, including, without
limitation, (i) consents, waivers and modifications that may hereafter be
executed, (ii) documents received by the Lender at the Closing (except the Notes
themselves), and (iii) financial statements, certificates and other information
previously or hereafter furnished to the Lender, may be reproduced by the Lender
by any photographic, photostatic, microfilm, microcard, miniature photographic
or other similar process and the Lender may destroy any original document so
reproduced. Each Loan Party agrees and stipulates that, to the extent permitted
by applicable law, any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made by the
Lender in the regular course of business) and any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence. This Article shall not prohibit any party hereto from contesting any
such reproduction to the same extent that it could contest the original, or from
introducing evidence to demonstrate the inaccuracy of any such reproduction.

                                       53

20.      CONFIDENTIAL INFORMATION.

         For the purposes of this Article, "Confidential Information" means
written information delivered to the Lender by or on behalf of any Loan Party or
Subsidiary in connection with the transactions contemplated by or otherwise
pursuant to this Agreement that is proprietary in nature and that was clearly
marked or labeled or otherwise adequately identified when received by the Lender
as being confidential information of such Loan Party or such Subsidiary,
provided that such term does not include information that (i) was publicly known
or otherwise known to the Lender prior to the time of such disclosure, (ii)
subsequently becomes publicly known through no act or omission by the Lender or
any person acting on behalf or at the direction of the Lender, (iii) otherwise
becomes known to the Lender other than through disclosure by such Loan Party or
such Subsidiary or (iv) constitutes financial statements delivered to the Lender
under Section 5.1 that are otherwise publicly available. The Lender, and anyone
acting on behalf or at the direction of the Lender, will maintain the
confidentiality of such Confidential Information in accordance with procedures
adopted by the Lender in good faith to protect confidential information of third
parties delivered to the Lender, provided that the Lender may deliver or
disclose Confidential Information to (A) the directors, officers, employees,
agents, attorneys and affiliates (to the extent such disclosure reasonably
relates to the administration of the investment represented by the Notes) of the
Lender, (B) the financial advisors and other professional advisors who agree to
hold confidential the Confidential Information substantially in accordance with
the terms of this Article, (C) any Institutional Investor to which the Lender
sells or offers to sell such Note or any part thereof or any participation
therein (if such Person has agreed in writing prior to its receipt of such
Confidential Information to be bound by the provisions of this Article), (D) any
Person from which the Lender offers to purchase any security of the Loan Parties
(if such Person has agreed in writing prior to its receipt of such Confidential
Information to be bound by the provisions of this Article), (E) any national,
provincial, federal or state regulatory authority having jurisdiction over the
Lender, or (F) any other Person to which such delivery or disclosure may be
necessary or appropriate (w) to effect compliance with any law, rule, regulation
or order applicable to the Lender, (x) in response to any subpoena or other
legal process, (y) in connection with any litigation to which the Lender is a
party or (z) if an Event of Default has occurred and is continuing, to the
extent the Lender may reasonably determine such delivery and disclosure to be
necessary or appropriate in the enforcement or for the protection of the rights
and remedies under the Loan Documents.

21.      LIABILITY AND WAIVER.

21.1.    No Liability of Lender.

         The Lender shall not (i) have any liability, obligation or
responsibility whatsoever to any Loan Party with respect to the ownership,
operation or maintenance of any Project, (ii) have any obligation to inspect any
Project, (iii) be liable for the performance or default by any Loan Party, any
Subsidiary of any Loan Party, any Project, any contractor or any other Person,
or for the failure to protect or insure any Project, or for the payment of costs
of labor, materials or services supplied for the operation of any Project, or
for the performance of any obligation of any Loan Party or Subsidiary
whatsoever.

                                       54

21.2.    No Liability of the Fund.

         The parties hereto acknowledge that the Lender is a Subsidiary of the
Fund and the obligations of the Lender hereunder shall not be personally binding
upon any trustee or manager of the Fund, any of the unitholders of the Fund or
any annuitant or beneficiary under a registered retirement savings plan or
deferred profit sharing plan or any other plan of which a unitholder is trustee
or carrier (an "Annuitant") and that any recourse against the Lender, the Fund,
any trustee, manager or any unitholder or Annuitant in any manner in respect of
any obligation or liability of the Lender arising hereunder or arising in
connection herewith or from the matters to which this Agreement relates, if any,
including without limitation claims based on negligence or otherwise tortuous
behavior, shall be limited to and satisfied only out of the Lender's property.

21.3. Non-Recourse.

(a) No Person (or any officer, employee, servant, controlling Person, executive,
director, agent, authorized representative or affiliate of such Person), other
than the Loan Parties, shall be personally liable for payments due hereunder or
under the Notes or the other Loan Documents by the Loan Parties or for the
performance by the Loan Parties of any obligation hereunder or thereunder, or
for the breach of any representation or warranty made by the Loan Parties.

(b) The sole recourse of the Lender for satisfaction of the Obligations shall be
against the Loan Parties and their assets (except for Excluded Assets) and to
the liens, security interest and remedies provided under the Loan Documents. In
the event that an Event of Default occurs, no action shall be brought against
any Person other than the Loan Parties (except as provided below). In the event
of foreclosure or other sale or disposition of properties, no judgment for any
deficiency upon the obligations hereunder or under the Notes or the other Loan
Documents shall be obtainable by the Lender against any Person other than the
Loan Parties or against any of the Excluded Assets; provided that recourse
against a Person other than the Loan Parties shall be available for such
Person's fraud or intentional misrepresentation.

22. MISCELLANEOUS.

22.1. Successors and Assigns.

(a) This Agreement shall be binding upon and inure to the benefit of the Loan
Parties, the Lender and their respective successors and permitted assigns.

(b) No Loan Party may assign or transfer any of its rights or obligations under
any Loan Document without the prior written consent of the Lender.

(c) Except to the extent expressly restricted by this Section, the Lender may
freely assign, assign as collateral, or transfer its rights and obligations
under, this Agreement. Each party hereto shall use its commercially reasonable
best efforts to assist and cooperate with the other parties hereto in any manner
reasonably requested to effect the assignment, collateral assignment or transfer
of rights and obligations under, this Agreement, subject to the provisions of

                                       55

this Section. In the case of a permitted assignment hereunder (other than a
permitted collateral assignment), the assignee shall have, to the extent of such
assignment, the same rights, benefits and obligations as would assignor
hereunder. In the case of any collateral assignment permitted under this
Agreement, assignor's obligations under this Agreement shall remain unchanged
and assignor shall remain solely responsible to the other parties hereto for the
performance of such obligations, and the other parties may continue to deal
directly with assignor. No partial assignment, assignment as collateral, or
transfer of the Lender's rights and obligations under this Agreement shall be
permitted hereunder in any event.

(d) Notwithstanding any other provision of this Agreement, without the prior
written consent of the Loan Parties, no assignment, assignment as collateral, or
transfer (including participations) shall be permitted to any person or entity
that is engaged or that has affiliates engaged in the business of developing,
owning or operating landfill gas recovery systems or power generating or thermal
energy production facilities fueled by landfill gas, or in the business of
developing, owning or operating district thermal energy systems.

(e) The Notes and the rights associated with the Notes, this Agreement, and the
other Loan Documents may be transferred by the Lender only in accordance with
(i) this Section and (ii) upon surrender of the Notes to the Issuer for
reissuance along with appropriate transfer instructions. The Issuer shall not be
required to recognize a new owner of the Notes as the new registered payee of
the Notes, nor to make any payment of principal or interest to such a new owner
except upon receipt of the Notes together with such transfer instructions. Any
new payee of the Notes shall receive a new note issued in replacement of the
Notes registered to and in the name of the new payee, and otherwise containing
identical terms and conditions to those of the Notes.

22.2. Payments Due on Non-Business Days.

         Anything in this Agreement or the Notes to the contrary
notwithstanding, any payment of principal of or premium or interest on any Note
that is due on a date other than a Business Day shall be made on the next
succeeding Business Day without including the additional days elapsed in the
computation of the interest payable on such next succeeding Business Day.

22.3.    Severability.

         Any provision of this Agreement that is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall (to the full extent permitted by law) not invalidate or
render unenforceable such provision in any other jurisdiction.

22.4. Construction.

(a) Each covenant contained herein shall be construed (absent express provision
to the contrary) as being independent of each other covenant contained herein,
so that compliance with any one covenant shall not (absent such an express
contrary provision) be deemed to excuse compliance with any other covenant.
Where any provision herein refers to action to be taken by any Person, or which
such Person is prohibited from taking, such provision shall be applicable
whether such action is taken directly or indirectly by such Person.

                                       56

(b) Defined terms in this Agreement shall include in the singular number the
plural and in the plural number the singular, and the masculine shall include
the feminine and neuter, and vice versa and references to "including" mean
including without limiting the generality of any description preceding that
word.

(c) The words the "thereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall, unless otherwise expressly specified,
refer to this Agreement as a whole and not to any particular provision of this
Agreement, and all references to Sections shall be references to Sections of
this Agreement, unless otherwise expressly specified.

(d) Any reference to an agreement, instrument, statute or regulation shall
include such agreement, instrument, statute or regulation as it may from time to
time be amended, modified or supplemented in accordance with its terms, and any
reference to a Person shall include such Person's permitted successors and
assigns.

(e) All monetary references are to currency of Canada.

(f) All references to the Loan Parties, Project Owner or any Subsidiary shall
include any predecessors of such entity.

22.5. Counterparts.

         This Agreement may be executed in any number of counterparts, each of
which shall be an original but all of which together shall constitute one
instrument. Each counterpart may consist of a number of copies hereof, each
signed by less than all, but together signed by all, of the parties hereto.

22.6.    Governing Law.

         THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT
REGARD TO THE CONFLICT OF LAWS PRINCIPLES THEREOF (OTHER THAN SECTIONS 5-1401
AND 5-1402 OF THE GENERAL OBLIGATIONS LAW)).

         ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATED TO ANY LOAN
DOCUMENT OR THE TRANSACTION CONTEMPLATED THEREIN SHALL BE BROUGHT, IF AT ALL, IN
THE COURTS OF EITHER (I) THE STATE OF NEW YORK SITTING IN NEW YORK CITY OR OF
THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK OR (II) THE PROVINCE OF
ONTARIO, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE LOAN
PARTIES AND THE LENDER CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO
THE EXCLUSIVE JURISDICTION OF THOSE COURTS. THE LOAN PARTIES AND THE LENDER
IRREVOCABLY WAIVE ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH THEY MAY NOW OR HEREAFTER

                                     57

HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTIONS IN
RESPECT OF ANY LOAN DOCUMENT OR OTHER DOCUMENT RELATED THERETO. THE LOAN PARTIES
AND THE LENDER WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER
PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY THE LAW OF THE STATE
OF NEW YORK OR THE PROVINCE OF ONTARIO.

22.7.    Accounting Terms and Determinations.

         Unless otherwise specified herein, all accounting terms used herein
shall be interpreted, all accounting determinations hereunder shall be made, and
all financial statements shall be prepared in accordance with U.S. GAAP.

22.8.    Cooperation with Public Offering.

         The Loan Parties acknowledge that the Lender has purchased the Existing
Loans and plans to make the Advance by utilizing the proceeds of a public
offering by the Fund (the parent of the Lender) of Trust Units, in all of the
provinces of Canada. The Loan Parties agree with the Lender, a subsidiary of the
Fund, that it will provide the Fund and its advisers and the underwriters of
such public offering (the "Underwriters") and their counsel with access to its
officers and employees and to its books and records and otherwise to provide
assistance in order for them to be able to provide full, true and plain
disclosure about the Loan Parties and certain of their affiliates in the
prospectus regarding the offering of the Trust Units (the "Prospectus") and to
fulfill their obligations to perform a "due diligence" investigation. The Loan
Parties agree to authorize and direct its auditors, Kostin Ruffkess & Co. (i) to
provide its report on the audited financial statements of the Issuer and/or the
Loan Parties to be included in the Prospectus, (ii) to consent to the inclusion
of its report in the Prospectus (iii) to review the unaudited financial
statements of the Issuer and/or the Loan Parties to be included in the
Prospectus, (iv) to provide a comfort letter to the provincial securities
regulatory authorities regarding such review, (v) to provide a "long form"
comfort letter to the Underwriters and the Board of Trustees of the Fund on such
financial information included in the Prospectus as they may reasonably request,
(vi) to translate such financial statements into French and provide to the Fund
and the Underwriters an opinion as to the accuracy of such translation, (vii) to
co-operate with Ernst & Young, the auditors of the Fund, in preparing pro forma
financial statements to be included in the Prospectus, and (viii) otherwise to
co-operate with the Fund in completing the public offering. The parties hereto
acknowledge that those financial statements that are prepared in accordance with
U.S. GAAP will have to be accompanied by a note that explains and quantifies the
effect of material differences between Canadian GAAP and U.S. GAAP and that the
auditor's report on financial statements audited in accordance with United
States generally accepted auditing standards will have to be accompanied by a
statement of the auditor disclosing any material differences in the form and
content of the foreign auditor's report as compared to a Canadian auditor's
report and confirming that United States auditing standards are substantially
equivalent to Canadian generally accepted auditing standards.

                                       58

22.9.    No Third-Party Beneficiaries.

         The agreement of the Lender to consummate the transactions contemplated
hereby on the terms and conditions set forth in this Agreement is solely for the
benefit of the Loan Parties, and no other Person (including any other obligor,
contractor, subcontractor, supplier or materialman furnishing supplies, goods or
services to or for the benefit of the Projects) shall have any rights hereunder,
as against the Lender, or under any other Loan Documents with respect to the
Loan or the proceeds thereof.

22.10. Currency Conversion and Indemnity.

(a) If, in connection with any action or proceeding brought in connection with
the Loan Documents or any judgment or order obtained as a result thereof, it
becomes necessary to convert any amount due hereunder in one currency (the
"First Currency") into another currency (the "Second Currency"), then the
conversion shall be made at the Conversion Rate on the first Business Day prior
to the day on which payment is received.

(b) If the conversion is not able to be made in the manner contemplated by the
preceding paragraph in the jurisdiction in which the action or proceeding is
brought, then the conversion shall be made at the Conversion Rate on the day on
which the judgment is given.

(c) If the Conversion Rate on the date of payment is different from the
Conversion Rate on such first Business Day or on the date of judgment, as the
case may be, the Loan Parties shall pay such additional amount (if any) in the
Second Currency as may be necessary to ensure that the amount paid on such
payment date is the aggregate amount in the Second Currency that, when converted
at the Conversion Rate on the date of payment, is the amount due in the First
Currency, together with all costs, charges and expenses of conversion. Any
additional amount owing by the Loan Parties to the Lender pursuant to the
provisions of this section shall be due as a separate debt and shall give rise
to a separate cause of action and shall not be affected by or merged into any
judgment obtained for any other amounts due under or in respect of the Loan
Documents."

2. CONDITIONS PRECEDENT.

         The issuance of the Notes and funding of the Advance shall occur at
9:00 a.m. New York City time, at a closing (the "Closing") which shall occur as
soon as possible after (i) the Lender has determined that all of the conditions
set forth in this Section have been fulfilled or waived or are prepared to be
fulfilled or waived at the Closing in accordance therewith and (ii) the Loan
Parties have determined that all of the conditions set forth in Sections 2.2,
2.3, 2.4, 2.5 and 2.18 of this Amendment have been fulfilled or waived or are
prepared to be fulfilled or waived at the Closing in accordance therewith. The
closing date shall be the date upon which the conditions set forth in clauses
(i) and (ii) above have been satisfied (the "Closing Date"), or at such other
time as the parties may agree. The Closing shall occur at the offices of King &
Spalding LLP or at such other place as may be agreed upon by the parties hereto.
At the Closing the Issuer will deliver to the Lender the Notes, as set forth in
Section 2, in the form of a single Note of each Series (or such greater number
of Notes in denominations of at least $100,000 as the Lender may request) dated
the date of the Closing and registered in the name of the Lender or its nominee,

                                       59

against delivery by the Lender to the applicable Loan Parties or their order of
the Existing Notes and the Advance in accordance with this Section 2 of the
Agreement. If at Closing the Loan Parties shall fail to tender such Notes to the
Lender as provided in this Section, or any of the conditions specified for the
Closing in this Section shall not have been fulfilled to the Lender's
satisfaction, the Lender shall, at its election, be relieved of all further
obligations under this Agreement, without thereby waiving any rights it may have
by reason of such failure or such nonfulfillment.

         The obligation of the Lender to consummate the transactions
contemplated by this Amendment, and the effectiveness of the amendment and
restatement of the Existing Loans, is subject to the fulfillment to the Lender's
satisfaction, prior to or at the Closing, of the following conditions precedent
solely for the benefit of the Lender (other than the conditions precedent set
forth in Sections 2.2, 2.3, 2.4, 2.5 and 2.18 of this Amendment, which are for
the benefit of each of the parties hereto and may not be waived by any one party
hereto):

2.1.     Authorization.

         The Lender shall have received from each Loan Party a certificate,
dated as of the Closing Date, of its Secretary or Assistant Secretary or such
other Responsible Officer as to:

(a) resolutions or other evidence of authority then in full force and effect
authorizing the execution, delivery and performance of this Agreement, the Notes
and each other Loan Document to be executed by such Loan Party;

(b) each Organic Document of such Loan Party; and

(c) the incumbency and signatures of the officers or other Persons authorized to
act on behalf of such Loan Party with respect to this Agreement, the Notes and
each other Loan Document executed by it.

2.2. Existing Loan Assignments.

         The transactions contemplated by the Existing Loan Assignments shall
have been, or concurrently with the Closing are being, completed.

2.3.     Acquisition Agreement.

         The transactions contemplated by the Acquisition Agreement by and among
the Fund, the Lender, Countryside Canada Acquisition Inc. and U.S. Energy
Systems, Inc. (except for the transactions contemplated hereby) shall have been
completed.

2.4.     AJG IEGP Loan Transaction.

         The AJG IEGP Loan Transaction shall have been, or concurrently with the
Closing is being, consummated.
                                       60

2.5.     Consents and Approvals.

         All required consents and approvals shall have been obtained and be in
full force and effect with respect to the transactions contemplated hereby from
(i) all relevant Governmental Authorities and (ii) any other Person whose
consent or approval is required in connection with the transactions contemplated
hereby. Certified copies of all such consents and approvals shall have been
provided to the Lender.

2.6.     UCC Searches.

         If required by the Lender in its sole discretion, the Lender shall have
received copies of Lien searches listing all effective financing statements, tax
liens and judgment liens that name any Loan Party or AJG as the debtor and are
filed in the jurisdictions in which filings are to be made pursuant to the Loan
Documents, and in such other jurisdictions as the Lender may reasonably request,
which searches reveal no financing statements or Liens against the Collateral
(other than (i) financing statements filed pursuant to the terms hereof in favor
of the Lender, if such search report is current enough to list such financing
statements, (ii) Permitted Liens and (iii) Liens terminated or assigned to the
Lender at the Closing).

2.7.     Closing Date Certificate.

         The Lender shall have received a certificate in substantially the form
of Exhibit E, duly executed by a Responsible Officer of each Loan Party and
dated as of the Closing Date, in which certificate such Loan Party shall agree
and acknowledge that the statements made therein shall in all material respects
be true and correct representations and warranties of such Loan Party as of such
date. All documents and agreements appended to such certificate shall be in form
and substance satisfactory to the Lender.

2.8.     Evidence of Insurance.

         The Lender shall have received evidence of the insurance coverage
required to be maintained pursuant to the Agreement, together with a
satisfactory certificate from an insurance broker of materially recognized
standing certifying as to the adequacy of each Loan Party's insurance, that such
insurance policies are in full force and effect and not subject to cancellation
without prior notice to the Lender, and as to the compliance of the same with
the requirements of Section 7.4 of the Agreement, together with copies of all
material insurance policies or binders.

2.9.     Other Conditions.

         The following additional conditions shall have been satisfied:

(a) there shall be no amendment, or any proposed amendment to, permitting,
licensing or other regulatory requirements that, in the Lender's reasonable
determination, is likely to cause a Material Adverse Effect;

(b) there shall be no amendment, or any proposed amendment, to any Operative
Document that is likely, in the Lender's reasonable determination, to cause a
Material Adverse Effect, without the Lender's prior consent; and

                                       61
<PAGE>

(c) each Loan Party shall have taken all action necessary or desirable to
implement the transactions contemplated in the Loan Documents on the Closing
Date, including, without limitation, establishing all required Accounts,
procuring all third party consents, agreements and approvals necessary or
desirable to fund the Accounts in the manner required by the applicable Amended
Security Agreement and all such other actions necessary or desirable to ensure
that such Loan Party complies with the terms and conditions of the applicable
Amended Security Agreement.

2.10. Opinions of Counsel.

         The Lender shall have received opinions, dated the Closing Date,
addressed to the Lender and allowing reliance thereon by any holder of a Note,
from counsel to the Loan Parties and AJG.

2.11.    Closing Fees, Expenses.

         The Lender shall have received payment of all fees, costs and expenses
then due and payable pursuant to Sections 13.1 and 13.2 of the Agreement.

2.12.    Pension, Tax and Labor Matters.

         The Lender shall be reasonably satisfied as to all pension and labor
matters and all tax matters with respect to each Loan Party and its
Subsidiaries.

2.13.    Environmental Laws.

         The Lender shall be reasonably satisfied as to all Environmental Law
matters with respect to each Loan Party and its Subsidiaries.

2.14.    Funding of Accounts.

         The Lender shall be satisfied that, in accordance with the Amended
Security Agreements, the Accounts will be funded from (i) funds held in such
Accounts or predecessor accounts by or on behalf of the Hancock Purchasers, ABB
and AJG and transferred to the Lender in connection with the Existing Loan
Assignments (ii) the Advance and (iii) the cash proceeds from the sale of the
Convertible Royalty Interest by the Issuer to the Lender.

2.15.    Representations and Warranties, Covenants.

         The representations and warranties set forth in Section 3 of the
Agreement, the other Loan Documents and any certificates delivered in connection
with the Closing shall be true and correct on the Closing Date in all material
respects both before and after giving effect to the consummation of the
transactions contemplated by the Loan Documents on the Closing Date with the
same effect as if then made (unless stated to relate solely to an earlier date,
in which case such representations and warranties shall be true and correct only
as of such earlier date).

                                       62
2.16. No Adverse Developments.

(a) No Material Adverse Effect shall have occurred since the date hereof.

(b) No labor controversy, litigation, arbitration or governmental investigation
or proceeding shall be pending or, to the knowledge of any Loan Party,
threatened in writing against any Loan Party or any of its Subsidiaries that,
singly or in the aggregate, may reasonably be expected to have a Material
Adverse Effect or purports to affect the legality, validity or enforceability of
any Loan Document or seeks to restrain, enjoin or otherwise prevent the
consummation of, or to recover damages or obtain relief as a result of, the
transactions contemplated by this Agreement or the other Loan Documents.

2.17. Performance; No Default or Event of Default.

         The parties hereto shall have performed and complied with all
agreements and conditions contained in the Loan Documents required to be
performed by them prior to or at the Closing, and after giving effect to the
issue, exchange and sale of the Notes at the Closing and the application of the
proceeds thereof as contemplated by Section 3.15 of the Agreement, no Default or
Event of Default shall have then occurred and be continuing.

2.18.    Purchase Permitted by Applicable Law, etc.

         On the Closing Date the purchase and/or exchange of the Notes by the
Lender shall (i) be permitted by the laws and regulations of each jurisdiction
to which the Lender is subject, (ii) not violate any applicable law or
regulation (including, without limitation, Regulation T, U or X of the Board of
Governors of the Federal Reserve System) and (iii) not subject the Lender to any
tax, penalty or liability under or pursuant to any applicable law or regulation,
which law or regulation was not in effect on the date hereof. If requested by
the Lender, the Lender shall have received a certificate of a Senior Financial
Officer or other appropriate officer of the Loan Parties certifying as to such
matters of fact as the Lender may reasonably specify to enable the Lender to
determine whether such purchase is so permitted.

2.19.    Changes in Corporate Structure.

         No Loan Party shall have (i) changed its jurisdiction of incorporation
or organization, (ii) been a party to any merger or consolidation or (iii)
succeeded to all or any substantial part of the liabilities of any other entity,
at any time following the date of the most recent financial statements delivered
at the Closing.

2.20.    Proceedings and Documents.

         All corporate, partnership, limited liability company and other
proceedings in connection with the transactions contemplated by this Agreement
and all documents and instruments incident to such transactions shall be
reasonably satisfactory to the Lender and the Lender's counsel.

                                       63
<PAGE>

2.21.    Additional Documentation.

         The Lender shall have received:

(a) counterparts of this Agreement duly executed by a Responsible Officer of
each Loan Party, in form and substance satisfactory to the Lender;

(b) counterparts of the Security Agreement Amendments, duly executed by each
Loan Party and the Lender and substantially in the form of Exhibit B;

(c) counterparts of the AJG Security Agreement Amendment, duly executed by AJG;

(d) counterparts of the Mortgage Amendments, each dated as of the Closing Date,
duly executed by each applicable Mortgagor and substantially in the form of
Exhibit C;

(e) counterparts of the Subordination Agreements, duly executed by each party
thereto;

(f) the original certificates (if certificated) and notes (if evidenced by
notes) evidencing all of the issued and outstanding shares of capital stock,
partnership interests or membership interests and indebtedness required to be
pledged pursuant to the terms of the Amended Security Agreements and the Amended
AJG Security Agreement, which certificates or interests shall be accompanied by
undated stock powers, endorsements or other acceptable transfer instruments duly
executed in blank by each applicable Loan Party or AJG, as applicable, and
consents of each general partner, managing member and maker of a note, as
applicable, to the collateral assignments of all partnership and membership
interests pledged pursuant to the Amended Security Agreements and the Amended
AJG Security Agreement;

(g) duly completed Uniform Commercial Code financing statements (Form UCC-3)
naming each Loan Party or AJG, as the case may be, as "debtor" and the Lender as
"secured party", as listed on Schedule 3.11 and to be filed in the jurisdictions
listed in Schedule 3.11;

(h) the Independent Engineer's Report;

(i) Pro Forma Projections for a period extending, for the shorter of 15 years
from the Closing Date and the projected remaining useful life of the Project as
set forth in such Pro Forma Projections, which shall incorporate the results of
the Lender's due diligence, showing annual operating cash flow available for
debt service sufficient (in the Lender's sole discretion) to support the
repayment of the Notes based upon assumptions that are satisfactory to the
Lender in the Lender reasonable discretion. The Lender shall have received an
Operating Budget setting forth the projected capital, maintenance and operating
requirements of each Project through December 31, 2005 which are based on
reasonable assumptions and consistent with the Operative Documents;

(j) copies of any orders issued by the FERC certifying the Projects (other than
the Cape May Project, the SPSA II (Transco) Project and the Tucson Project) as

                                       64
<PAGE>

Qualifying Facilities and copies of all Certification Notices, which orders,
Notices of Self-Certification and Notices of Self-Recertification shall be in
form and substance reasonably satisfactory to the Lender.

(k) executed copies of the Consents required with respect to the assignment or
amendment of the Loan Documents, except with respect to Consents, the receipt of
which the Lender determines in its sole discretion may be deferred or waived;
and

(l) copies of letters to each entity in which a Loan Party holds an equity
interest instructing such entity to record on its records the pledge of the
respective equity interests pursuant to the Security Documents.

2.22. Covenants to Satisfy Conditions Precedent.

(a) The Loan Parties shall use their commercially reasonable efforts to cause
each of the conditions applicable to the Loan Parties in this Section 2 to be
satisfied on or before April 30, 2004; and

(b) The Lender shall use its commercially reasonable efforts to cause each of
the conditions applicable to the Lender in this Section 2 to be satisfied on or
before April 30, 2004.

2.23. Termination.

         The Agreement may be terminated:

(a) At any time prior to the Closing, by mutual written agreement of the Loan
Parties and the Lender, or

(b) After May 31, 2004, by the Lender, if the Closing shall not have occurred.

         The termination of this Agreement shall not serve to waive any of the
rights or remedies that any party hereto may have in connection with a breach of
any provision of this Agreement arising prior to such termination of this
Agreement.

3.       DEFINITIONS.

         Terms used herein without definition are used as defined in Schedule A.

4.       FORMER HANCOCK ISSUERS.

         Upon executing and delivering their consent to this Amendment, the
Former Hancock Issuers shall no further rights or obligations under the Hancock
Note Purchase Agreement Agreement, as amended by this Amendment.

5.       COUNTERPARTS.

         This Amendment may be executed in any number of counterparts, each of
which shall be an original but all of which together shall constitute one
instrument. Each counterpart may consist of a number of copies hereof, each
signed by less than all, but together signed by all, of the parties hereto.

                                       65
<PAGE>

6.       Governing Law.

         THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE
OF NEW YORK (WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES THEREOF (OTHER
THAN SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW)).

         ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATED TO THIS
AMENDMENT OR THE TRANSACTION CONTEMPLATED HEREIN SHALL BE BROUGHT, IF AT ALL, IN
THE COURTS OF EITHER (I) THE STATE OF NEW YORK SITTING IN NEW YORK CITY OR OF
THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK OR (II) THE PROVINCE OF
ONTARIO, AND BY EXECUTION AND DELIVERY OF THIS AMENDMENT, EACH OF THE LOAN
PARTIES AND THE LENDER CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO
THE EXCLUSIVE JURISDICTION OF THOSE COURTS. THE LOAN PARTIES AND THE LENDER
IRREVOCABLY WAIVE ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH THEY MAY NOW OR HEREAFTER
HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT
OF ANY LOAN DOCUMENT OR OTHER DOCUMENT RELATED THERETO. THE LOAN PARTIES AND THE
LENDER WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH
MAY BE MADE BY ANY OTHER MEANS PERMITTED BY THE LAW OF THE STATE OF NEW YORK OR
THE PROVINCE OF ONTARIO.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                     66
<PAGE>

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

                                  U.S. ENERGY BIOGAS CORP.

                               By _______________________________
                                  Richard J. Augustine
                                  President

                                  AVON ENERGY PARTNERS, L.L.C.
                                  By Resources Generating Systems, Inc., Manager

                               By _______________________________
                                  Richard J. Augustine
                                  President

                                  BMC ENERGY LLC
                                  By Resources Generating Systems, Inc., Manager

                               By ________________________________
                                  Richard J. Augustine
                                  President

                                  BARRE ENERGY PARTNERS, L.P.
                                  By Resources Generating Systems, Inc.,
                                  General Partner

                              By _________________________________
                                 Richard J. Augustine
                                 President

                                 BRICKYARD ENERGY PARTNERS, LLC
                                 By Resources Generating Systems, Inc., Manager

                              By _________________________________
                                 Richard J. Augustine
                                 President

                                      S-1

                                BROOKHAVEN ENERGY PARTNERS, LLC
                                By BMC Energy, LLC, Manager
                                By Resources Generating Systems, Inc., Manager

                             By _________________________________
                                Richard J. Augustine
                                President

                                BURLINGTON ENERGY, INC.

                             By _________________________________
                                Richard J. Augustine
                                President

                                CAPE MAY ENERGY ASSOCIATES, L.P.
                                By Resources Generating Systems, Inc.,
                                General Partner

                             By __________________________________
                                Richard J. Augustine
                                President

                                COUNTRYSIDE GENCO, L.L.C.
                                By ZFC Energy, Inc., Manager

                             By ___________________________________
                                Richard J. Augustine
                                President

                                DEVONSHIRE POWER PARTNERS, L.L.C.
                                By Resources Generating Systems, Inc., Manager

                            By ____________________________________
                               Richard J. Augustine
                               President

                                      S-2

                               DIXON/LEE ENERGY PARTNERS, LLC
                               By Resources Generating Systems, Inc., Manager

                            By ___________________________________
                               Richard J. Augustine
                               President

                               DUNBARTON ENERGY PARTNERS, LIMITED PARTNERSHIP
                               By Resources Generating Systems, Inc.,
                               General Partner

                            By ____________________________________
                               Richard J. Augustine
                               President

                               ILLINOIS ELECTRICAL GENERATION PARTNERS, L.P.
                               By Resources Generating Systems, Inc.,
                               General Partner

                            By ____________________________________
                               Richard J. Augustine
                               President

                               ILLINOIS ELECTRICAL GENERATION PARTNERS II, L.P.
                               By Resources Generating Systems, Inc.,
                               General Partner

                            By ____________________________________
                               Richard J. Augustine
                               President

                               LAFAYETTE ENERGY PARTNERS, L.P.
                               By ZFC Energy, Inc., General Partner

                           By _____________________________________
                              Richard J. Augustine
                              President

                                      S-3

                              MORRIS GENCO, L.L.C.
                              By ZFC Energy, Inc., Manager

                           By _____________________________________
                              Richard J. Augustine
                              President

                              OCEANSIDE ENERGY INC.

                           By _____________________________________
                              Richard J. Augustine
                              President

                              ONONDAGA ENERGY PARTNERS, L.P.
                              By Resources Generating Systems, Inc.,
                              General Partner

                           By _____________________________________
                              Richard J. Augustine
                              President

                              POWER GENERATION (SUFFOLK), INC.

                           By ______________________________________
                              Richard J. Augustine
                              President

                              RESOURCES GENERATING SYSTEMS, INC.

                           By ______________________________________
                              Richard J. Augustine
                              President

                              RIVERSIDE RESOURCE RECOVERY, L.L.C.
                              By Resources Generating Systems, Inc., Manager

                           By _____________________________________
                              Richard J. Augustine
                              President

                                      S-4

                              ROXANNA RESOURCE RECOVERY, L.L.C.
                              By Resources Generating Systems, Inc., Manager

                           By ____________________________________
                              Richard J. Augustine
                              President

                              STREATOR ENERGY PARTNERS, LLC
                              By Resources Generating Systems, Inc., Manager

                           By _____________________________________
                              Richard J. Augustine
                              President

                              SUFFOLK ENERGY PARTNERS, L.P.
                              By Power Generation (Suffolk), Inc.,
                              General Partner

                           By _____________________________________
                              Richard J. Augustine
                              President

                              SUFFOLK TRANSMISSION PARTNERS, L.P.
                              By Resources Generating Systems, Inc.,
                              General Partner

                           By _____________________________________
                              Richard J. Augustine
                              President

                              TAYLOR ENERGY PARTNERS, L.P.
                              By ZFC Energy, Inc., General Partner

                           By _____________________________________
                              Richard J. Augustine
                              President

                                      S-5

                              TUCSON ENERGY PARTNERS, L.P.
                              By Resources Generating Systems, Inc.,
                              General Partner

                           By ____________________________________
                              Richard J. Augustine
                              President

                              UPPER ROCK ENERGY PARTNERS, LLC
                              By Resources Generating Systems, Inc., Manager

                           By ____________________________________
                              Richard J. Augustine
                              President

                              BIOGAS FINANCIAL CORPORATION (formerly known as
                              Zahren Financial Corporation)

                           By ____________________________________
                              Richard J. Augustine
                              President

                              ZAPCO ENERGY TACTICS CORPORATION

                           By __________________________________
                              Richard J. Augustine
                              President

                              ZAPCO ILLINOIS ENERGY, INC.

                           By __________________________________
                              Richard J. Augustine
                              President

                              ZFC ENERGY, INC.

                           By ___________________________________
                              Richard J. Augustine
                              President

                                      S-6

                              COUNTRYSIDE CANADA POWER INC.

                           By _________________________________
                              Name:
                              Title:

                                      S-7

Consented to by:

GARLAND ENERGY DEVELOPMENT, LLC
By Resources Generating Systems, Inc., Manager

By _________________________________
   Richard J. Augustine
   President

OYSTER BAY ENERGY PARTNERS, L.P.
By Resources Generating Systems, Inc., General Partner

By _________________________________
   Richard J. Augustine
   President

SPRINGFIELD ENERGY ASSOCIATES LTD. PARTNERSHIP
By Resources Generating Systems, Inc., General Partner

By _________________________________
   Richard J. Augustine
   President

ZAPCO READVILLE COGENERATION, INC.

By _________________________________
   Richard J. Augustine
   President

SMITHTOWN ENERGY PARTNERS, L.P.
By Resources Generating Systems, Inc., General Partner

By _________________________________
   Richard J. Augustine
   President

                                      S-8

ZAPCO DEVELOPMENT CORPORATION

By ________________________________
   Richard J. Augustine
   President

ZAPCO EQUIPMENT CORP.

By _______________________________
   Richard J. Augustine
   President

                                       S-9

                                                              SCHEDULE A
                                 DEFINED TERMS

         As used herein, the following terms have the following meanings:

         "$" means lawful currency of the United States of America, unless
         otherwise noted.

         "122nd Street (Avon) Project" means the Project identified as such on
         Schedule B.

         "ABB" is defined in the Introduction.

         "ABB Assignment" is defined in the Introduction.

         "ABB Loan" is defined in the Introduction.

         "ABB Loan Agreement" is defined in the Introduction.

         "ABB Notes" is defined in the Introduction.

         "Accounts" shall have the meaning ascribed thereto in each of the
         Amended Security Agreements.

         "Advance" is defined in Section 2.1.

         "Affiliate" means, with respect to any Person, any other Person
(excluding any Person that may otherwise be deemed an Affiliate hereunder solely
because it is a trustee under, or a committee with responsibility for
administering, any employee benefit plan (as defined in Section 3(3) of ERISA)
or any multiemployer plan (as defined in section 4001(a)(3) of ERISA)) (i)
directly or indirectly controlling, controlled by, or under common control with,
such Person, (ii) directly and indirectly owning or holding or receiving any
equity interest or other equity benefit in such Person in excess of five percent
(5%), or (iii) in which such Person directly or indirectly controls any voting
stock or other equity interest in excess of five percent (5%). For purposes of
this definition, "control" (including with correlative meanings, the terms
"controlling," "controlled by" and "under common control with") means the
possession directly or indirectly of the power to direct or cause the direction
of the management and policies of a Person, whether through the ownership of
voting securities, by contract or otherwise. Notwithstanding the foregoing, each
member, manager and officer of each Loan Party shall be deemed to be an
Affiliate of such Loan Party. Unless the context otherwise clearly requires, any
reference to an "Affiliate" is a reference to an Affiliate of any Loan Party. No
stockholder of the Issuer shall be deemed to be an Affiliate of any Loan Party.

         "Agreement" means the Hancock Note Purchase Agreement, the ABB Loan
Agreement and the AJG Loan Agreement, as amended by this Amendment to Note
Purchase Agreement, dated as of April 8, 2004, among the Loan Parties and the
Lender.

         "AJG" is defined in the Introduction.

                                      A-1

      "AJG Assignment" is defined in the Introduction.

         "AJG IEGP Loan Transaction" shall mean the transaction in which
Resources shall make a secured loan of approximately $14,000,000 to AJG with
respect to AJG's purchase of its partnership interest in IEGP II.

         "AJG Loan" is defined in the Introduction.

         "AJG Loan Agreement" is defined in the Introduction.

         "AJG Notes" is defined in the Introduction.

         "AJG Security Agreement Amendment" is defined in Section 1.

         "AJG Subordinated Loan" means the unsecured loan from AJG to the Issuer
in an outstanding principal amount of $5,728,883 secured by that certain Second
Amended and Restated Subordinated Note, dated as of March 30, 2004, made by the
Issuer, as borrower, in favor of AJG.

                                      A-2

         "Amended BMC Group Security Agreement" is defined in Section 1.

         "Amended AJG Security Agreement" is defined in Section 1.

         "Amended Mortgages" is defined in Section 1.

         "Amended Security Agreements" means, collectively, the Amended Security
Agreement, the Amended AJG Security Agreement and the Amended BMC Group Security
Agreement.

         "Amended Security Agreement" is defined in Section 1.

         "Amity (Taylor) Project" means the Project identified as such on
Schedule B.

         "Anniversary Date" means April 8, 2005, and each successive April 8
thereafter, until the Maturity Date.

         "Applicable Permit" means, with respect to any Project, any Permit,
including any construction, zoning, environmental protection, pollution,
sanitation, FERC, ICC, public utilities commission, health, safety, siting or
building permit (i) that is necessary at any given time in the operation of such
Project to construct, test, operate, maintain, repair, own or use such Project
as contemplated by any Operative Document relating to such Project, to sell
electricity or landfill gas therefrom, to process waste, to enter into any
Operative Document for such Project or to perform the obligations contemplated
thereby or (ii) that is necessary so that none of the Loan Parties nor the
holders of the Notes (nor any Affiliate of any of them) may be deemed by any
Governmental Authority to be subject to regulation under the FPA, NGA, PUHCA or
any state laws or regulations respecting rates or the financial or
organizational regulation of electric utilities, gas utilities, local
distribution companies or electrical load supplying entities solely as a result
of the ownership or operation of any Project by the applicable Project Owner or
the sale of electricity or landfill gas therefrom.

         "Barre Project" means the Project identified as such in Schedule B.

         "Best Knowledge" of any Loan Party means the actual knowledge of any
Responsible Officer of such Loan Party based on due inquiry.

         "BMC Group Security Agreement Amendment" is defined in Section 1.

         "BMC Parties" means, collectively, BMC, Brookhaven, Countryside and
Morris.

         "Brickyard Project" means the Project identified as such in Schedule B.

         "Brookhaven Project" means the Project identified as such in Schedule
B.

         "Brown Project" means the facility to be built in Brown County,
Wisconsin.

         "Burlington Project" means the Project identified as such in Schedule
B.

         "Business Day" means any day other than a Saturday, a Sunday or a day
on which commercial banks in Toronto, Canada and New York, New York are required
or authorized to be closed.

         "Buyout" means the termination or buyout of a Power Purchase Agreement
or a landfill gas owner site lease.

         "Cape May Project" means the Project identified as such in Schedule B.

         "Capital Lease" means, at any time, a lease with respect to which the
lessee is required concurrently to recognize the acquisition of an asset and the
incurrence of a liability in accordance with U.S. GAAP.

         "CERCLA" means the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980 as amended by the Superfund Amendments and
Reauthorization Act of 1986, or as otherwise amended or reformed from time to
time.

         "CERCLIS" means the Comprehensive Environmental Response Compensation,
and Liability Information System.

         "Certification Notices" means all Notices of Self-Certification and
Notices of Self-Recertification filed with FERC with respect to the Projects
(other than the Brown Project, the Cape May Project, the Garland Project, the
SPSA II (Transco) Project and the Tucson Project).

         "Change in Control" means either (i) the failure of the Issuer or AJG
at any time to own, directly or indirectly through Subsidiaries that are a party
to this Agreement, the issued and outstanding shares of common stock of or
partnership or membership interests of each Guarantor (whether voting or
non-voting) as set forth on Schedule 3.4, each on a fully diluted basis, such
shares or interests to be held free and clear of all Liens (other than Permitted
Liens) and, in the case of shares or interests owned by AJG or its Subsidiaries,
to be pledged to the Issuer as security for the AJG IEGP Loan Transaction, or
(ii) any change in the ownership of the issued and outstanding shares of common
stock of the Issuer, such that U.S. Energy Systems, Inc. and/or Cinergy Energy
Solutions, Inc. do not own, collectively, more than 50% of the outstanding
voting shares of the Issuer; provided that, in the case of (i) above, a Change
in Control shall not be deemed to have occurred if the obligations of such Loan
Party or AJG under any Loan Document shall continue in full force and effect or
shall have been assumed by the successor to such Loan Party and, in the
reasonable opinion of the Lender, (A) the financial condition of such Loan Party
or AJG and its ability to perform its obligations under each Loan Document to
which it is a party are not adversely affected as a result of such Change in
Control or (B) in the case of any successor to such Loan Party or AJG, (x) the
financial condition of such successor and its ability to perform the obligations
under each Loan Document to which it may become a party are at least equivalent
to the financial condition and ability to perform of such Loan Party or AJG
immediately prior to such Change in Control and (y) such successor is not
currently in default or has not previously defaulted with respect to any
Indebtedness owing to any holder of a Note.

         "Closing" is defined in Section 2 of the Amendment.

         "Closing Date" is defined in Section 2 of the Amendment.

         "Code" means the Internal Revenue Code of 1986, as amended from time to
time, and the rules and regulations promulgated thereunder from time to time.

         "Collateral" shall have the meaning ascribed thereto in the Amended
Security Agreement.

         "Confidential Information" is defined in Section 20.

         "Consent" means a consent by any party to a Project Document (other
than a Loan Party) to the assignment of such Project Document.

         "Consolidated Subsidiaries" means, as to any Person, all Subsidiaries
of such Person that are consolidated with such Person for financial reporting
purposes in accordance with U.S. GAAP.

         "Construction Reserve Account" has the meaning given such term in the
Amended Security Agreement.

         "Contingent Liability" of any Person means any agreement, undertaking
or arrangement by which such Person guarantees, endorses or otherwise becomes or
is contingently liable upon (by direct or indirect agreement, contingent or
otherwise, to provide funds for payment, to supply funds to, or otherwise to
invest in, a debtor, or otherwise to assure a creditor against loss) the
indebtedness, obligation or any other liability of any other Person (other than
by endorsements of instruments in the ordinary course of collection), or
guarantees the payment of dividends or other distributions upon the shares of
any other Person. The principal amount of such Person's obligation under any
Contingent Liability shall (subject to any limitation set forth therein) be
deemed to be the outstanding principal amount (or maximum principal amount, if
larger) of the debt, obligation or other liability guaranteed thereby.

         "Conversion Rate" means the rate of exchange quoted by The
Toronto-Dominion Bank (or such other Canadian chartered bank as agreed upon by
the Issuer and the Lender) at its central foreign exchange desk in its main
office in Toronto at 12:00 noon (Toronto time) on the relevant date for
purchases of the Second Currency with the First Currency and includes any
premiums and costs of exchange payable.

         "Convertible Royalty Interest" means the convertible royalty interest
in the Issuer owned by the Lender.

         "Countryside Acquisition Credit Agreement" means the Credit Agreement,
dated as of April 8, 2004 by and among Countryside Canada Acquisition Inc., the
lenders party thereto and The Toronto-Dominion Bank, as agent for the lenders
party thereto and any amendment, restatement, refinancing, refunding, renewal,
extension or replacement thereof.

         "Countryside Project" means the Project identified as such in Schedule
B.

         "Debt Service" means, for any period, without duplication, the sum of
(i) total interest expense and (ii) scheduled debt repayments on Total Debt
(excluding the bullet repayment on the Notes and the AJG Subordinated Loan
scheduled payments) of the Issuer and its Consolidated Subsidiaries, each
component of such calculation being for such period.

         "Debt Service Reserve Account" shall mean the "Debt Service Reserve
Account" established pursuant to Section 4.01 of the Amended Security Agreement.

         "Debt Service Reserve Minimum Amount" is defined in Section 4.02(b) of
the Amended Security Agreement.

         "Debtor Relief Laws" means any applicable liquidation, conservatorship,
bankruptcy, moratorium, rearrangement, insolvency, reorganization or similar
laws affecting the rights or remedies of creditors generally, including, without
limitation, the United States Bankruptcy Code, as in effect from time to time.

         "Default" means an event or condition the occurrence or existence of
which would, with the lapse of time or the giving of notice or both, become an
Event of Default.

         "Default Rate" means that rate of interest that is (2.0% per annum)
above the rate of interest stated in clause (a) of the first paragraph of each
of the Notes.

         "Development Projects" means the Garland Project, the Brown Project and
any engine replacement at the Countryside Project or the Morris Project.

         "Discounted Value" means, with respect to the Prepaid Principal of any
Note, the amount obtained by discounting all Remaining Scheduled Payments with
respect to such Prepaid Principal from their respective scheduled due dates to
the Prepayment Date with respect to such Prepaid Principal, in accordance with
accepted financial practice and at a discount factor (applied on the same
periodic basis as that on which interest on the Notes is payable) equal to the
Reinvestment Yield with respect to such Prepaid Principal.

         "Distributions" means, for any Person, with respect to any shares of
any capital stock, membership or partnership interest, or any other equity
securities issued by such Person, (i) the retirement, redemption, purchase, or
other acquisition for value of any such securities or of any warrants, options,
or other rights to acquire any such securities, (ii) the declaration or payment
of any dividend or distribution on or with respect to any such securities and
(iii) any other payment (in cash, property, or obligations) by such Person with
respect to such securities.

         "Dixon/Lee Project" means the Project identified as such in Schedule B.

         "Dolton (Devonshire) Project" means the Project identified as such in
Schedule B.

         "EBITDA" means, for any period, the earnings of the USEB Operating
Assets, on a carve-out basis, before interest, taxes, depreciation, and
amortization, where "earnings" excludes (i) required deposits into each Loan
Party's ICC Account and interest, dividends and capital gains/losses respecting
funds deposited in such ICC Account, (ii) nonrecurring and extraordinary expense
items and (iii) the gain (or loss), if any, with respect to the hedging
arrangement required by Section 7.17 but includes (A) interest on funds
deposited in each Loan Party's Debt Service Reserve Account during such period,
(B) interest and the cash portion of payment of principal received during such
period and not recorded as revenue per U.S. GAAP with respect to the AJG IEGP
Loan Transaction, (C) interest and the cash portion of payment of principal
received during such period and not recorded as revenue per U.S. GAAP with
respect to (x) the First Secured Promissory Note, dated May 1, 2001, in the
principal amount of $2,900,236, in favor of AJG from Cinergy Gasco Solutions,
LLC and (y) the Second Secured Promissory Note, dated May 1, 2001, in the
principal amount of $6,425,000, in favor of AJG from Cinergy Gasco Solutions,
LLC, each of which has been assigned by AJG to the Issuer and (D) all interest
installment sale purchase payments received from AJG under the Purchase and Sale
Agreement, dated as of December 30, 1999, between the Issuer (as successor to
Zahren Alternative Power Corporation) and AJG.

         "Eligible Fund Lender" means (i) The Toronto-Dominion Bank, as the
agent on behalf of the lenders under the Countryside Acquisition Credit
Agreement, (ii) any Person that is a permitted successor agent under the
Countryside Acquisition Credit Agreement or (iii) any agent (or lender in the
case of a single lender facility) under any credit or debt facility that
replaces the Countryside Acquisition Credit Agreement.

         "Emissions Credit Proceeds" shall mean any proceeds from the sale or
other disposition of any NOx or other emissions reductions credits and any
benefits attributable to the reduction of greenhouse gases associated with any
Project; provided, however, that Emissions Credit Proceeds do not include any
amounts received by any Loan Party from AJG.

         "Environmental Claim" means any claim, liability, investigation,
litigation or administrative proceeding, whether pending or threatened pursuant
to written notification, or any judgment or order relating to any Hazardous
Material asserted or threatened pursuant to written notification against any
Loan Party or any event giving rise to liability of any Loan Party under any
Environmental Law with respect to any Project.

         "Environmental Laws" means any and all laws, statutes, ordinances,
rules, regulations, orders, guidance or determinations of any Governmental
Authority pertaining to public health, pollution or the environment (including,
without limitation, ambient air, surface water, ground water, land surface or
subsurface strata), including, without limitation, laws relating to emissions,
discharges, releases or threatened releases of Hazardous Materials, or otherwise
relating to the manufacture, processing, distribution, use, treatment, or
disposal of Hazardous Materials under common law, the Clean Air Act, CERCLA, the
Federal Water Pollution Control Act, the Occupational Safety and Health Act of
1970, the Resource Conservation and Recovery Act of 1976, the Safe Drinking
Water Act, the Toxic Substances Control Act, the Emergency Planning and
Community Right to Know Act, the Endangered Species Act, the National
Environmental Policy Act, the Oil Pollution Act, the Pollution Prevention Act,
the Solid Waste Disposal Act and any other environmental conservation or
protection law of any applicable jurisdiction, all as may be hereafter amended,
modified or supplemented from time to time; provided, that in the event any of
the foregoing laws is amended, modified or supplemented so as to broaden the
scope or basis of liability of any Loan Party under any or all Environmental
Laws, such amended, modified or supplemented meaning shall apply subsequent to
the effective date of such amendment or modification with respect to all
provisions of this Agreement; and provided further that, to the extent the laws
of the state in which any property of any Loan Party is located establish a
meaning for "hazardous substance", "release", "solid waste", "disposal" or any
other term that is broader than that specified in any of the foregoing federal
laws, such broader meaning shall apply to each Loan Party for purposes of this
Agreement.

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

         "ERISA Affiliate" means, with respect to any Loan Party or Subsidiary,
any trade or business (whether or not incorporated) that is treated as a single
employer together with such Loan Party under section 414 of the Code.

         "Event of Default" shall mean any event described in Section 10.1.

         "Excluded Assets" has the meaning ascribed thereto in each Amended
Security Agreement.

         "Excluded Taxes" is defined in Section 13.2.

         "Existing Lenders" is defined in the Introduction.

         "Existing Loans" is defined in the Introduction.

         "Existing Loan Assignments" is defined in the Introduction.

         "Existing Loans" is defined in the Introduction.

         "Existing Notes" is defined in the Introduction.

         "FERC" means the Federal Energy Regulatory Commission and any successor
thereto.

         "Financial Statements" is defined in Section 3.5.

         "Fiscal Quarter" means any quarter of a Fiscal Year.

         "Fiscal Year" means a calendar year.

         "Fixed Charge Coverage Ratio" means, as of the end of any of the first
three Fiscal Quarters succeeding the Closing Date, for the Fiscal Quarters that
have elapsed since the Closing Date, and as of the end of any of Fiscal Quarter
thereafter, for the preceding four Fiscal Quarters, without duplication, the
ratio of (i) EBITDA minus (A) cash taxes and (B) operational capital
expenditures that have not been financed under Indebtedness permitted hereunder
or consented to by the Lender or by equity contributions or insurance proceeds
or similar sources to (ii) (x) Debt Service minus the gain (or plus the loss),
if any, with respect to the hedging arrangement required by Section 7.17. Such
calculations shall be made in U.S. Dollars, with Debt Service payments to be
calculated based on actual U.S. Dollars paid by the Issuer in respect of Debt
Service.

         "Former  Hancock  Issuers"  means  Garland  Energy  Development  LLC,
Oyster Bay Energy Partners L.P., Springfield Energy Associated LTD. Partnership,
Zapco Power Marketers,  Inc., Smithtown Energy Partners, L.P., Zapco Development
Corporation, Zapco Equipment Corp. and Zapco Readville Cogeneration, Inc.

         "FPA" means the Federal Power Act, as amended, and all rules and
regulations promulgated thereunder.

         "Fund" means Countryside Power Income Fund, an unincorporated,
open-ended, limited purpose trust formed under the laws of the Province of
Ontario.

         "GAAP" means, with respect to any jurisdiction, generally accepted
accounting principles as in effect from time to time in such jurisdiction.

         "Garland Project" means the facility located in Garland, Texas and
owned by Garland Energy Development, LLC.

         "Gasco" and "Gascos" means each of the entities identified as a "Gasco"
on Schedule 3.4.

         "Governmental Authority" means the United States, any state, any
county, any city or any other political subdivision in which any Loan Party or
Subsidiary operates, any Project or any Collateral is located, and any other
political subdivision, agency, authority, board, bureau, commission, court,
department, district or other instrumentality of any of the foregoing,
including, without limitation, FERC, the ICC and the Environmental Protection
Agency.

         "Governmental Requirements" means, as of the date of determination
thereof, all applicable laws, ordinances, rules, regulations, judgments,
interpretations, policy orders, decrees or similar forms of decision of any
Governmental Authority.

         "Guaranteed Obligations" means the Issuer's Obligations, including
without limitation any such Obligations incurred or accrued during the pendency
of any bankruptcy, insolvency, receivership or other similar proceeding, whether
or not allowed or allowable in such proceeding.

         "Guarantors" is defined in the Introduction.

         "Hancock Assignment" is defined in the Introduction.

         "Hamms (Lafayette) Project" means the Project identified as such in
Schedule B.

         "Hancock Assignment" is defined in the Introduction.

          "Hancock Loan" is defined in the Introduction.

         "Hancock Notes" is defined in the Introduction.

         "Hancock Note Purchase Agreement" is defined in the Introduction.

         "Hancock Purchasers" means John Hancock Life Insurance Company, John
Hancock Variable Life Insurance Company and Investors Partner Life Insurance
Company.

         "Hazardous Material" means any and all pollutants, toxic or hazardous
wastes or any other substances that might pose a hazard to health or safety, the
removal of which may be required or the generation, manufacture, refining,
production, processing, treatment, storage, handling, transportation, transfer,
use, disposal, release, discharge, spillage, seepage, or filtration of which is
or shall be restricted, prohibited or penalized by any applicable law
(including, without limitation, asbestos, urea formaldehyde foam insulation and
polychlorinated biphenyls) including, without limitation:

(a) any "hazardous substance", as defined by CERCLA;

(b) any "hazardous waste", as defined by the Resource Conservation and Recovery
Act, as amended;

(c) any petroleum product; or

(d) any pollutant or contaminant or hazardous, dangerous or toxic chemical,
material or substance within the meaning of any applicable federal, state or
local law, regulation, ordinance or requirement (including consent decrees and
administrative orders) relating to or imposing liability or standards of conduct
concerning any hazardous, toxic or dangerous waste, substance or material, all
as amended or hereafter amended.

         "ICC" means the Illinois Commerce Commission and any successor thereto.

         "ICC Account" has the meaning given such term in each Amended Security
Agreement.

          "IEGP" means Illinois Electrical Generation Partners, L.P.

         "IEGP II" means Illinois Electrical Generation Partners II, L.P.

         "Illinois Projects" means the 122nd Street (Avon) Project, the
Brickyard Project, the Countryside Project, the Dixon/Lee Project, the Dolton
(Devonshire) Project, the Morris Project, the Roxanna Project, the Streator
Project, the Upper Rock Project and the Willow Ranch (Riverside) Project.

         "Illinois Reimbursement Minimum Amount" has the meaning given such term
in each Amended Security Agreement.

         "Illinois Reimbursement Obligations" means all accrued liabilities and
obligations of the Loan Parties to the Public Utilities Fund of the State of
Illinois.

         "Improvement Agreement" means the Improvement Agreement, dated as of
April 8, 2004, by and among the Issuer and the Lender.

         "Indebtedness" means, with respect to any Person at any time, without
duplication,

         (a) its liabilities for borrowed money;

         (b) such Person's liabilities for the deferred purchase price of
property acquired by it (excluding accounts payable arising in the ordinary
course of business but including all liabilities created or arising under any
conditional sale or other title retention agreement with respect to any such
property);

         (c) all liabilities appearing on its balance sheet in accordance with
U.S. GAAP in respect of Capital Leases;

         (d) all liabilities for borrowed money secured by any Lien with respect
to any property owned by it (whether or not it has assumed or otherwise become
liable for such liabilities);

         (e) all its liabilities in respect of letters of credit or instruments
serving a similar function issued or accepted for its account by banks and other
financial institutions (whether or not representing obligations for borrowed
money) and all amounts due as indemnification payments with respect to such
liabilities of others;

         (f) its liabilities for any Swap Agreement or similar arrangement; and

         (g) any Contingent Liability of such Person with respect to liabilities
of a type described in any of clauses (a) through (f) hereof.

         Indebtedness of any Person shall include all obligations of such Person
of the character described in clauses (a) through (g) to the extent such Person
remains legally liable in respect thereof notwithstanding that any such
obligation is deemed to be extinguished under U.S. GAAP.

         "Independent Engineer" means such qualified and experienced engineer
and/or any replacement or successor engineer as reasonably selected by the
Lender. The Independent Engineer shall initially be SCS Engineers, Inc.

         "Independent Engineer's Report" means a review and analysis by the
Independent Engineer with respect to relevant technical aspects of the Projects
including, without limitation, (i) assessment of the competence of staff of the
Issuer to manage, operate and maintain the Projects, (ii) ability of the
Projects to meet expected performance and the requirements of existing
environmental permits, (iii) adequacy of maintenance budgets, procedures and
practices, (iv) forecasted availability and output of the Projects, (v) an
inspection of records provided for the Projects, (vi) a review of background
information on each Project, including information related to the physical
condition, operational and maintenance data on the gas collection well fields,
operational data on the power generating stations and information relating to
blower/flare station performance of the Projects, (vii) the preparation of a
landfill gas model to determine the amount of gas flows to be collected at each
Project in the future, (viii) a general review of the environmental permits
relating to each of the Projects and (ix) a review of copies of the Power
Purchase Agreements and Gas Purchase Agreements related to each Project.

         "Institutional Investor" means (i) any original purchaser of a Note,
(ii) any holder of a Note holding more than 5% of the aggregate principal amount
of the Notes then outstanding, and (iii) any bank, trust company, savings and
loan association or other financial institution, any pension plan, any
registered investment company, any insurance company, any registered broker or
dealer, or any other similar financial institution or entity, regardless of
legal form.

         "Intellectual Property" means all patents, trademarks, trade names,
service marks and copyrights, and all applications therefore and licenses
thereof, of any Loan Party or any Subsidiary.

         "Investment" means, relative to any Person,

         (a) any Loan or advance made by such Person to any other Person
(excluding commission, travel and similar advances to officers and employees
made in the ordinary course of business);

         (b) any Contingent Liability (other than a Contingent Liability
incurred by a Loan Party with respect to the liabilities of any other Issuer) of
such Person incurred in connection with Loans or advances described in paragraph
(a); or

         (c) any equity ownership or similar interest held by such Person in any
other Person.

         The amount of any Investment shall be the original principal or capital
amount thereof less all returns of principal or equity thereon (and without
adjustment by reason of the financial condition of such other Person) and shall,
if made by the transfer or exchange of property other than cash, be deemed to
have been made in an original principal or capital amount equal to the fair
market value of such property.

         "Issuer" is defined in the Introduction.

         "Lender" means Countryside Canada Power Inc., and any successor thereto
 as a Lender hereunder or a holder of the Notes.

         "Lien" means, with respect to any Person, any mortgage, lien, pledge,
charge, security interest or other encumbrance, or any interest or title of any
vendor, lessor, lender or other secured party to or of such Person under any
conditional sale or other title retention agreement or Capital Lease, upon or
with respect to any property or asset of such Person (including in the case of
stock, stockholder agreements, voting trust agreements and all similar
arrangements).

         "Loan Documents" means this Agreement, the Notes, the Security
Documents, the Consents and any replacements therefor.

         "Loan Parties" means, collectively, the Issuer and the Guarantors.

         "Make Whole Amount" means, as of any date with respect to any Note, an
amount equal to (i) the Discounted Value of the Remaining Scheduled Payments
with respect to the Prepaid Principal of such Note minus (ii) the amount of such
Prepaid Principal; provided that the Make Whole Amount may in no event be less
than zero.

         "Manchester (Dunbarton) Project" means the Project identified as such
in Schedule B.

         "Material" means, with respect to any Loan Party or Project, material
in relation to the business, operations, affairs, financial condition, assets,
properties, or prospects of such Loan Party and its Subsidiaries taken as a
whole or such Project.

         "Material Adverse Effect" means a materially adverse effect on (i) the
business assets, operations, properties or condition (financial or otherwise) of
the Loan Parties, taken as a whole, (ii) the ability of the Loan Parties, taken
as a whole, to perform their obligations under the Operative Documents, or (ii)
the Lender's security interest in any material portion of the Collateral or the
priority of such security interest.

         "Maturity Date" shall mean April 8, 2019.

         "Monthly Payment Date" is defined in Section 1.

         "Morris Project" means the Project identified as such in Schedule B.

         "Mortgage Amendments" means, collectively, (i) each Assignment and
First Amendment to Open-End Mortgage, Assignment of Leases and Rents and
Security Agreement, dated as of the date hereof, among each of Burlington, Cape
May, Devonshire, Lafayette, Oceanside and Onondaga, JPMorgan Chase Bank
(formerly known as The Chase Manhattan Bank), as predecessor mortgagee, and the
Lender, as successor mortgagee, (ii) each Deed of Appointment of Substitute
Trustee, dated as of the date hereof, by JPMorgan Chase Bank, as trustee, and
(iii) that certain Assignment and Second Amendment to Open-End Easement Deed of
Trust, Assignment of Leases and Rents and Security Agreement, dated as of the
date hereof, among Suffolk Energy Partners, L.P. or Suffolk Transmission and
Resources, JPMorgan Chase Bank, as predecessor beneficiary, the Lender, as
successor beneficiary, and Alexander Title Agency Incorporated, as trustee.

         "Multiemployer Plan" means any Plan that is a "multiemployer plan" (as
such term is defined in section 4001(a)(3) of ERISA).

         "Net Cash Proceeds" shall mean, with respect to any event, cash
(including any cash received by way of deferred payment pursuant to a promissory
note or otherwise, but payable only as and when received) received, on or after
the date of occurrence of such event, by the Issuer or any Subsidiary from the
occurrence of such event after (i) payment of all reasonable attorneys' fees and
usual and customary underwriting commissions, closing costs and other reasonable
expenses associated with the occurrence of such event, (ii) deduction of an
amount to be reasonably reserved to pay all federal, state and local taxes that
will become payable by such Issuer or Subsidiary as a result of such event,
(iii) deduction of all deposits, escrow amounts, or other reserves required to
be maintained by the Issuer or any Subsidiary in connection with any event that
is an asset disposition or an incurrence of Indebtedness until released to the
Issuer or applicable Subsidiary, (iv) deductions for the amount of any other
Indebtedness (other than the Obligations) which is required to be repaid
concurrently with or otherwise as a result of the occurrence of such event, and
(v) with respect to any Special Event under Sections 6.2(a)(i) and (ii) and
Section 6.2(b), deductions for the amount of proceeds used to rebuild, repair,
replace or otherwise restore in any way all or any part of any Project solely to
the extent permitted by the Loan Documents.

         "Net Income" means, as applied to any Person for any period, the
aggregate amount of net income of such Person, after taxes, for such period, as
determined in accordance with U.S. GAAP.

         "Net Distributable Cash Flow" of any Person for any period means all
income received by such Person during such period, less (i) all expenses of such
Person paid during such period, including but not limited to legal and
accounting fees and disbursements, banking and investment banking fees,
brokerage fees, and other internal and third party fees and costs, (ii) all
amounts paid by such Person during such period pursuant to any requirement of
the ICC, (iii) all amounts paid by such Person during such period pursuant to
the Yesco Note and the AJG Subordinated Loan, (iv) federal, state and local
taxes paid by such Person during such period and an amount to be reasonably
reserved to pay all such taxes that will become payable by such Person, (v) in
the event of a liquidation of such Person, all amounts paid by such Person
during such period to liquidate all other financial and contractual liabilities
and wind up the affairs of such Person, and (vi) a reasonable reserve for
anticipated capital expenditures and working capital requirements.

         "NGA" means the Natural Gas Act, as amended, and all rules and
regulations promulgated thereunder.

         "Notes" is defined in Article 1.

         "Obligations" means the payment (whether at stated maturity, by
acceleration or otherwise) and performance of (i) the Notes and the other
obligations of the Issuer under the Loan Documents, including (A) all principal
of and interest (including any interest that accrues after the commencement of
any case, proceeding or other action relating to the bankruptcy, insolvency or
reorganization of the Issuer, whether or not such interest constitutes an
allowable claim) on any Note issued pursuant to this Agreement and (B) all other
amounts payable and all obligations to be performed by the Issuer under this
Agreement or any other Loan Document and (ii) any renewals or extensions of any
of the foregoing.

         "Oceanside Project" means the Project identified as such in Schedule B.

         "Onondaga Project" means the Project identified as such in Schedule B.

         "Operating Budget" means the annual budget setting forth, on a
consolidated basis for all of the USEB Operating Assets and on a month-by-month
basis for the applicable calendar year, the total projected Operating Expenses
expected to be incurred during such month with respect to all of the Loan
Parties.

         "Operating Expenses" has the meaning ascribed thereto in each Amended
Security Agreement.

         "Operative Documents" means, collectively, the Project Documents and
the Loan Documents.

         "Ordinary Course of Business" shall mean, with respect to any action
taken by any Loan Party or any Subsidiary of any Loan Party, that such action is
taken in the normal course of any operational, maintenance, asset management or
other business activity conducted by entities in the same industry as such Loan
Party or Subsidiary and in accordance with Prudent Engineering and Operating
Practices, including, without limitation, any natural gas, steam, thermal energy
and fuel purchase or sale transactions.

         "Organic Document" means, relative to any Loan Party, as applicable,
its founding act, charter, articles of incorporation and by-laws, memorandum and
articles of association, certificate of partnership, partnership agreement,
operating agreement, limited liability company agreement, or similar instrument,
and voting trusts and similar arrangements applicable to any of its authorized
shares of capital stock or any partnership or membership interests.

         "Other Guarantors" means, collectively, Avon, Barre, Brickyard,
Burlington, Cape May, Devonshire, Dixon, Dunbarton, IEGP, IEGP II, Lafayette,
Oceanside, Onondaga, Power (Suffolk), Resources, Riverside, Roxanna, Streator,
Suffolk, Suffolk Transmission, Taylor, Tucson, Upper Rock, ZFC, Tactics, ZIE and
ZFC Energy.

          "PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.

         "Pension Plan" means a "pension plan", as such term is defined in
Section 3(2) of ERISA, which is subject to Title IV of ERISA, and to which the
Loan Parties or any corporation, trade or business that is, along with the Loan
Parties, an ERISA Affiliate, may have liability, including any liability by
reason of having been a substantial employer within the meaning of Section 4063
of ERISA at any time during the preceding five years, or by reason of being
deemed to be a contributing sponsor under Section 4069 of ERISA.

         "Permit" means any action, approval, consent, waiver, exemption,
variance, franchise, order, permit, authorization, right or license of or from a
Governmental Authority, including any modification or renewal of the foregoing.

         "Permitted Liens" means (i) Liens for taxes not yet subject to
penalties for non-payment and Liens for taxes the payment of which is being
contested as permitted by Section 7.5, (ii) Liens resulting from any money
judgments, writs or warrants of attachment to the extent such Liens do not
constitute Events of Default, (iii) Liens securing the Obligations, (iv) pledges
or deposits required by worker's compensation laws, unemployment insurance laws,
social security laws or similar legislation, or good faith deposits in
connection with bids, tenders, contracts (other than for the payment of
Indebtedness), or leases (other than the leases for the SPSA I (Genco) Project
and the SPSA II (Transco) Project) or deposits to secure public or statutory
obligations and/or deposits of cash to secure surety, appeal, performance or
other similar bonds to which such Person is a party, or deposits as security for
contested taxes or import duties or for the payment of rent, (v) Liens imposed
by law, including carriers', warehousemen's, materialmen's and mechanics' Liens
that are incurred in the Ordinary Course of Business for sums not more than
thirty (30) days delinquent or that are being contested in good faith (provided,
that a statutory bond, reserve or other appropriate provision shall have been
made therefor and the Issuer and Project incurring such Lien are in compliance
with all provisions of the Project Documents to which they are parties), (vi)
purchase money Liens of a vendor of equipment (or its lender or financier and
their successors, assigns and/or replacements) whether or not such equipment is
to be included in any Project (which Liens will be extinguished upon completion
of permanent financing for such Project or upon payment in full in accordance
with the delivery terms of such equipment) and Liens arising from capital leases
of vehicles and office, testing and construction equipment existing on the
Closing Date as set forth on Schedule 3.16(b) and with respect to any of such
equipment or vehicles that are newly acquired, which Liens shall not exceed
$2,000,000 in the aggregate, (vii) rights of other parties under the Project
Documents existing as of the Closing Date, or as acceptable to the Lender in its
sole discretion, if hereafter coming into existence, (viii) Liens that have been
subordinated (on terms satisfactory to the Lender) to the security interests
created under the Security Documents, (ix) Liens securing the obligations of the
Issuer under the foreign exchange hedging arrangements required pursuant to
Section 7.17 and (x) Liens existing as of the date hereof and securing
Indebtedness disclosed on Part A of Schedule 3.16(a).

         "Person" means an individual, partnership, corporation, limited
liability company, association, trust, unincorporated organization, or a
government or agency or political subdivision thereof.

         "Plan" means an "employee benefit plan" (as defined in section 3(3) of
ERISA) that is or, within the preceding five years, has been established or
maintained, or to which contributions are or, within the preceding five years,
have been made or required to be made, by any Loan Party or any ERISA Affiliate
thereof or with respect to which such Loan Party or any ERISA Affiliate thereof
may have any liability.

         "Power Purchase Agreement" means each agreement pursuant to which a
Project Owner (i) refines, transmits and sells landfill gas (in the case of the
Cape May Project, the Springfield Project, the SPSA II (Transco) Project and the
Tucson Project), or (ii) generates and sells electricity (in the case of all
other Projects).

         "Prepaid Principal" means, as applicable, with respect to any Note, the
principal of such Note that is to be prepaid.

         "Prepayment Date" means, with respect to the Prepaid Principal of any
Note, the date on which such Prepaid Principal is to be prepaid pursuant to
Section 6.5(b).

         "Principal Debt" means, with respect to any Note as of any date, the
sum of outstanding principal balance of such Note as of such date.

         "Pro Forma Projections" means the pro forma cash flow projections of
the USEB Operating Assets set forth in Exhibit F, as updated, in accordance with
Section 5.1(d).

         "Project or Projects" means the 122nd Street (Avon) Project, the Amity
(Taylor) Project, the Barre Project, the Brickyard Project, the Brookhaven
Project, the Burlington Project, the Cape May Project, the Countryside Project,
the Dixon/Lee Project, the Dolton (Devonshire) Project, the Hamms (Lafayette)
Project, the Manchester (Dunbarton) Project, the Morris Project, the Oceanside
Project, the Onondaga Project, the Roxanna Project, the SPSA I (Genco) Project,
the SPSA II (Transco) Project, the Streator Project, the Tucson Project, the
Upper Rock Project and the Willow Ranch (Riverside) Project.

         "Project Documents" means all Material agreements, instruments and
documents now existing or hereafter entered into relating to the construction,
acquisition, installation, maintenance or operation of, the sale or other
disposition of any product produced or service provided by, the supply of fuel
or any other material product or service to, or the removal of any waste product
from, a Project.

         "Project Land" means (i) with respect to the Projects owned by the
Mortgagors, the real property described in each applicable Amended Mortgage and
(ii) with respect to the other Projects, the land on which the Project
(including any transmission facilities owned by any Loan Party) is located.

         "Project Owners" is defined in the first paragraph of this Agreement.

         "Prudent Engineering and Operating Practices" means, with respect to
each Project, the practices, methods and acts engaged in or approved by the
electric utility industry that, at a particular time for electrical generating
facilities of similar design and construction as the Project, in the exercise of
reasonable judgment at the time a decision was made, would have been expected to
accomplish the desired result in a timely manner consistent with law,
regulation, reliability, safety, environmental protection and economy.

         "PUHCA" means the Public Utility Holding Company Act of 1935, as
amended, and all rules and regulations promulgated thereunder.

         "PURPA" means the Public Utility Regulatory Policies Act of 1978, as
amended, and all rules and regulations promulgated thereunder.

         "Qualifying  Facility" shall have the same meaning as the term
"qualifying  facility" in Part 292 of FERC's  regulations under PURPA.

         "Reinvestment Yield" means, with respect to the Prepaid Principal of
any Note, 0.50% over the yield to maturity implied by the "Government of Canada
Yield", which as at any date, means the arithmetic average (rounded to the
nearest 1/100th of 1%) of the respective percentages determined by two Reference
Dealers to be the yield to maturity, calculated at that date in accordance with
generally accepted financial practice, which, assuming semi-annual compounding,
would be carried by a non-callable Government of Canada bond denominated in
Canadian currency, having a term to maturity equal to the remaining term to the
maturity date specified hereinabove and issued on that date in Canada at 100% of
its principal amount. For the purposes of this definition, "Reference Dealer"
means any investment dealer selected by the Issuer from among the ten members in
good standing of the Investment Dealers Association of Canada who, at the time
of selection, have the largest net free capital according to their most recent
audited financial statements or, if no such dealer exists, any nationally
recognized Canadian investment dealer selected by the Issuer and, in the opinion
of the Lender, qualified to make the determination for which it was so selected.

         "Releases" means any "release" or "threatened release" as such terms
are defined in CERCLA.

         "Remaining Average Life" means, with respect to any Prepaid Principal,
the number of years (calculated to the nearest one-twelfth of a year) obtained
by dividing (i) the sum of the products obtained by multiplying (a) the
principal component of each Remaining Scheduled Payment with respect to such
Prepaid Principal by (b) the number of years (calculated to the nearest
one-twelfth of a year) that will elapse between the Prepayment Date with respect
to such Prepaid Principal and the scheduled due date of such Remaining Scheduled
Payment by (ii) such Prepaid Principal.

         "Remaining Scheduled Payments" means, with respect to the Prepaid
Principal of any Note, all payments of such Prepaid Principal and interest
thereon that would be due after the Prepayment Date if no payment of such
Prepaid Principal were made prior to its scheduled due date; provided, that if
such Prepayment Date is not a date on which interest payments are due to be made
under the terms of the Notes, then the amount of the next succeeding scheduled
interest payment will be reduced by the amount of interest accrued to such
Prepayment Date and required to be paid on such Prepayment Date pursuant to
Section 6.5(b).

         "Reportable Event" means a reportable event described in Section
4043(b) of ERISA or the regulations promulgated thereunder.

         "Responsible Officer" means, with respect to any Loan Party, any Senior
Financial Officer and any other officer of such Loan Party with responsibility
for the administration of the relevant portion of this Agreement, in its
capacity as such.

         "Roxanna Project" means the Project identified as such in Schedule B.

         "Securities Act" means the Securities Act of 1933, as amended from time
to time.

         "Security Agreement Amendment" is defined in Section 1.

         "Security Agreement Amendments" is defined in Section 1.

         "Security Documents" means the Amended Security Agreements, the
Security Agreement Amendments, the Amended AJG Security Agreement, the AJG
Security Agreement Amendment, the Amended Mortgages, the Mortgage Amendments and
any replacements therefor.

         "Senior Financial Officer" means, with respect to any Loan Party, the
chief financial officer or principal accounting officer of such Loan Party.

         "Series A Notes" is defined in Section 1.

         "Series B Notes" is defined in Section 1.

         "Special Event" is defined in Section 6.2.

         "SPSA I (Genco) Project" means the Project identified as such in
Schedule B.

         "SPSA II (Transco) Project" means the Project identified as such in
Schedule B.

         "Streator Project" means the Project identified as such in Schedule B.

         "Subordinated Indebtedness" means the AJG Subordinated Loan and Yesco
Note.

         "Subordination Agreements" means those certain Subordination
Agreements, dated as of the date hereof, by and between the Lender and each
respective lender under the Subordinated Indebtedness substantially in the form
of Exhibit G.

         "Subsidiary" means, as to any Person, any corporation, association or
other business entity in which such Person or one or more of its Subsidiaries
owns sufficient equity or voting interests to enable it or them (as a group)
ordinarily, in the absence of contingencies, to elect a majority of the
directors (or Persons performing similar functions) of such entity, and any
partnership, limited liability company or joint venture if more than a 50%
interest in the profits or capital thereof is owned by such Person or one or
more of its Subsidiaries (unless such partnership can and does ordinarily take
major business actions without the prior approval of such Person or one or more
of its Subsidiaries). Unless the context otherwise clearly requires, any
reference to a "Subsidiary" is a reference to a Subsidiary of a Loan Party.

         "Swap Agreement" means any commodity swap, cap, floor, collar, forward
agreement, futures contract, commodity or other hedging or derivative contract.

         "Total Debt" is defined as all cash pay, fixed or variable
interest-bearing debt, including but not limited, to (i) (A) short term debt,
(B) long term debt including the current portion, (C) capital leases and (D) all
other Contingent Liabilities over $1,000,000 but excluding (ii) (A) Illinois
Reimbursement Obligations, (B) the YESCO Note and (C) the AJG Subordinated Loan.

         "Trust Units" shall mean the trust units issued by the Fund.

         "Tucson Project" means the Project identified as such in Schedule B.

         "UCC" means the Uniform Commercial Code as from time to time in effect
in the State of New York or, in the case of perfection of a security interest in
a state other than the State of New York, the Uniform Commercial Code as from
time to time in effect in each such other State.

         "Upper Rock Project" means the Project identified as such in Schedule
B.

         "USEB Operating Assets" means the assets, liabilities and
capitalization of the Issuer and its Subsidiaries, excluding the equity, assets
and liabilities of Brown County Energy Associates LLC, Garland Energy
Development LLC, Hoffman Road Associates LLC, Oyster Bay Energy Partners LP,
Zapco Development Corp. and ZFC Equipment Corp. and certain restructuring
expenses of the Issuer unrelated to the continuing operating projects of the
Issuer and its Subsidiaries.

         "Willow Ranch (Riverside) Project" means the Project identified as such
in Schedule B.

         "YESCO Note" means that certain Secured Promissory Note, dated March
30, 2001, in the amount of $4,700,000, made by BMC, Brookhaven, Countryside,
Morris, Countryside Landfill Gasco, L.L.C. and Morris Gasco, L.L.C. in favor of
Yankee Energy Services Company.[EXECUTION VERSION]

             AMENDMENT TO INDENTURE OF TRUST AND SECURITY AGREEMENT

                            Dated as of April 8, 2004

                                      among

 U.S. ENERGY BIOGAS CORP. (as successor to Zahren Alternative Power Corporation)
                          AVON ENERGY PARTNERS, L.L.C.
                           BARRE ENERGY PARTNERS, L.P.
                         BRICKYARD ENERGY PARTNERS, LLC
                             BURLINGTON ENERGY, INC.
                        CAPE MAY ENERGY ASSOCIATES, L.P.
                        DEVONSHIRE POWER PARTNERS, L.L.C.
                         DIXON/LEE ENERGY PARTNERS, LLC
                 DUNBARTON ENERGY PARTNERS, LIMITED PARTNERSHIP
                  ILLINOIS ELECTRICAL GENERATION PARTNERS, L.P.
                ILLINOIS ELECTRICAL GENERATION PARTNERS II, L.P.
                         LAFAYETTE ENERGY PARTNERS, L.P.
                              OCEANSIDE ENERGY INC.
                         ONONDAGA ENERGY PARTNERS, L.P.
                        POWER GENERATION (SUFFOLK), INC.
                       RESOURCES GENERATING SYSTEMS, INC.
                       RIVERSIDE RESOURCE RECOVERY, L.L.C.
                        ROXANNA RESOURCE RECOVERY, L.L.C.
                          STREATOR ENERGY PARTNERS, LLC
                          SUFFOLK ENERGY PARTNERS, L.P.
                       SUFFOLK TRANSMISSION PARTNERS, L.P.
                          TAYLOR ENERGY PARTNERS, L.P.
                          TUCSON ENERGY PARTNERS, L.P.
                         UPPER ROCK ENERGY PARTNERS, LLC
      BIOGAS FINANCIAL CORPORATION (formerly Zahren Financial Corporation)
                        ZAPCO ENERGY TACTICS CORPORATION
                           ZAPCO ILLINOIS ENERGY, INC.
                                ZFC ENERGY, INC.,
                                   as Grantors

                         COUNTRYSIDE CANADA POWER INC.,
                         as Secured Party and as Trustee
<PAGE>

             AMENDMENT TO INDENTURE OF TRUST AND SECURITY AGREEMENT

         This  AMENDMENT,  dated  April 8, 2004  (this  "Amendment"),  among (i)
U.S. ENERGY BIOGAS CORP. (as successor to Zahren Alternative Power Corporation),
a Delaware  corporation  (the "Issuer"), (ii) AVON ENERGY  PARTNERS, L.L.C.,  an
Illinois  limited liability company,  BARRE ENERGY PARTNERS,  L.P., a Delaware
limited  partnership, BRICKYARD ENERGY  PARTNERS, LLC, a Delaware  limited
liability  company, BURLINGTON ENERGY, INC., a Vermont  corporation, CAPE MAY
ENERGY ASSOCIATES,  L.P., a Delaware limited partnership, DEVONSHIRE  POWER
PARTNERS,  L.L.C.,  an Illinois  limited  liability  company,  DIXON/LEE  ENERGY
PARTNERS,  LLC, a Delaware  limited liability  company,  DUNBARTON  ENERGY
PARTNERS,  LIMITED  PARTNERSHIP,  a New  Hampshire  limited  partnership,
ILLINOIS  ELECTRICAL GENERATION  PARTNERS,  L.P., a Delaware  limited
partnership,  ILLINOIS  ELECTRICAL  GENERATION  PARTNERS II, L.P., a Delaware
limited partnership,  LAFAYETTE  ENERGY  PARTNERS,  L.P., a New Jersey  limited
partnership,  OCEANSIDE  ENERGY INC., a New York  corporation, ONONDAGA ENERGY
PARTNERS,  L.P., a New York limited partnership, POWER GENERATION (SUFFOLK),
INC., a Delaware Corporation,  RESOURCES GENERATING  SYSTEMS,  INC., a New York
corporation  ("Resources"),  RIVERSIDE RESOURCE RECOVERY,  L.L.C., an Illinois
limited liability company,  ROXANNA RESOURCE RECOVERY,  L.L.C., an Illinois
limited liability company,  STREATOR ENERGY PARTNERS, LLC, a Delaware limited
liability company, SUFFOLK ENERGY PARTNERS, L.P., a Virginia limited partnership
,  SUFFOLK TRANSMISSION  PARTNERS,  L.P., a Delaware limited partnership, TAYLOR
ENERGY PARTNERS,  L.P., a Pennsylvania  limited  partnership,  TUCSON ENERGY
PARTNERS, L.P., a Delaware limited partnership, UPPER ROCK ENERGY PARTNERS, LLC,
a Delaware limited liability company,  BIOGAS FINANCIAL  CORPORATION  (formerly
known as Zahren Financial Corporation),  a Connecticut corporation, ZAPCO ENERGY
TACTICS CORPORATION,  a Delaware corporation,  ZAPCO ILLINOIS  ENERGY,  INC., a
Delaware  corporation,  ZFC ENERGY,  INC., a Delaware  corporation (the parties
listed in this clause (ii) being,  collectively,  the  "Guarantors"),  and (iii)
COUNTRYSIDE  CANADA POWER INC., as secured  party (the  "Secured  Party") and as
Trustee (the "Trustee"),  is made to that certain Indenture of Trust and
Security Agreement,  dated as of November 30, 1999 (as amended up to but not
including the date hereof, the "Original  Security  Agreement"),  among the
Grantors,  Garland Energy  Development,  LLC, Oyster Bay Energy Partners,  L.P.,
Springfield  Energy  Associated LTD.  Partnership, Zapco Power Marketers,  Inc.,
Smithtown Energy Partners,  L.P.,  Zapco  Development  Corporation,  Zapco
Equipment Corp. and Zapco Readville  Cogeneration,  Inc.  (collectively,  the
"Former Hancock Issuers") and Countryside Canada Power Inc. (as successor to The
Chase Manhattan Bank), not in its individual capacity but solely as trustee.

         SECTION 1.        AMENDMENT.

         (a) The Schedules and Exhibits to the Original Security Agreement are
hereby amended in their entirety and replaced with the Schedules and Exhibits to
this Amendment, each of which Schedules and Exhibits shall be considered a
Schedule or Exhibit, as applicable, to the Security Agreement, as amended by
this Amendment.

         (b) The Original Security Agreement shall be amended in its entirety to
read as follows:

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S>                                                                                                            <C>
Section                                                                                                        Page
Article I DEFINITIONS.............................................................................................6
         Section 1.01. Terms Defined..............................................................................6
Article II GRANT OF SECURITY.....................................................................................10
         Section 2.01. Grant of Security.........................................................................10
         Section 2.02. Security for Secured Obligations..........................................................13
Article III REPRESENTATIONS AND WARRANTIES OF THE GRANTORS.......................................................13
         Section 3.01. Organization; Power; Authorization........................................................13
         Section 3.02. Name, Location, etc.......................................................................14
         Section 3.03. Collateral; Source of Revenues............................................................14
         Section 3.04. Control over Collateral...................................................................14
         Section 3.05. Pledged Interests.........................................................................14
         Section 3.06. Pledged Debt..............................................................................15
         Section 3.07. No Other Deposit or Securities Accounts...................................................15
         Section 3.08. Protection of Lien and Security Interest..................................................15
Article IV ACCOUNTS..............................................................................................16
         Section 4.01. Creation of Accounts......................................................................16
         Section 4.02. Funding of Accounts.......................................................................17
         Section 4.03. Investment of Account Monies..............................................................20
Article V COVENANTS OF THE GRANTORS..............................................................................21
         Section 5.01. Defense of Title..........................................................................21
         Section 5.02. Further Assurances........................................................................21
         Section 5.03. Recordings and Filings....................................................................22
         Section 5.04. Payment of Fees, Costs and Expenses.......................................................22
         Section 5.05. Notification of Litigation................................................................23
         Section 5.06. Insurance, Condemnation...................................................................23
         Section 5.07. Maintenance of Security Property..........................................................27
         Section 5.08. Compliance with Note Purchase Agreement...................................................28
         Section 5.09. Taxes.....................................................................................28
         Section 5.10. Project Documents.........................................................................28
         Section 5.11. Applicable Permits........................................................................30
         Section 5.12. Delivery of Security Property.............................................................30
         Section 5.13. No Secured Party Liability................................................................31
Article VI REMEDIES..............................................................................................32
         Section 6.01. Remedies on Default.......................................................................32
Article VII  CONCERNING THE SECURED PARTY........................................................................34
         Section 7.01. Duties; Conduct; Protections..............................................................34
         Section 7.02. Special Rights............................................................................36
         Section 7.03. Release of Certain Security Property......................................................37
Article VIII CONSENTS TO ASSIGNMENT AND PLEDGE...................................................................37
         Section 8.01. Consent to Pledge and Assignment..........................................................37
         Section 8.02. Representations and Warranties of Grantors................................................37
</TABLE>

                                      2
<TABLE>
<CAPTION>
<S>                                                                                                              <C>
         Section 8.03. Agreements of Grantors....................................................................38
         Section 8.04. Rejection of Project Documents............................................................39
         Section 8.05. Performance by Secured Party..............................................................39
         Section 8.06. Waivers...................................................................................39
         Section 8.07. Unconditional Nature of Secured Obligations...............................................40
Article IX GENERAL...............................................................................................41
         Section 9.01. Submission to Jurisdiction................................................................41
         Section 9.02. Authority of the Issuer...................................................................41
         Section 9.03. Excluded Assets...........................................................................41
         Section 9.04. Amendments, Consents and Waivers..........................................................41
         Section 9.05. Notices...................................................................................42
         Section 9.06. Successors and Assigns....................................................................42
         Section 9.07. Security Agreement........................................................................42
         Section 9.08. Partial Invalidity........................................................................42
         Section 9.09. Release...................................................................................42
         Section 9.10. Counterparts..............................................................................42
         Section 9.11. Headings..................................................................................43
</TABLE>

SCHEDULES AND EXHIBITS

SCHEDULE 2.01(c)..-........Non-Assigned Material Agreements
SCHEDULE 3.02.....-........Grantor Information
SCHEDULE 3.07.....-........Deposit Accounts
SCHEDULE 4.03(a)..-........Illinois Permitted Investments
SCHEDULE 4.03(b)..-........Other Permitted Investments

EXHIBIT A.........-........Landfill Owners
EXHIBIT B.........-........Operating and Maintenance Agreements
EXHIBIT C.........-........Equity Interests
EXHIBIT D.........-........Indebtedness of Gascos to Grantors
EXHIBIT E.........-........Form of Insurance Withdrawal Certificate

                                        3

                               SECURITY AGREEMENT

         SECURITY AGREEMENT (this "Security Agreement"), dated as of April 8,
2004, by and among (i) U.S. ENERGY BIOGAS CORP., a Delaware corporation (the
"Issuer"), (ii) AVON ENERGY PARTNERS, L.L.C., an Illinois limited liability
company ("Avon"), BARRE ENERGY PARTNERS, L.P., a Delaware limited partnership
("Barre"), BRICKYARD ENERGY PARTNERS, LLC, a Delaware limited liability company
("Brickyard"), BURLINGTON ENERGY, INC., a Vermont corporation ("Burlington"),
CAPE MAY ENERGY ASSOCIATES, L.P., a Delaware limited partnership ("Cape May"),
DEVONSHIRE POWER PARTNERS, L.L.C., an Illinois limited liability company
("Devonshire"), DIXON/LEE ENERGY PARTNERS, LLC, a Delaware limited liability
company ("Dixon"), DUNBARTON ENERGY PARTNERS, LIMITED PARTNERSHIP, a New
Hampshire limited partnership ("Dunbarton"), ILLINOIS ELECTRICAL GENERATION
PARTNERS, L.P., a Delaware limited partnership ("IEGP"), ILLINOIS ELECTRICAL
GENERATION PARTNERS II, L.P. ("IEGP II"), a Delaware limited partnership,
LAFAYETTE ENERGY PARTNERS, L.P., a New Jersey limited partnership ("Lafayette"),
OCEANSIDE ENERGY INC., a New York corporation ("Oceanside"), ONONDAGA ENERGY
PARTNERS, L.P., a New York limited partnership ("Onondaga"), POWER GENERATION
(SUFFOLK), INC., a Delaware Corporation ("Power (Suffolk)"), RESOURCES
GENERATING SYSTEMS, INC., a New York corporation ("Resources"), RIVERSIDE
RESOURCE RECOVERY, L.L.C., an Illinois limited liability company ("Riverside"),
ROXANNA RESOURCE RECOVERY, L.L.C., an Illinois limited liability company
("Roxanna"), STREATOR ENERGY PARTNERS, LLC, a Delaware limited liability company
("Streator"), SUFFOLK ENERGY PARTNERS, L.P., a Virginia limited partnership
("Suffolk"), SUFFOLK TRANSMISSION PARTNERS, L.P., a Delaware limited partnership
("Suffolk Transmission"), TAYLOR ENERGY PARTNERS, L.P., a Pennsylvania limited
partnership ("Taylor"), TUCSON ENERGY PARTNERS, L.P., a Delaware limited
partnership ("Tucson"), UPPER ROCK ENERGY PARTNERS, LLC, a Delaware limited
liability company ("Upper Rock"), BIOGAS FINANCIAL CORPORATION (formerly known
as Zahren Financial Corporation), a Connecticut corporation ("ZFC"), ZAPCO
ENERGY TACTICS CORPORATION, a Delaware corporation ("Tactics"), ZAPCO ILLINOIS
ENERGY, INC., a Delaware corporation ("ZIE"), and, collectively with Avon,
Barre, Brickyard, Burlington, Cape May, Devonshire, Dixon, Dunbarton, Lafayette,
Oceanside, Onondaga, Riverside, Roxanna, Streator, Suffolk, Suffolk
Transmission, Taylor, Tucson and Upper Rock, the "Project Owner Guarantors"),
and ZFC ENERGY, INC., a Delaware corporation ("ZFC Energy" and, collectively
with Tactics, ZFC, Resources, Power (Suffolk), IEGP II, IEGP and the Project
Owner Guarantors, the "Guarantors" and, together with the Issuer, the
"Grantors") and (iii) COUNTRYSIDE CANADA POWER INC., a federal Canadian
corporation (the "Secured Party").

                                 R E C I T A L S

A. The Issuer is a company principally involved in the development, management
and ownership of facilities that either use landfill gas as a fuel for the
generation of electricity, transmit landfill gas for sale to others, treat
landfill gas in order to convert it into a more refined and saleable fuel, such
as liquefied natural gas, or utilize landfill gas to treat landfill leachate,
and, as a general and/or limited partner or member owning, either directly or
through an Affiliate, 100% of the equity interests in each Guarantor (except to
the extent that AJG Financial Services, Inc. owns an indirect interest therein).

                                       4

B. Garland Energy Development, LLC, Oyster Bay Energy Partners, L.P.,
Springfield Energy Associated LTD. Partnership, Zapco Power Marketers, Inc.,
Smithtown Energy Partners, L.P., Zapco Development Corporation, Zapco Equipment
Corp. and Zapco Readville Cogeneration, Inc. (collectively, the "Former Hancock
Issuers") and the Grantors previously entered into the Original Note Purchase
Agreement (such term and all other capitalized terms used in these Recitals
without definition are used as defined in Section 1.01), which provided for the
issuance of the Existing Notes by the Former Hancock Issuers and the Grantors.
The Former Hancock Issuers and the Grantors previously entered into the Original
Security Agreement, which secured the obligations of the Grantors and the Former
Hancock Issuers with respect to the Existing Notes.

C. The Secured Party has entered into that certain Assignment Agreement, dated
the date hereof, with John Hancock Life Insurance Company, John Hancock Variable
Life Insurance Company and Investors Partner Life Insurance Company
(collectively, the "Hancock Purchasers"), pursuant to which the Hancock
Purchasers have sold to the Secured Party all of their interest in and under the
Original Note Purchase Agreement and the Existing Notes.

D. Concurrently with the amendment of this Security Agreement, BMC Energy LLC,
Brookhaven Energy Partners, LLC, Countryside Genco, L.L.C., Morris Genco, L.L.C.
(the "BMC Parties"), together with the parties hereto, will enter into the
Amendment to Note Purchase Agreement, dated as of the date hereof, pursuant to
which (i) the Issuer will (A) authorize the issuance of its 11.00% Amended
Senior Secured Notes Series A Due April 30, 2019 (the "Series A Notes") and
execute, issue and deliver to the Secured Party the Series A Notes and (B)
authorize the issuance of its 11.00% Amended Senior Secured Notes Series B Due
April 30, 2019 (the "Series B Notes") and execute, issue and deliver to the
Secured Party the Series B Notes, and (iii) the Secured Party will surrender to
the Issuer the Existing Notes and make a cash advance to the Issuer in an
aggregate principal amount of Canadian $31,330,028.00 (the "Advance").

E. Each Grantor (other than the Issuer) is an affiliate of the Issuer and each
such Grantor has a business relationship with the Issuer, such that each such
Grantor will receive benefits generally from the purchase of the Existing Notes,
exchange and issuance of the Notes, the Advance and the other transactions
contemplated by the Loan Documents, which benefits are hereby acknowledged by
each such Grantor to be sufficient consideration for the liability of such
Grantor with respect to the Secured Obligations and the pledge and granting of a
security interest hereunder as security for each such Grantor's Secured
Obligations;

F. To induce the Secured Party to exchange the Existing Notes for, and purchase,
the Notes, each Grantor has agreed to amend its obligations under the Original
Security Agreement on the terms set forth herein in order to grant to the
Secured Party a first priority perfected security interest in the property
described herein, subject to the terms and conditions hereof.

                                       5

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants of the parties herein set forth and in order to secure the full and
punctual performance and payment of each Grantor's Secured Obligations, the
parties hereto agree as follows:

                                    Article I
                                   DEFINITIONS

Section 1.01. ....Terms Defined.

         Unless otherwise defined herein, all capitalized terms used in this
Security Agreement have the meanings given them in the Amended Note Purchase
Agreement. The following capitalized terms used in this Security Agreement shall
have the meanings set forth below:

         "Accounts" shall mean the Debt Service Reserve Account, the Other ICC
Account and the Construction Reserve Account.

         "Amended Note Purchase Agreement" shall mean the Original Note Purchase
Agreement as amended, supplemented or otherwise modified from time to time
(including pursuant to that certain Amendment to Note Purchase Agreement, dated
as of the date hereof, among the Grantors, the BMC Parties and the Secured
Party).

         "Available Debt Service Funds" shall mean, on any Quarterly Payment
Date, operating cash flow of the USEB Operating Assets received by the Issuer
during the Fiscal Quarter most recently ended, minus the amount of (i) payments
made during such Fiscal Quarter with respect to (A) Operating Expenses of the
Issuer, (B) interest and Principal Debt of the Notes and (C) the Illinois
Reimbursement Minimum Amount.

         "BMC" shall mean BMC Energy LLC.

         "BMC Parties" shall mean, collectively, BMC Energy LLC, Brookhaven
Energy Partners, LLC, Countryside Genco, L.L.C. and Morris Genco, L.L.C.

         "Brookhaven" shall mean Brookhaven Energy Partners, LLC.

         "Collateral" shall mean, collectively, the Security Property and the
other property and assets subject to the lien of the BMC Group Security
Agreement, the Amended Mortgages or the Amended AJG Security Agreement.

         "Construction Reserve Account" is defined in Section 4.01(c).

         "Control Agreements" shall mean (i) the control agreement, dated the
date hereof, among the Secured Party, Merrill Lynch & Co. and the Issuer,
granting to the Secured Party control over the Debt Service Reserve Account,
(ii) the control agreement, dated the date hereof, among the Secured Party,
Merrill Lynch & Co., the Illinois Guarantors and the Illinois Investment
Advisor, granting to the Secured Party control over the Other ICC Account for
collateral security purposes, and (iii) the control agreement, dated the date
hereof, among the Secured Party, Merrill Lynch & Co. and the Issuer, granting to
the Secured Party control over the Construction Reserve Account.

                                       6

         "Countryside" shall mean Countryside Genco, L.L.C.

         "Event of Default" shall have the meaning given such term in the
Amended Note Purchase Agreement.

         "Event of Loss" has the meaning specified in Section 5.06(b).

         "Excluded Assets" of any Grantor shall mean (i) such Grantor's interest
in any Future Projects, (ii) proceeds to such Grantor from any Future Projects,
(iii) any indemnification payments made to such Grantor from former shareholders
of Zahren Alternative Power Corporation in connection with the merger
transaction consummated on May 11, 2001 by U.S. Energy Systems, Inc., USE
Acquisition Corp. and Zahren Alternative Power Corporation and (iv) any vehicles
owned or leased by such Grantor (the "Excluded Vehicles"). Notwithstanding
anything to the contrary in any Loan Document, "Excluded Assets" shall include,
with respect to any Grantor, any interest that any Grantor may at any time have
in Hoffman Road Associates LLC, Oyster Bay Energy Partners LP, Smithtown Energy
Partners, L.P., Springfield Energy Associates Ltd. Partnership, Zapco
Development Corp., Zapco Equipment Corp., Zapco Readville Cogeneration, Inc. or
ZFC Equipment Corp.

         "Former  Hancock  Issuers" means Garland  Energy  Development,  LLC,
Oyster Bay Energy Partners, L.P., Springfield Energy Associated LTD. Partnership
,  Zapco Power Marketers,  Inc.,  Smithtown Energy Partners,  L.P., Zapco
Development  Corporation,  Zapco Equipment Corp. and Zapco Readville
Cogeneration, Inc.

         "Future Projects" shall mean (i) Brown County Energy Associates LLC and
any Project owned by it, (ii) Garland Energy Development LLC and any Project
owned by it and (iii) any Project that is not owned by the Grantors and
operating on the date hereof.

         "Grantors" is defined in the Preamble.

         "Growth Capital Expenditures" shall mean capital expenditures made to
expand, or to increase production by, any Project.

         "Guarantor" is defined in the Preamble.

         "ICC" shall mean the Illinois Commerce Commission.

         "ICC Accounts" shall mean the Avon ICC Account, the Brickyard ICC
Account, the Devonshire ICC Account, the Dixon ICC Account, the Riverside ICC
Account, the Roxanna ICC Account, the Streator ICC Account and the Upper Rock
ICC Account (each as defined in Section 4.01(a)).

          "ICC Order" shall mean, with respect to any Illinois Guarantor, the
order or orders of the ICC addressed to such Illinois Guarantor verifying, among
other things, the status of such Illinois Guarantor's Pledged Illinois Project
as a qualified solid waste energy facility and setting forth certain of such
Pledged Illinois Project's rights and obligations as such.

                                       7
<PAGE>

          "Illinois Guarantor" shall mean each of Avon Energy Partners, L.L.C.,
Brickyard Energy Partners, LLC, Devonshire Power Partners, L.L.C., Dixon/Lee
Energy Partners, LLC, Riverside Resource Recovery, L.L.C., Roxanna Resource
Recovery, L.L.C., Streator Energy Partners, LLC and Upper Rock Energy Partners,
LLC.

         "Illinois Investment Advisor" shall mean a professional independent
third party investor appointed by the Grantors and responsible for managing
investments in the Other ICC Account.

         "Illinois Rate Incentive" shall mean the program that is part of the
system established by the State of Illinois pursuant to the Illinois Public
Utility Act to govern the sale of electricity by qualified solid waste energy
facilities under the Illinois Local Solid Waste Disposal Act and the Illinois
Public Utility Act.

         "Illinois Reimbursement Minimum Amount" shall mean, for any Illinois
Guarantor as of any Monthly Payment Date, (A) .50 multiplied by (B) the
incentive amount received by such Illinois Guarantor with respect to its Pledged
Illinois Project as a result of the Illinois Rate Incentive during the calendar
month most recently ended.

         "Insurance and Condemnation Proceeds Account" has the meaning set forth
in Section 5.06(b).

         "Insurance Withdrawal Certificate" has the meaning set forth in Section
5.06(d)(i).

         "Issuer" is defined in the Preamble.

         "Landfill Owners" shall mean the owners (other than any Loan Party) of
any Project Land, including without limitation the Landfill Owners identified as
such in Exhibit A.

         "Loan Parties" shall mean, collectively, each Grantor and each BMC
Party.

         "Morris" shall mean Morris Genco, L.L.C.

         "Obligor" is defined in Section 8.01.

         "Operating Expenses" shall mean, with respect to any Grantor or Pledged
Project for any period, without duplication, the aggregate amount of all
operating and maintenance expenses incurred by such Pledged Project or such
Grantor, as the case may be, for such period, including without limitation (i)
insurance premiums payable by such Grantor or with respect to such Pledged
Project, (ii) franchise, licensing, property, income and other taxes payable by
such Grantor or with respect to such Pledged Project, (iii) labor costs payable
by such Grantor or with respect to such Pledged Project, (iv) costs incurred by
such Grantor or with respect to such Pledged Project under any Project Document,
(v) expenses related to utilities, supplies and other services required for the
ownership, operation and maintenance of such Pledged Project, (vi) general and
administrative and management costs with regard to such Grantor or Pledged
Project, (vii) maintenance, repair and replacement expenditures with respect to
such Pledged Project other than Growth Capital Expenditures, (viii) any payments
made by such Grantor or with respect to such Pledged Project under any third

                                       8

party operations and maintenance agreement and (ix) agency, consulting,
professional and other fees payable by such Grantor or with respect to such
Pledged Project, including, without limitation, the fees and expenses of the
Secured Party, the Independent Engineer, the insurance consultant and special
counsel to the Secured Party; provided that all amounts payable or scheduled to
be paid pursuant to the operation and maintenance agreements to which any
Project Owner Guarantor is a party, as in effect on the date hereof, which are
identified on Exhibit B, are deemed to be reasonable in amount for purposes of
determining Operating Expenses if computed in a manner consistent with the Pro
Forma Projections. In computing Operating Expenses for any period, an
appropriate proration shall be made for items such as insurance premiums and
taxes, which would be prorated if the computation were made in accordance with
GAAP.

         "Original Note Purchase Agreement" shall mean that certain Note
Purchase Agreement, dated as of November 30, 1999, as amended, among the
Guarantors, the Former Hancock Issuers, John Hancock Life Insurance Company,
John Hancock Variable Life Insurance Company and Investors Partner Life
Insurance Company.

         "Original Security Agreement" shall mean that certain Indenture of
Trust and Security Agreement, dated as of November 30, 1999, as amended
immediately prior to the date hereof, among the Guarantors, the Former Hancock
Issuers and Countryside Canada Power Inc. (as successor to The Chase Manhattan
Bank), acting thereunder not in its individual capacity but solely as security
trustee.

         "Other ICC Account" has the meaning specified in Section 4.01(a).

         "Pledged Debt" has the meaning specified in Section 2.01(g).

         "Pledged Illinois Project" shall mean each Illinois Project owned by a
Guarantor.

         "Pledged Interests" has the meaning specified in Section 2.01(f).

         "Pledged LLC Interests" has the meaning specified in Section 2.01(f).

         "Pledged Partnership Interests" has the meaning specified in Section
2.01(f).

         "Pledged Project" shall mean any Project owned by a Grantor.

         "Pledged Stock" has the meaning specified in Section 2.01(f).

         "Projected Minimum Reserve Amount" shall mean, on each Quarterly
Payment Date for each Fiscal Quarter occurring during 2004, $250,000, and on
each Quarterly Payment Date for each Fiscal Quarter occurring in any year after
2004, the Projected Minimum Reserve Amount for the last Quarterly Payment Date
occurring during the preceding year multiplied by 102.5%.

          "Quarterly Payment Date" shall mean the first Business Day succeeding
the last day of any Fiscal Quarter.

         "Project Owner Guarantor" is defined in the Preamble.

                                       9
<PAGE>
         "Required Reserve Balance" shall mean, with respect to the Debt Service
Reserve Account on each Quarterly Payment Date, an amount equal to the sum of
(i) the amount required to be deposited in the Debt Service Reserve Account on
the Closing Date pursuant to Section 4.02(b)(i), (ii) the Projected Minimum
Reserve Amount for such Quarterly Payment Date and (iii) the aggregate amount of
all Projected Minimum Reserve Amounts for all prior Quarterly Payment Dates that
have elapsed since the Closing Date, measured at such Quarterly Payment Date and
pro rated for the partial Fiscal Quarter that occurred immediately following the
Closing Date.

         "Secured Obligations" of any Grantor shall mean such Grantor's
obligations, if any, to the Secured Party under the Amended Note Purchase
Agreement, the Series A Notes, the Series B Notes, this Security Agreement and
the Amended Mortgages, however evidenced and whether now existing or hereafter
incurred, and whether direct or indirect, matured or unmatured, absolute or
contingent, now due or hereafter to become due (including, without limitation,
any and all costs, reasonable attorneys' fees and expenses that the Secured
Party or any other holder of the Security Property may incur in the collection
or enforcement of such obligations, whether by suit or by any other means, and
any extension or renewal of any of the foregoing, as such may become due), and
any extension or renewal of any of the foregoing, as such may become due.

          "Security Agreement" has the meaning given such term in the Preamble.

         "Security Property" has the meaning specified in Section 2.01.

          "Termination Event" is defined in Section 8.02(b).

                                   Article II
                                GRANT OF SECURITY

Section 2.01. ....Grant of Security.

         Each Grantor hereby grants a security interest in and hypothecates unto
the Secured Party, its successors and assigns all right, title and interest of
such Grantor in, under and to all property of such Grantor, wherever located,
whether now owned or hereafter acquired, including, without limitation, the
following (collectively, the "Security Property"):

(a) any and all accounts, chattel paper, checks, commercial tort claims,
contracts for sale, cooperative interests, cooperative units, deposit accounts,
documents, encumbrances, financial assets, general intangibles, goods,
instruments, investment property, lease contracts, leasehold interests, lessor's
residual interests, letters of credit, letter of credit rights, mortgages,
proceeds, proceeds of a letter of credit, records and supporting obligations;

(b) Each Pledged Project, and all equipment (including equipment on order),
drawings, technical specifications and work in progress in connection therewith;

(c) All agreements (other than those listed on Schedule 2.01(c), for so long as
the consents required for the pledge of such agreements have not been obtained)
entered into or to be entered into by such Grantor, or contract rights of such
Grantor, relating to the Security Property, and/or with one or more of the
Grantors, the Gascos, counterparties to any Power Purchase Agreement, the
Landfill Owners and the other parties to the Project Documents each as amended,
supplemented, modified or restated from time to time;

                                       10

(d) All of the issued and outstanding stock (common or preferred) of each
corporation identified in Part 1 of Exhibit C held by such Grantor, and all
shares and other securities and all warrants, rights and options and all money
and other property received or receivable by or distributed or distributable to
such Grantor from such corporation in exchange or substitution for or otherwise
in respect of any or all of such stock or other securities of such corporation
(the "Pledged Stock");

(e) The partnership interests, now owned or hereafter acquired, by such Grantor
in each of the partnerships identified in Part 2 of Exhibit C, including without
limitation (A) all rights of such Grantor as a partner in such partnership to
receive distributions, cash, instruments and other property from time to time
receivable or otherwise distributable in respect of such interest, (B) all
rights of such Grantor to receive proceeds of any insurance, indemnity, warranty
or guaranty with respect to such interest, (C) the right of such Grantor to
perform and exercise consensual or voting rights under the partnership agreement
or analogous document with respect to such partnership, and (D) all other rights
of such Grantor as a partner in such partnership to all property and assets of
such partnership (whether real property, inventory, equipment, contract rights,
accounts receivable, general intangibles, securities, uncertificated securities,
ownership interests, instruments, chattel paper, documents, choses in action or
otherwise) (the "Pledged Partnership Interests");

(f) The membership interests, now owned or hereafter acquired, by such Grantor
in each of the limited liability companies identified in Part 3 of Exhibit C,
including without limitation (i) all rights of such Grantor as a member and/or
manager in such limited liability company to receive distributions, cash,
instruments and other property from time to time receivable or otherwise
distributable in respect of such interest, (ii) all rights of such Grantor to
receive proceeds of any insurance, indemnity, warranty or guaranty with respect
to such interest, (iii) the right of such Grantor to perform and exercise
consensual or voting rights under the operating agreement or analogous document
with respect to such limited liability company, and (iv) all other rights of
such Grantor as a member and/or manager in such limited liability company to all
property and assets of such limited liability company (whether real property,
inventory, equipment, contract rights, accounts receivable, general intangibles,
securities, uncertificated securities, ownership interests, instruments, chattel
paper, documents, choses in action or otherwise) (the "Pledged LLC Interests",
and together with the Pledged Stock and the Pledged Partnership Interests, the
"Pledged Interests");

(g) Its interest in the AJG IEGP Loan Transaction and the Indebtedness of any of
the Gascos to such Grantor from time to time, as identified in Exhibit D,
together with the instruments evidencing such Indebtedness, all rights of such
Grantor to any and all collateral securing such Indebtedness and all interest,
cash, instruments and property from time to time receivable or otherwise
distributable in respect of such Indebtedness (the "Pledged Debt").

(h) All insurance and condemnation proceeds with respect to the Pledged
Projects;

                                       11

(i) All of such Grantor's right, title and interest in and to each of the
Accounts, all funds held therein and all certificates and instruments, if any,
from time to time representing or evidencing amounts in any of the Accounts;

(j) All other deposit accounts, operating accounts, and other accounts of such
Grantor, all funds held therein and all certificates and instruments, if any,
from time to time representing or evidencing such accounts;

(k) All monies and other securities from time to time deposited with the Secured
Party pursuant to any provision of this Security Agreement or required by this
Security Agreement to be held by the Secured Party as security for the Secured
Obligations;

(l) All warranties, performance bonds and letters of credit of contractors and
sub- contractors for the benefit of such Grantor;

(m) All Applicable Permits granted to such Grantor or for its Pledged Project,
as amended or supplemented from time to time, to the extent permitted by law;

(n) All documents of title, policies and certificates of insurance, securities,
permits, orders, other documents or instruments evidencing or pertaining to any
and all of the foregoing items (b) through (m);

(o) All guaranties, liens on real or personal property, leases, and other
agreements and property that in any way secure or relate to any of the foregoing
Items (b) through (n), or are acquired for the purpose of securing and enforcing
any item thereof;

(p) All books, records, ledger cards, files, correspondence, computer programs,
tapes, disks and related data processing software (owned by such Grantor or in
which it has an interest) which at any time evidence or contain information
relating to any of the foregoing items (b) through (n) or are otherwise
necessary or helpful in the collection thereof or realization thereupon; and

(q) All products and proceeds of, sums due and to become due under, replacements
or substitutes for, and additions or accessions of, any of the foregoing
Security Property in whatever form, including but not limited to, all claims to
items of the foregoing Security Property and all claims of such Grantor against
third parties for (i) loss, destruction or infringement of, or damage to, any or
all of such items, and (ii) payments due or to become due under licenses,
leases, rentals and hires of, or agreements, arrangements or contracts with
respect to, any or all of such items and (iii) proceeds payable under or
unearned premiums with respect to policies of insurance.

         Notwithstanding the foregoing, the Security Property shall not include
(i) any Excluded Assets, (ii) any property subject to any Amended Mortgage or
(iii) any funds held in the account established by the Issuer at The
Toronto-Dominion Bank at its address at [_________________], for so long as such
funds secure the obligations of the Issuer under the hedging arrangement
required by Section 7.17 of the Amended Note Purchase Agreement.

                                       12
<PAGE>

         Section 2.02.  Security for Secured Obligations.

         This Security Agreement secures the Secured Obligations.

                                  Article III
                 REPRESENTATIONS AND WARRANTIES OF THE GRANTORS

         Each Grantor represents and warrants as follows:

Section 3.01. Organization; Power; Authorization.

(a) Such Grantor has good title to the Security Property purported to be pledged
by such Grantor hereby and owns its interest in such Security Property free and
clear of all Liens whatsoever except for Permitted Liens, and, subject to
Permitted Liens, has the right to mortgage, give, grant, bargain, sell,
alienate, convey, confirm, pledge, assign and hypothecate the same and to grant
a security interest therein. Such Grantor, if a Project Owner Guarantor, has
title to, or possesses easements, subeasements, leases and/or licenses covering
the use of, the related Project Land sufficient to permit the construction,
ownership, maintenance and operation of the Project it purports to own and owns
the improvements related thereto. No effective financing statement or other
statement similar in effect covering all or any part of the Security Property
(other than in connection with Permitted Liens and Liens being released prior to
the issuance of the Notes) is on file in any recording office, except as may
have been filed in favor of the Secured Party relating to this Security
Agreement.

(b) The execution, delivery and performance of this Security Agreement, and the
granting of the Lien on and security interest in the Security Property as
contemplated hereby, have been duly authorized by all requisite action on the
part of such Grantor and do not and will not (with the passage of time or giving
of notice, or both) constitute a violation or breach of or default or event of
default under any provision of such Grantor's certificate of formation,
incorporation or partnership, as the case may be, any partnership or operating
agreement of such Grantor or any other corporation, partnership or limited
liability company document of any Grantor or any agreement, indenture or
instrument to which such Grantor is a party or by which it or its Property is or
may be bound, or violate any writ, order, judgment or decree applicable to it or
any law, statute or regulation applicable to it. The execution, delivery and
performance of each other Security Document to which it is a party and the
granting of the Liens on and security interest in the Security Property as
contemplated thereby have been duly authorized by all requisite action on the
part of such Grantor and do not and will not (with the passage of time, giving
of notice, or both) constitute a violation or breach of or default or event of
default under any provision of such Grantor's certificate of formation,
incorporation or partnership, as the case may be, any partnership or operating
agreement of such Grantor or any other corporation, partnership, or limited
liability company document of such Grantor or any agreement, indenture or
instrument to which such Grantor is a party or by which it or its property is or
may be bound, or violate any writ, order, judgment or decree applicable to it or
any law, statute or regulation applicable to it. This Security Agreement
constitutes the legal, valid and binding obligations of such Grantor,
enforceable against it in accordance with its terms, and each other Security
Document to which such Grantor is a party constitutes the legal, valid and
binding obligations of such Grantor, enforceable against it in accordance with
its terms, except as enforcement may be limited by Debtor Relief Laws or by
equitable principles relating to or limiting creditors' rights generally.

                                       13

Section 3.02. Name, Location, etc.

         The jurisdiction in which such Grantor is located for purposes of
Sections 8-110(d), 9-301 and 9-307 of the UCC is the jurisdiction set forth next
to such Grantor's name on Part 1 of Schedule 3.02. Part 2 of Schedule 3.02 lists
each county of each State in which was located, prior to July 1, 2001 (or
October 1, 2001 if the location is Connecticut and January 1, 2002 if the
location is Alabama, Florida or Mississippi), any equipment or inventory owned
by such Grantor. Such Grantor has no trade names. During the four months
preceding the date hereof, such Grantor has not been known by any legal name
different from the one set forth on its signature page hereto, nor has such
Grantor been the subject of any merger or other corporate reorganization. The
name set forth on its signature page is the true and correct legal name of such
Grantor. Such Grantor's federal taxpayer identification number is (and, during
the four months preceding the date hereof, such Grantor has not had a federal
taxpayer identification number different from), and such Grantor's
organizational identification number is, the number identified as such and set
forth next to the name of such Grantor on Part 3 of Schedule 3.02. The Security
Property does not include any inventory (as such term is defined in the UCC)
located in the State of California. Such Grantor is not a party to any federal,
state or local government contract. Such Grantor does not have an interest in
any equity interests in any Person other than the Pledged Interests and Excluded
Assets. Such Grantor does not have any interest in any Intellectual Property
collateral the loss, impairment or infringement of which would reasonably be
expected to have a Material Adverse Effect.

Section 3.03. Collateral; Source of Revenues.

         Such Grantor's Collateral is the source of Materially all of such
Grantor's revenues (except revenues derived from its Excluded Assets and
Emissions Credit Proceeds), which, as so excepted, constitute all of the
revenues of such Grantor that are Material to such Grantor. Such Grantor's
Collateral constitutes (i) Materially all of the assets of such Grantor, except
for its Excluded Assets, and (ii) sufficient property for such Grantor to
operate its businesses as now conducted and as presently proposed to be
conducted.

Section 3.04. Control over Collateral.

         Subject to the rights of other parties to the Project Documents and
subject to Permitted Liens, such Grantor has exclusive possession and control of
the Security Property purported to be pledged by it hereunder. None of the
Security Property of such Grantor is subject to any restriction on its sale or
transfer except as set forth in the Project Documents, the Security Documents
and the Amended Note Purchase Agreement. Each item of equipment and inventory
that is part of the Security Property of such Grantor is located at its Pledged
Project.

Section 3.05. Pledged Interests.

(a) The Pledged Interests that constitute stock, membership interests or
partnership interests in such Grantor have been duly authorized and validly
issued and are fully paid and nonassessable.

                                       14

(b) Except with respect to the Issuer, the Pledged Interests that constitute
stock, membership interests or partnership interests in such Grantor constitute,
as applicable, all of the issued and outstanding (i) shares of stock of such
Grantor, (ii) membership interests of such Grantor or (iii) partnership
interests of such Grantor.

(c) The security interest of the Secured Party in uncertificated Pledged
Interests of such Grantor, and in the Pledged Debt of such Grantor, has been
registered in the name of the Secured Party by the applicable issuer thereof in
the register maintained for such purpose by such issuer. All certificates or
instruments representing or evidencing certificated Pledged Interests of such
Grantor have been delivered to the Secured Party together with the appropriate
blank instruments of transfer. The security interest in such Pledged Interests
is a valid, continuing security interest in favor of the Secured Party and is a
perfected first-priority security interest under the Uniform Commercial Code in
effect in the jurisdiction listed next to such Grantor's name on Part 1 of
Schedule 3.02 and, as so perfected, is a first-priority security interest.

Section 3.06. Pledged Debt.

         The Pledged Debt of such Grantor constitutes all of the outstanding
Indebtedness owed to such Grantor. All notes, certificates or instruments
evidencing the Pledged Debt of such Grantor have been delivered to the Secured
Party together with appropriate blank instruments of transfer.

Section 3.07. No Other Deposit or Securities Accounts.

         Such Grantor has no interest in any "deposit account" or any
"securities account" (as each such term is defined in the UCC) other than the
Accounts and the deposit accounts listed in Schedule 3.07.

Section 3.08. Protection of Lien and Security Interest.

         Upon the execution and delivery hereof, no filing or recording with any
Governmental Authority (except for the filing of Uniform Commercial Code
financing statements on form UCC-3 in the offices and locations specified for
such Grantor in Schedule 3.11 of the Amended Note Purchase Agreement) will be
necessary to establish and perfect the right, title or interest of the Secured
Party created hereunder in the Security Property of such Grantor or any other
Person in any jurisdiction. Upon the (i) execution and delivery of this Security
Agreement, (ii) delivery to the Secured Party of possession, with endorsements
in blank, of the notes, certificates and instruments evidencing such Grantor's
Pledged Debt, (iii) delivery to the Secured Party of possession of the notes,
certificates and instruments evidencing such Grantor's Pledged Interests with
blank stock powers, (iv) completion of such filings and recordings and (v) in
the case of Security Property constituting Accounts, upon the execution and
delivery of the Control Agreements, the Secured Party will have a valid and
first priority perfected Lien on, and security interest in, such Security
Property. Except (A) for the approval of the ICC necessary for the Secured Party
to take possession of any Pledged Project located in Illinois and (B) with
respect to the exercise of any right or remedy relating to the lien on the
Applicable Permits, no filing or registration with, or consent or approval of,
any Governmental Authority is required for the exercise of any right or remedy
hereunder or under any other Loan Document.

                                       15

                                   Article IV
                                    ACCOUNTS

Section 4.01. Creation of Accounts.

(a)      Other ICC Account. The Illinois Guarantors have established, in
         accordance with their respective ICC Orders, at Merrill Lynch & Co. at
         its office at 200 Park Avenue, New York, NY 10166, an account entitled
         ("USEB Other ICC Account", account number 852-07127 (the "Other ICC
         Account"). The Other ICC Account will contain the following
         sub-accounts:

(i)      a sub-account established in accordance with the ICC Order of Avon
         Energy Partners, L.L.C. (the "Avon ICC Account");

(ii)     a sub-account established in accordance with the ICC Order of Brickyard
         Energy Partners, LLC (the "Brickyard ICC Account");

(iii)    a sub-account established in accordance with the ICC Order of
         Devonshire Power Partners, L.L.C. (the "Devonshire ICC Account");

(iv)     a sub-account established in accordance with the ICC Order of Dixon/Lee
         Energy Partners, LLC (the "Dixon ICC Account");

(v)      a sub-account established in accordance with the ICC Order of Riverside
         Resource Recovery, L.L.C. (the "Riverside ICC Account");

(vi)     a sub-account established in accordance with the ICC Order of Roxanna
         Resource Recovery, L.L.C. (the "Roxanna ICC Account");

(vii)    a sub-account established in accordance with the ICC Order of Streator
         Energy Partners, LLC (the "Streator ICC Account") and

(viii)   a sub-account established in accordance with the ICC Order of Upper
         Rock Energy Partners, LLC (the "Upper Rock ICC Account").

(b)      Debt Service Reserve Account. The Issuer has established, at Merrill
         Lynch & Co. at its office at 200 Park Avenue, New York, NY 10166, an
         account entitled "USEB Debt Service Reserve Account", account number
         852-07130 (the "Debt Services Reserve Account").

(c)      Construction Reserve Account. The Issuer has established, at Merrill
         Lynch & Co. at its office at 200 Park Avenue, New York, NY 10166, an
         account entitled "USEB Construction Reserve Account", account number
         852-07126 (the "Construction Reserve Account").

(d)      Except as provided in Section 4.02(a), each ICC Account shall remain in
         the exclusive possession, and under the sole dominion and control, of
         the Secured Party and shall be maintained at all times in accordance
         with the terms of the Loan Documents and the applicable ICC Order until
         the date on which all of the Secured Obligations have been satisfied in

                                       16

         full (except as provided in this Security Agreement), at which time all
         amounts on deposit therein shall be paid over to the applicable
         Illinois Guarantor or other Person legally entitled thereto; provided,
         however, that any payments or releases (whether in the form of cash or
         otherwise) properly made by the Secured Party from any ICC Account
         pursuant to Section 4.02(a)(iii), as long as such payment or release is
         made in accordance with the Loan Documents, shall be released from the
         lien and security interest granted hereunder and shall no longer be
         part of the Security Property upon the making of such payment or
         release. In connection with any release of Security Property under this
         subsection, the Secured Party shall, at the expense of the Issuer,
         execute and deliver to the Issuer all documents that the Issuer shall
         reasonably request to evidence such release. Except as provided in this
         Security Agreement and any related Control Agreement, the Other ICC
         Account shall be subject to debit or withdrawal solely by the Secured
         Party as provided in this Security Agreement, and no Person shall have
         any control over or right of withdrawal from any ICC Account. No
         payments shall be made out of the Other ICC Account except for the
         purposes and on the terms provided in this Security Agreement, the
         Amended Note Purchase Agreement and the ICC Orders. Each Illinois
         Guarantor hereby irrevocably authorizes and empowers the Secured Party,
         as its attorney-in-fact, coupled with an interest, for such Illinois
         Guarantor, to endorse any check or any other instrument or security
         deposited or held in the ICC Account related to such Illinois
         Guarantor.

(e)      Except as provided in Section 4.02(b), the Debt Service Reserve Account
         shall remain in the exclusive possession, and under the sole dominion
         and control, of the Secured Party and shall be maintained at all times
         in accordance with the terms of the Loan Documents until the date on
         which all of the Secured Obligations have been satisfied in full
         (except as provided in this Security Agreement), at which time all
         amounts on deposit therein shall be paid over to the Issuer or other
         Person legally entitled thereto; provided, however, that any payments
         or releases (whether in the form of cash or otherwise) properly made by
         the Secured Party from the Debt Service Reserve Account pursuant to
         Section 4.02(b)(iv) or from the Construction Reserve Account pursuant
         to Section 4.02(c)(ii), as long as such payment or release is made in
         accordance with the Loan Documents, shall be released from the lien and
         security interest granted hereunder and shall no longer be part of the
         Security Property upon the making of such payment or release. In
         connection with any release of Security Property under this subsection,
         the Secured Party shall, at the expense of the Issuer, execute and
         deliver to the Issuer all documents that the Issuer shall reasonably
         request to evidence such release. Except as provided in Sections
         4.02(b) and (c), the Debt Service Reserve Account and the Construction
         Reserve Account shall be subject to debit or withdrawal solely by the
         Secured Party as provided in this Security Agreement, and no Person
         shall have any control over or right of withdrawal from either such
         Account, except as provided in this Security Agreement. No payments
         shall be made out of the Debt Service Reserve Account or the
         Construction Reserve Account except for the purposes and on the terms
         provided in this Security Agreement and in the Amended Note Purchase
         Agreement. The Issuer hereby irrevocably authorizes and empowers the
         Secured Party, as its attorney-in-fact, coupled with an interest, for
         the Issuer, to endorse any check or any other instrument or security
         deposited or held in the Accounts related to the Issuer.

Section 4.02.     Funding of Accounts.

(a)      ICC Accounts.

(i)      On the Closing Date, the Illinois Guarantors shall deposit into the
         Other ICC Account cash in an amount equal to $12,389,241.

                                       17

(ii)     On each Monthly Payment Date after the Closing Date, each Illinois
         Guarantor shall deposit or cause to be deposited into its ICC Account
         its Illinois Reimbursement Minimum Amount, to the extent of available
         funds from the operating cash flow received by its Pledged Illinois
         Project during the calendar month most recently ended, minus the amount
         of payments made by such Illinois Guarantor during such calendar month
         with respect to (A) Operating Expenses of such Pledged Illinois Project
         and (B) interest and Principal Debt due on the Notes.

(iii)    Sums in any Illinois  Guarantor's  ICC Account shall be used to satisfy
         such Illinois  Guarantor's  obligations  under its ICC Order, in
         accordance  with  applicable  laws and such Illinois  Guarantor's ICC
         Order. If no Event of Default has occurred and is continuing,  each
         Illinois Guarantor may submit to the ICC a reimbursement  order (a
         "Proposed Order") with respect to such Illinois  Guarantor's  repayment
         obligations  under  its ICC  Order,  in  accordance  with (and not in
         acceleration  of) the repayment  schedule  contemplated by such ICC
         Order.  Such Illinois  Guarantor must obtain the Secured Party's
         written consent (which may not be  unreasonably  withheld  or  delayed)
         to such  Proposed  Order  prior to its  submission  to the ICC.  Upon
         approval of the Proposed  Order by the ICC (in the form in which such
         Proposed  Order was  submitted to the ICC or as revised by the ICC,
         notice of which  revision  will be provided to the Secured Party by the
         applicable  Illinois  Guarantor),  the Secured Party will release from
         the applicable ICC Account any funds required to comply with such
         Proposed Order.

(iv)     The Other ICC Account shall be managed by the Illinois Investment
         Advisor subject to the Secured Party's rights hereunder. Funds in any
         Illinois Guarantor's ICC Account may be applied by such Illinois
         Guarantor in its discretion on any date (A) if all obligations of such
         Illinois Guarantor under its ICC Order have been fully satisfied or (B)
         to the extent that the sum of (x) funds in such ICC Account and (y) the
         expected earnings thereon (as reasonably agreed upon by such Illinois
         Guarantor and the Secured Party in a written instrument signed by both
         such parties) exceed the amount contemplated to be payable pursuant to
         such Illinois Guarantor's ICC Order with respect to the Illinois Rate
         Incentive already received by such Illinois Guarantor as of such date.

(b)      Debt Service Reserve Account.

(i)      On the Closing Date, the Issuer will deposit or cause to be deposited
         in the Debt Service Reserve Account $2,000,000.

(ii)     If, on the Closing Date, after taking into account the hedging
         arrangement required pursuant to Section 7.17 of the Amended Note
         Purchase Agreement, the annual Debt Service (translated into U.S.
         Dollars) for the first three years exceeds $10,200,000 (the "Debt
         Service Ceiling"), the Issuer shall deposit into the Debt Service
         Reserve Account an amount equal to three times the amount of such
         excess.

(iii)    On each Quarterly Payment Date after the Closing Date, the Issuer shall
         deposit or cause to be deposited in the Debt Service Reserve Account,
         from Available Debt Service Funds, an amount sufficient to cause the
         funds held in the Debt Service Reserve Account to be at least equal to
         the Required Reserve Balance.
                                       18

(iv)     If, on any date 2  Business Days prior to any date on which any payment
         is due with  respect  to the Series A Notes or the Series B Notes,  the
         amount of Net Revenues held by the Issuer is insufficient  to make such
         payment in full,  the Issuer may deliver to the Secured Party a
         certificate  stating  such  deficit,  and the Secured  Party  shall, to
         the extent funds are available in the Debt Service Reserve  Account,
         withdraw from the Debt Service Reserve Account the amount required to
         make up the deficit  and shall apply the amount so withdrawn  to effect
         payment of the amounts due on the Notes,  and, if the amount available
         to be withdrawn from the Debt Service Reserve Account is not sufficient
         to effect  payment of all amounts due on the Notes,  the Secured Party
         shall apply the amount  available and so withdrawn to effect payment of
         such amounts due to each series of notes ratably in accordance with the
         aggregate amount of the payments due on each series of Notes.

(v)      If, on the third Anniversary Date, (A) projected Debt Service for the
         next 12 months ("Projected Debt Service") exceeds the Debt Service
         Ceiling, (B) the pro forma Fixed Charge Coverage Ratio, adjusted for
         the Projected Debt Service, is less than 1.5:1.0 and (C) the aggregate
         amount of funds held in the Accounts and in the BMC ICC Account (as
         defined in the BMC Group Security Agreement) do not at least equal
         $40,000,000, then the Issuer shall, prior to making any distributions
         to any of its shareholders, either (x) deposit into the Debt Service
         Reserve Account an amount equal to at least $1,500,000 or (y) prepay
         the Notes in an amount equal to at least $1,500,000.

(vi)     The Issuer may make any payment with respect to (A) Growth Capital
         Expenditures, (B) dividends or (C) the Convertible Royalty Interest
         only if, at the time of any such payment:

(A)      the Debt Service Reserve Account contains the Required Reserve Balance;
         and

(B)      the Issuer is in compliance with Section 8.25 of the Amended Note
         Purchase Agreement.

(c)      Construction Reserve Account.

(i)      On the Closing Date, the Issuer will deposit or cause to be deposited
         in the Construction Reserve Account $4,000,000.

(ii)     The Issuer may, on any date, deliver to the Secured Party a written
         request (a "Withdrawal Notice") for release of funds held in the
         Construction Reserve Account. The Secured Party shall, to the extent
         funds are available in the Construction Reserve Account, withdraw from
         such Account the amount of funds requested to be released in the
         Withdrawal Notice and shall transfer such funds as directed in such
         Withdrawal Notice.

                                       19

(d)      Notice of Account.

         The Grantors shall instruct each party depositing funds with the
Secured Party to identify in writing the amount of such funds, the source of
such funds and the proper Account into which such funds are to be deposited.

Section 4.03.     Investment of Account Monies.

(a) So long as no Event of Default has occurred and is continuing and subject to
the last sentence of this subsection (a), the Illinois Investment Manager shall
invest any moneys held in the ICC Accounts in "Illinois Permitted Investments"
(as described in Schedule 4.03(a), which may be modified upon the Secured
Party's receipt of notice from any Illinois Guarantor that such modification is
required pursuant to a final and non-appealable rule, directive or order of the
ICC ("Illinois Permitted Investments")) at the sole risk of the applicable
Illinois Guarantor; provided, however, that no Illinois Investment Advisor shall
be authorized to take any action with respect to the Other ICC Account unless
the Secured Party has (i) received notice from the Illinois Guarantors of the
appointment of such Illinois Investment Advisor and (ii) consented to such
appointment. If the Secured Party receives inconsistent written instructions
from the Illinois Investment Advisor and any Illinois Guarantor regarding the
ICC Account of such Illinois Guarantor, the Secured Party shall follow the
written instructions of such Illinois Guarantor. If an Event of Default has
occurred and is continuing, the Secured Party may, in its sole discretion,
invest any moneys held in any ICC Account in "Illinois Permitted Investments" at
the sole risk of the applicable Illinois Guarantor. If (i) the Illinois
Investment Advisor is no longer in good standing with the Securities Exchange
Commission, Standard & Poor's Ratings Group, Morningstar or brokerage firms that
monitor the Illinois Investment Advisor or (ii) investments in the Other ICC
Account are not achieving or expected to achieve an average annual return of at
least 7.00% (based on the reasonable calculations of the Secured Party) then (a)
the Illinois Guarantors must, upon request of the Secured Party but no more
frequently than once per year, appoint a new Illinois Investment Advisor and (b)
the Secured Party may invest monies in the Other ICC Account in investments
other than Illinois Permitted Investments.

(b) So long as no Event of Default has occurred and is continuing, any moneys
held in the Debt Service Reserve Account shall, upon receipt by the Secured
Party of a written direction executed by a Responsible Officer of the Issuer, be
invested in "Other Permitted Investments" (as described in Schedule 4.03(b)) at
the sole risk of the Issuer. If an Event of Default has occurred and is
continuing, the Secured Party may, in its sole discretion, invest any moneys
held in the Debt Service Account in "Other Permitted Investments" at the sole
risk of the Issuer. Any interest or investment income realized as a result of
such investments shall be applied, FIRST, to the payment of all principal,
interest or premium then due and owing with respect to the Notes, SECOND, to the
payment of any unpaid Illinois Reimbursement Minimum Amount of any Illinois
Guarantor, THIRD, to the payment of any unpaid Required Reserve Balance and,
FOURTH, to the Issuer.

(c) So long as no Event of Default has occurred and is continuing, any moneys
held in the Construction Reserve Account shall, upon receipt by the Secured
Party of a written direction executed by a Responsible Officer of the Issuer, be
invested in "Other Permitted Investments" (as described in Schedule 4.03(b)) at
the sole risk of the Issuer. If an Event of Default has occurred and is
continuing, the Secured Party may, in its sole discretion, invest any moneys
held in the Construction Reserve Account in "Other Permitted Investments" at the
sole risk of the Issuer.

                                       20

(d) The Secured Party shall have no obligation to invest and reinvest any cash
held in the Accounts in the absence of timely and specific written investment
direction from a Responsible Officer of any Grantor or an officer of the
Illinois Investment Advisor. In no event shall the Secured Party be liable for
the selection of investments or for investment losses incurred thereon by reason
of investment performance, liquidation prior to stated maturity or otherwise,
except if the Secured Party failed to comply with the written direction from a
Responsible Officer of such Grantor or an officer of the Illinois Investment
Advisor described in this Section. The Secured Party shall have no liability in
respect of losses incurred as a result of the liquidation of any investment
prior to its stated maturity or the failure of a Responsible Officer of any
Grantor or an officer of the Illinois Investment Advisor to provide timely
written investment direction.

(e) On a quarterly basis, (i) the Illinois Guarantors shall provide to the
Secured Party performance reports with respect to the investments in the Other
ICC Account and (ii) the Issuer shall provide to the Secured Party performance
reports with respect to the investments in the Debt Service Reserve Account.

                                   Article V
                            COVENANTS OF THE GRANTORS

         Each Grantor covenants that, on and after the date of this Security
Agreement and until the Notes are paid in full and all of the Secured
Obligations are discharged:

Section 5.01.     Defense of Title.

         Each Grantor shall warrant, defend and preserve its right, title and
interest in and to the Security Property and the validity and priority of the
Lien of this Security Agreement and shall forever warrant and defend the same
against the claims of all persons whomsoever, and no Grantor shall sell or
otherwise alienate any of its interests in the Security Property except as
otherwise permitted under this Security Agreement. Devonshire shall maintain
good and marketable fee simple title to the Dolton (Devonshire) Project
(excluding the real property on which its flare facility is located) and good
and valid rights and title to all of its other real property, and each other
Grantor (and Devonshire, with respect to the real property on which its flare
facility is located) shall maintain good and valid rights and title to its real
property, including, in each case, to the extent applicable, the land, leasehold
estates, license rights and easements constituting the Project Land, and all of
its other property, free and clear of all Liens except Permitted Liens and as
otherwise provided under this Security Agreement.

Section 5.02.     Further Assurances.

         Each Grantor shall execute and deliver any further writing, instrument
or document, in form and substance reasonably satisfactory to the Secured Party,
and take any further action as may be reasonably requested from time to time by
the Secured Party, and make all recordings and filings and take all such other

                                       21

action as may be necessary or desirable under any applicable law to evidence,
effectuate, preserve the priority of, protect and perfect the Lien on and
security interest in the Security Property, and, in addition and in furtherance
of, but not in limitation of, the foregoing, use its best efforts to comply with
any request of the Secured Party to obtain, execute, deliver or file
nondisturbance agreements, mortgagee's waivers, and such other instruments and
notices, amendments and renewals thereof, as the Secured Party shall deem
appropriate fully to preserve and protect the Lien on and security interest in
the Security Property; provided, however, that nothing contained in this Section
shall require any Grantor to pay or suffer forbearance of any material amounts,
or waive or otherwise terminate the effectiveness of any material term or other
provision, in connection with any such nondisturbance agreement, mortgagee's
waiver or other instrument.

Section 5.03.     Recordings and Filings.

(a) Each Grantor, forthwith upon the execution of this Security Agreement and
thereafter from time to time, shall cause this Security Agreement and any other
documents evidencing the Lien hereof to be filed or recorded in such manner and
in such places as may be required by law in order to publish notice of and fully
to protect the Lien on and security interest in the Security Property of such
Grantor created hereby.

(b) Each Grantor shall execute supplements to this Security Agreement and
financing statements, continuation statements and any other instruments or
documents reasonably deemed necessary or desirable by the Secured Party to
perfect or preserve the Lien on and security interest in the Security Property
of such Grantor created hereby. To the extent permitted by law, the Secured
Party is authorized to record and file supplements to this Security Agreement
and financing or continuation statements to perfect, maintain or maintain the
perfection of the Secured Party's Lien on and security interest in the Security
Property of such Grantor created hereby. Each Grantor further agrees that a
carbon, photographic, photostatic or other reproduction of this Security
Agreement is sufficient as a financing statement where permitted by law.

(c) The Issuer shall pay all filing, registration or recording fees, and all
reasonable expenses incident to the preparation, execution and acknowledgement
of this Security Agreement, any instrument supplemental hereto, any security
instrument with respect to the Security Property and any instrument of further
assurance, and all federal, state, county and municipal stamp taxes and other
taxes, duties, impositions, assessments and charges arising out of or in
connection with the execution and delivery of this Security Agreement, any
instrument supplemental hereto, any security instrument with respect to the
Security Property or any instrument of further assurance.

Section 5.04.     Payment of Fees, Costs and Expenses.

         The Issuer shall pay promptly the fees and the reasonable costs and
expenses of the Secured Party incurred from time to time hereunder (including,
without limitation, any and all costs, reasonable attorneys' fees and expenses
that the Secured Party may incur in the collection or enforcement of the Secured
Obligations), and shall indemnify and reimburse the Secured Party and its
officers, directors, employees, representatives and agents for all amounts

                                       22

required to be paid by it or them, including any and all claims, expenses,
obligations, liabilities, losses, damages, injuries (to person, property or
natural resources), penalties, stamp or other similar taxes, actions, suits,
judgments, reasonable costs and expenses (including reasonable attorneys' and
agents' fees and expenses) of whatever kind or nature regardless of their merit,
demanded, asserted or claimed against the Secured Party directly or indirectly
relating to, or arising from, claims against the Secured Party by reason of its
participation in the transactions contemplated hereby, including without
limitation all reasonable costs required to be associated with claims for
damages to persons or property, and reasonable attorneys' and consultants' fees
and expenses and court costs, except to the extent caused by the Secured Party's
gross negligence or willful misconduct. The Issuer hereby agrees to indemnify
and hold harmless the Secured Party and its directors, officers, agents and
employees from and against any and all claims, demands, losses, penalties,
liabilities, costs, damages, injuries, and expenses, including, without
limitation, reasonable attorneys' fees and expenses, suffered or sustained by
the Secured Party, either directly or indirectly, relating to or arising out of
any Environmental Law, including, without limitation, any judgment, award,
settlement, reasonable attorneys' fees and expenses and other costs or expenses
incurred in connection with the defense of any actual or threatened action,
proceeding or claim. The provisions of this Section shall survive the
termination of this Security Agreement or the earlier resignation or removal of
the Secured Party.

Section 5.05.     Notification of Litigation.

         Each Grantor shall from time to time keep the Secured Party informed of
material developments in any material action or proceeding involving it. The
Secured Party shall have the right to appear in and defend any such action or
proceeding, in the name and on behalf of such Grantor, if the Secured Party
reasonably believes the failure of such Grantor to defend such action or
proceeding could reasonably be expected to materially adversely effect the value
of the Security Property or the Lien of this Security Agreement. The Secured
Party shall also have the right to institute any action or proceeding that the
Secured Party, in its reasonable judgment, believes should be brought to protect
the value of the Security Property or the Lien of this Security Agreement. The
Issuer shall (i) indemnify, defend and hold the Secured Party harmless against
any loss or liability arising out of or related to or incurred in connection
with any action or proceeding (A) commenced by the Secured Party as provided
above, (B) to which the Secured Party is made a party or (C) in which, in the
reasonable opinion of the Secured Party, it becomes necessary to defend or
uphold the Lien of this Security Agreement or to protect the value of the
Security Property and (ii) on demand, promptly reimburse the Secured Party for
all judgments paid and expenses (including, without limitation, reasonable
attorneys' fees and appellate attorneys' fees) incurred by the Secured Party in
such action or proceeding, any such reimbursement to be an additional Secured
Obligation secured by the Security Property.

Section 5.06.     Insurance, Condemnation.

(a) Each Grantor will furnish satisfactory evidence to the Secured Party of the
renewal of each policy of insurance required by Section 7.4 of the Amended Note
Purchase Agreement, if such policy relates to the Security Property pledged by
such Grantor, at least 30 days prior to its expiration date, and will not adjust
or settle any individual claim under such insurance (except for any individual

                                       23

claim for $100,000 or less) without the Secured Party's consent, which shall not
be unreasonably withheld or delayed. Each Grantor agrees that if an Event of
Default or a Default shall have occurred and be continuing and the Secured Party
believes that the value of the Security Property is endangered, the Secured
Party may act as attorney-in-fact for such Grantor in obtaining, adjusting,
settling and canceling such insurance and receiving and endorsing any drafts
with respect to any such policy. If any Grantor shall fail to provide and pay
for any such policy at least 15 days prior to the date any such payment is due,
the Secured Party may (but shall not be required to), upon ten days' prior
written notice to such Grantor, provide or pay for the same, at such Grantor's
expense, with the amount of any such payment by the Secured Party to be
repayable by such Grantor on demand, with interest thereon due at the Default
Rate. Such amounts shall be additional Secured Obligations secured by the
Security Property.

(b)In the event of any damage, destruction, condemnation, taking or taking for
use with respect to any portion of any Pledged Project (any such event being an
"Event of Loss") in excess of $100,000 (singly or in the aggregate), the
applicable Project Owner Guarantor shall notify, in writing, the Secured Party
of such Event of Loss, in accordance with Section 5.1(e) of the Amended Note
Purchase Agreement. Each Project Owner Guarantor agrees that, upon the
occurrence of an Event of Loss, it will promptly pay any and all proceeds
(including, without limitation, condemnation or insurance proceeds) received by
it in respect of such Event of Loss, up to an amount equal to the then
outstanding principal amount of the Notes, plus accrued interest thereon, to the
Secured Party to be held by the Secured Party (together with all income thereon)
pursuant to this Security Agreement as part of the Security Property. The
Secured Party shall deposit all such payments received from any such Grantor or
directly from any insurer or condemning authority in a separate deposit account
(the "Insurance and Condemnation Proceeds Account"). Except as otherwise
provided in Section 5.06(f), each Project Owner Guarantor shall be obligated to
repair, replace or reconstruct any Pledged Project owned by it that suffers an
Event of Loss to a condition substantially equivalent to its condition
immediately prior to such Event of Loss or to a condition of at least equivalent
value, to the extent that the insurance proceeds covering such damage or
destruction, or the amount of the award or compensation for damages recovered on
account of such taking or condemnation, shall be sufficient to pay the cost
thereof. The repair, replacement or reconstruction of such Pledged Project shall
be completed within a period of 360 days after the Event of Loss.

(c) For the purposes of this Section, a Pledged Project shall be deemed to be in
a condition substantially equivalent to its condition or value immediately prior
to an Event of Loss affecting it if, subject to gas availability, such Pledged
Project can be used effectively for substantially the same quantity and quality
of electrical generation, generation and refinement of landfill gas for
commercial sale or, as applicable, for which it was used immediately prior to
such Event of Loss, as certified in a report of the Independent Engineer
regarding the condition of such Pledged Project, in form, scope and substance
reasonably satisfactory to the Secured Party.

(d)(i) If, from time to time on or before the date that is 180 days immediately
succeeding the occurrence of an Event of Loss (or such longer period as may be
authorized by the Secured Party in its sole discretion), the Project Owner
Guarantor subject to an Event of Loss shall deliver to the Secured Party a
certificate in substantially the form of Exhibit E (an "Insurance Withdrawal
Certificate"), signed by a Senior Financial Officer of such Project Owner
Guarantor, certifying as to:

                                       24

(A)the amount requested to be withdrawn from the Insurance and Condemnation
Proceeds Account for such Pledged Project for the next month as reimbursement
for expenses previously incurred, presently due and payable, or to become due
and payable within one month in connection with the restoration of such Pledged
Project to a condition substantially equivalent to its condition or value
immediately prior to such Event of Loss (the "Restoration Costs");

(B)attached copies of bills or other written evidence of individual costs
describing the items purchased and/or the services rendered and all other
pertinent schedules, statements, invoices, change orders or other information;
and

(C) a  reconciliation  of all  Restoration  Costs  disbursed  through the date
of such  Insurance Withdrawal Certificate to the projected total costs of
restoring such Pledged Project to a condition  substantially  equivalent to its
condition or value immediately prior to such Event of Loss (the "Projected Total
Restoration  Costs"),  demonstrating  that, after giving effect to the  proposed
withdrawal,  the amounts  remaining on deposit in the Insurance and Condemnation
Proceeds  Account with respect to such Event of Loss are sufficient to pay the
Projected Total  Restoration  Costs of such Pledged Project (taking into account
any additional  amounts not otherwise  subject to the lien of this Security
Agreement  deposited by such Project Owner Guarantor with the Secured Party for
the purpose of  effecting  such restoration);

and further certifying in such certificate that (1) all the amounts of
Restoration Costs set forth in such certificate have been paid, are presently
due and payable or will be due and payable within one month, (2) none of such
amounts has been the subject of any prior payment request approved by the
Secured Party, and (3) the entire amount of the withdrawal requested in clause
(A) above will be used to pay, or to reimburse such Grantor for payment of, the
Restoration Costs set forth in the certificate, then, the Secured Party shall,
within three Business Days, transfer funds on deposit in the Insurance and
Condemnation Proceeds Account as directed by such Grantor (a written request
shall include a wire transfer instruction and all amounts disbursed hereunder
shall be wired by the Secured Party directly to the entity due such amounts).
Each Grantor hereby agrees that all funds received by it pursuant to this
Section shall be applied exclusively to the payment of, or reimbursement for,
Restoration Costs that have been properly identified in an Insurance Withdrawal
Certificate. No more than one Insurance Withdrawal Certificate shall be
delivered to the Secured Party in any single calendar month for any single
Pledged Project.

(ii) If on the date that is 180 days immediately succeeding the occurrence of an
Event of Loss,  the Pledged  Project  subject thereto has not been restored to a
condition  substantially  equivalent to its condition or value immediately prior
to such Event of Loss,  then the  applicable  Project Owner Guarantor  will give
written  notice thereof to the Secured Party and the Issuer, and either (A) such
Project Owner  Guarantor will  deposit with the Secured  Party, out of funds  of
such Project Owner Guarantor  not held in the  Accounts  within thirty (30) days
of the  date of such  notice,  an amount  determined by the Independent Engineer
to be sufficient, when combined with the amounts on deposit in the Insurance and

                                       25

Condemnation  Proceeds Account  attributable  to such Event of Loss, to complete
the  restoration  of the Pledged  Project  affected by such Event of Loss  to  a
condition  substantially  equivalent to its condition or value immediately prior
to such Event of Loss, or (B) the Issuer shall prepay,  in accordance  with  the
provisions of Section 6.2 of the Amended Note Purchase  Agreement,  a principal
amount of the Notes equal to the sum of the amount of  insurance  proceeds  held
by the  Secured  Party in the  Insurance  and Condemnation Proceeds Account with
respect to such Event of Loss,  together with  interest  accrued to the date of
prepayment  on the  principal amount being prepaid,  but  without a  prepayment
premium;  provided, however, that the Secured Party may, in its sole discretion,
extend such restoration  period beyond 180 days. In the event that the Project
Owner Guarantor elects, pursuant to clause (A) above, to restore  the  Pledged
Project  affected by such Event of Loss to a condition  substantially equivalent
to its  condition or value  immediately  prior to such Event of Loss and, on the
date that is 180 days  immediately succeeding  the date of the notice  provided
under this  paragraph  (ii),  such  Pledged  Project has not been  restored to a
condition  substantially  equivalent to its condition or value immediately prior
to such Event of Loss, then the Issuer shall prepay,  in accordance  with the
provisions of Section 6.2 of the Amended Note Purchase Agreement (but without
any Make Whole Amount or any other prepayment  premium),  a principal amount of
the Notes equal to the sum of (x) the amount of the insurance proceeds held by
the Secured Party in the Insurance and Condemnation Proceeds Account with
respect to such Event of Loss and (y) the amount of such insurance  proceeds
previously  disbursed from the Insurance and  Condemnation Proceeds Account with
respect to such Event of Loss that have not been expended for restoration.

(e)Each Grantor, immediately upon obtaining knowledge of the institution of any
proceedings for the condemnation or other taking of its Security Property or any
portion thereof in excess of $100,000 (singly or in the aggregate), or the use
thereof, shall, in accordance with Section 5.1(h) of the Amended Note Purchase
Agreement, notify, in writing, the Secured Party of the pendency of such
proceedings. The Secured Party may, but shall not be obligated to, participate
in such proceedings (including, without limitation, the making of any compromise
or settlement in connection with such proceedings), if such participation
is deemed desirable by the Secured Party, and each Grantor agrees to deliver to
the Secured Party all instruments requested by them from time to time to permit
such participation. The Secured Party is hereby irrevocably appointed as each
Grantor's attorney-in-fact, coupled with an interest, with exclusive power to
make, during the continuance of any Event of Default, any compromise or
settlement in connection with such proceedings.

(f) In the event all or substantially all of any Pledged Project is damaged,
destroyed, condemned or otherwise taken, the Issuer may, in lieu of restoring
such Pledged Project, either prepay the Notes, in accordance with Section 6.2 of
the Amended Note Purchase Agreement, or invest the proceeds from such Event of
Loss in accordance with the terms and conditions of Section 6.2(b)(iv) of the
Amended Note Purchase Agreement. In the event any portion of any Pledged Project
is subject to an Event of Loss, but less than substantially all of such Pledged
Project is affected by such Event of Loss, the applicable Project Owner
Guarantor shall not be obligated to repair, replace or reconstruct any such
portion if, on or prior to the date 180 days immediately succeeding such Event
of Loss, such Project Owner Guarantor, in its good faith judgment, determines
that it would be uneconomic to repair, replace or reconstruct such portion, or
if the applicable Landfill Owner exercises any right it has under any Project
Document to terminate such Project Document upon such an Event of Loss. If the
applicable Project Owner Guarantor makes such determination and so certifies to

                                       26

the Secured Party on or prior to the date 180 days immediately succeeding such
Event of Loss or if the Landfill Owner so terminates the Project Document, the
Issuer shall either (i), upon the earliest of (x) the expiration of such 180 day
period, (y) the termination by the Landfill Owner of such Project Document or
(z) the receipt of proceeds, if any, of insurance, condemnation or taking with
respect to such Event of Loss, promptly make the prepayment described above in
this Section or (ii) within such 180 day period, reinvest such proceeds in
accordance with the terms and conditions of Section 6.2(b)(iv) of the Amended
Note Purchase Agreement.

(g)Each Grantor, upon request by the Secured Party, shall make, execute and
deliver any and all instruments reasonably requested for the purposes of
confirming the assignment of the aforesaid insurance proceeds, awards and
compensation to the Secured Party, free and clear of any Liens of any kind or
nature whatsoever.

Section 5.07.     Maintenance of Security Property.

         Each Grantor at its own expense shall, subject to the existence of
Permitted Liens, at all times take all steps reasonably necessary and desirable
to protect its interest in the Security Property, including, without limitation,
the following:

(a) keep and maintain separate books and records relating to its interest in the
Security Property at its chief executive office in a form reasonably
satisfactory to the Secured Party;

(b) if an Event of Default has occurred and is continuing, deliver to the
Secured Party, promptly upon its request therefor, all schedules, lists,
invoices, bills of lading, documents of title, purchase orders, receipts,
chattel paper, instruments and other items relating to its interest in the
Security Property;

(c) when necessary or desirable for the perfection or maintenance of the Secured
Party's Lien on, and security interest in, the Security Property, or when
requested to do so by the Secured Party, make, stamp or record such entries or
legends on any of such Grantor's books and records relating to such Security
Property as the Secured Party shall reasonably request from time to time;

(d) defend its interest in the Security Property and defend and indemnify the
Secured Party and its officers, directors and employees against all claims,
Liens, security interests, demands and other encumbrances of third parties at
any time claiming an interest in such Security Property;

(e) keep its interest in the Security Property free of all Liens except the Lien
and security interest granted under the Security Documents and Permitted Liens;

(f) pay, promptly when due, all expenses incurred in the delivery, storage or
other handling of its interest in the Security Property; and

(g) promptly notify, in writing, the Secured Party of any Lien (other than
Permitted Liens) arising out of, or with respect to, its interest in the
Security Property.

                                       27

Section 5.08.     Compliance with Note Purchase Agreement.

         Each Grantor shall comply with each of the covenants and other
requirements of the Amended Note Purchase Agreement applicable to such Grantor.

Section 5.09.     Taxes.

(a) If any law is enacted or adopted after the date of this Security Agreement
that deducts the principal amount of the Notes from the value of the Security
Property for the purpose of taxation or that changes the laws now in force for
the taxation of deeds of trust, security instruments or debts secured thereby or
the manner of the operation of any such taxes or that otherwise imposes a tax,
either directly or indirectly, on the Notes or this Security Agreement, the
Issuer will pay such tax, with interest and penalties thereon, if any, provided,
however, that in no instance shall the Issuer be obligated to pay any state,
local or federal income taxes owed by the Secured Party except as specifically
provided in the Amended Note Purchase Agreement.

(b) No Grantor will claim or demand or be entitled to any credit or credits on
account of the Notes for any part of the taxes against the Security Property or
any part thereof and no deduction shall otherwise be made or claimed from the
taxable value of the Security Property, or any part thereof, by reason of this
Security Agreement or the Notes.

(c) If at any time the United States of America, any State thereof or any
subdivision of any such State shall require revenue or other stamps to be
affixed to the Notes or this Security Agreement, or impose any other tax or
charge on the same, the Issuer will pay for the same, with interest and
penalties thereon, if any, provided, however, that in no instance shall the
Issuer be obligated to pay any local, state, provincial or federal income taxes
of the Secured Party.

Section 5.10.     Project Documents.

(a) Each Grantor will, within the applicable grace periods, at all times keep,
observe and perform or cause to be kept, observed or performed all the material
terms, covenants and agreements of the Project Documents to which it is a party
and, without limiting the generality of the foregoing, will pay all amounts
payable by it under such Project Documents subject to standards of commercial
reasonableness. Each Grantor will take any and all such actions as may be
necessary promptly to enforce its rights and to collect any and all sums due it
under the Project Documents to which it is a party. Each Grantor will do or
cause to be done all things reasonably necessary to preserve and keep unimpaired
its rights under the Project Documents to which it is a party and to prevent any
termination, surrender, cancellation, forfeiture or impairment of any thereof
and to prevent any material default under any of such Project Documents for
terminations of the Project Documents by the counterparties thereto as of right.
Each Grantor will, promptly upon the receipt thereof, deliver to the Secured
Party copies of all Material notices, demands or declarations at any time
received by such Grantor from counterparties to any of the Project Documents to
which it is a party.

(b) Should any Grantor fail punctually to keep, observe and perform any of the
material terms, covenants and agreements of this Security Agreement or the
Project Documents to which it is a party, the Secured Party may, but shall not

                                       28

be obligated, upon ten days' written notice to such Grantor, to effect such
performance on behalf of such Grantor and the Grantors shall, on demand,
reimburse the Secured Party for any amounts expended by it to effect such
performance, with interest thereon at the Default Rate, such amounts to be
additional Secured Obligations secured by the Security Property.

(c) At the written request of the Secured Party, each Grantor shall exercise its
right, if any, to cure any default of any Gasco under any agreement between such
Gasco and any Landfill Owner that grants to such Gasco the right to recover,
refine, process, transmit and otherwise deal with landfill gas and constituent
products from the landfill that is the subject of any Project Document,
including, without limitation, the payment of any amounts payable by such Gasco
under such agreement and not paid when due. Should any Grantor fail to cure such
default within ten (10) days after written request therefor by the Secured
Party, the Secured Party may, but shall not be obligated to, effect such cure on
behalf of such Grantor and such Grantor shall, on demand, reimburse the Secured
Party for any amounts expended by it to effect such performance, with interest
thereon at the Default Rate, such reimbursement to be additional Secured
Obligations secured by the Security Property.

(d) No Grantor will receive or collect any payments under the Project Documents
to which it is a party in advance of the time when the same become due and
payable thereunder without the prior written consent of the Secured Party (which
may not unreasonably be withheld or delayed).

(e) No Grantor will cancel or terminate any of the Project Documents to which it
is a party or permit any cancellation or termination of any thereof (except for
terminations in the sole discretion of such Grantor's counterparty to any such
Project Document) or amend, compromise or modify any of the material terms or
provisions of any such Project Document or waive any term or provision of any
thereof (except for waivers not material to the security for the Secured
Obligations given in the day-to-day administration of such Project Documents) or
enter into any Material agreement or commitment provided for in such Project
Documents without the prior written consent of the Secured Party, which shall
not be unreasonably withheld or delayed.

(f) No Grantor shall make any election or give any consent or approval under any
of the Project Documents to which it is a party, if such consent or approval is
material to the preservation of the Security Property pledged by it hereunder,
without the prior written consent of the Secured Party, which shall not be
unreasonably withheld or delayed.

(g) Each Grantor shall, in accordance with Section 5.1(g) of the Amended Note
Purchase Agreement, give the Secured Party written notice immediately upon any
party to a Project Document requesting an arbitration proceeding under and
pursuant to the provisions of such Project Document, which arbitration
proceeding affects any Grantor, any of its Pledged Projects or any Security
Property pledged by it hereunder, the value of which exceeds $250,000 (singly or
in the aggregate). The Secured Party shall have the right, but not the
obligation, to intervene and participate in any such proceeding, and each
Grantor agrees to confer with the Secured Party, to the extent the Secured Party
shall deem necessary. No Grantor shall compromise any such arbitration
proceeding without the prior written consent of the Secured Party (which may not
unreasonably be withheld or delayed) and if, at the time any such proceeding
shall be commenced, an Event of Default has occurred and is continuing, the
Secured Party shall have the exclusive right to appoint the arbitrator on behalf
of such Grantor and to control the conduct of the proceeding.

                                       29

(h) Each Grantor shall execute and deliver, upon the request of the Secured
Party, such instruments as the Secured Party may reasonably deem useful or
required to permit the Secured Party to cure any default under any Project
Document to which such Grantor is a party or permit the Secured Party to take
such actions as the Secured Party may deem necessary to remedy the matter in
default and preserve the interest of the Secured Party in such Project Document.

(i) No Grantor will enter into any agreement, other than the Power Purchase
Agreements, covering the sale of electricity or refined landfill gas from any of
its Pledged Projects without the prior written consent of the Secured Party
(which may not unreasonably be withheld or delayed). Each Grantor shall take
such action as may be required effectively to subject its interest in any such
agreement to the Lien and security interest of this Security Agreement.

Section 5.11.     Applicable Permits.

         Each Project Owner Guarantor will duly obtain when needed, and
thereafter maintain in effect as long as legally required, all Applicable
Permits, except where the failure to obtain or maintain an Applicable Permit
could not reasonably be expected to have a Material Adverse Effect.

Section 5.12.     Delivery of Security Property.

         Each Grantor shall deliver all certificates or instruments representing
or evidencing Security Property pledged by it hereunder to, and all such
certificates or instruments shall be held by or on behalf of, the Secured Party,
and all such certificates or instruments shall be in suitable form for transfer
by delivery, or shall be accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance satisfactory to the Secured
Party, and each Grantor and its subsidiaries will maintain at all times a
register at its chief executive office in which shall be evidenced the security
interest of the Secured Party in all of the Security Property pledged by such
Grantor hereunder and not evidenced by physical certificates issued by or its
subsidiaries. For the better perfection of the Secured Party's rights in and to
the Security Property, each Grantor shall forthwith, upon the occurrence and
continuation of a Event of Default and upon the request of the Secured Party,
cause such Security Property pledged by it hereunder to be registered in the
name of the Secured Party or such of its nominees as the Secured Party shall
direct, provided, however, that,

(a) so long as no Event of Default has occurred and is continuing,

(i) each Grantor shall be entitled to exercise any and all voting and other
consensual rights pertaining to the Security Property pledged by it hereunder or
any part thereof for any purpose not inconsistent with the terms of this
Security Agreement or the other Loan Documents; provided, however, that such
Grantor shall not exercise or refrain from exercising any such right if such
action would have a Material Adverse Effect,

                                       30

(ii) each Grantor shall be entitled to receive and retain any and all dividends,
partnership draws, other distributions and interest paid in respect of the
Security Property pledged by it hereunder (which, upon receipt by any Grantor
shall no longer constitute Security Property), subject to the terms of Section
8.6 of the Amended Note Purchase Agreement,

(iii) the Secured Party shall execute and deliver (or cause to be executed and
delivered) to each Grantor all such proxies and other instruments as such
Grantor may reasonably request for the purpose of enabling such Grantor to
exercise the voting and other rights that it is entitled to exercise pursuant to
paragraph (i) above and to receive the dividends, partnership draws, other
distributions and interest that it is authorized to receive and retain pursuant
to paragraph (ii) above,

(b) upon the occurrence and during the continuance of an Event of Default,

(i) All rights of each Grantor (A) to exercise or refrain from exercising the
voting and other consensual rights that it would otherwise be entitled to
exercise pursuant to Section 5.12(a)(i) shall, upon notice to such Grantor by
the Secured Party, cease and (B) to receive the dividends, partnership draws,
other distributions, and interest payments that it would otherwise be authorized
to receive and retain pursuant to Section 5.12(a)(ii) shall automatically cease,
and all such rights shall thereupon become vested in the Secured Party, which
shall thereupon have the sole right to exercise or refrain from exercising such
voting and other consensual rights and to receive and hold as Security Property
such dividends, partnership draws, other distributions and interest payments.

(ii) All dividends, partnership draws, other distributions and interest payments
that are received by any Grantor contrary to the provisions of paragraph (i)
above shall be received in trust for the benefit of the Secured Party, shall be
segregated from other funds of such Grantor and shall be forthwith paid over to
the Secured Party as Security Property in the same form as so received (with any
necessary endorsement).

(c) Each Grantor shall (i) cause each issuer of the Pledged Interests and the
Pledged Debt not to issue any stock, other securities or interests or other
evidence of Indebtedness in addition to or in substitution for the Pledged
Interests and Pledged Debt issued by such issuer, except as permitted under the
Amended Note Purchase Agreement, and (ii) pledge hereunder, immediately upon its
acquisition (directly or indirectly) thereof, any and all additional shares of
stock, other securities or interests or other evidence of indebtedness.

(d) To the extent that any of the Security Property not evidenced by physical
certificates constitutes uncertificated securities under Article 8 of the UCC
and is issued by any Grantor, each Grantor that has issued such Security
Property agrees to comply with instructions originated by the Secured Party with
respect to such Security Property without further consent by the registered
owners of such Security Property.

Section 5.13.     No Secured Party Liability.

Each Grantor acknowledges that the Secured Party shall not have any
liability, obligation or responsibility whatsoever to such Grantor with respect

                                       31

to the operation of any of its Pledged Projects, unless the Secured Party shall
take possession of any such Pledged Project, in which case the Secured Party
shall have no liability, obligation or responsibility whatsoever to any Grantor
in connection with the operation of such Pledged Project, except for any
liability arising from the breach of the Loan Documents or any applicable law,
negligence, willful misconduct or bad faith of the Secured Party. Moreover, each
Grantor acknowledges that the Secured Party shall not be obligated to inspect
any Pledged Project, nor be liable for any failure to protect or insure any
Pledged Project pledged hereunder, or for the payment of costs of labor,
materials or services supplied for the operation of any such Pledged Project, or
for the performance of any obligation of any Grantor whatsoever, except for any
liability arising from the breach of the Loan Documents, negligence, willful
misconduct or bad faith of the Secured Party.

                                   Article VI
                                    REMEDIES

Section 6.01.     Remedies on Default.

(a)      If an Event of Default shall have occurred and be continuing, the
         Secured Party may, in addition to any other rights or remedies it may
         have as a Secured Party under the laws of the State of New York, the
         UCC or other applicable law, and in addition to the rights and remedies
         provided in Section 10.02 of the Amended Note Purchase Agreement, take
         any one or more of the following remedial steps, subject to the
         provisions of applicable law:

(i)      realize upon and take possession of any Security Property, and, if and
         to the extent any of the Security Property shall not be in the
         possession or under the control of the Secured Party, the Secured Party
         may require the Grantors to assemble or package the Security Property
         and make it available to the Secured Party at a place to be designated
         by the Secured Party; or

(ii)     sell, assign, lease or otherwise dispose of the Security Property in
         whole or in part at public or private sale upon terms and conditions
         established by the Secured Party; or

(iii)    notify any and all parties to any of the contracts and agreements that
         constitute Security Property that the Secured Party has exercised its
         rights hereunder and that (to the extent not already done so) all
         payments then or thereafter owing to any Grantor are to be made
         directly to the Secured Party.

(b)      In addition to the remedies set forth above, the Secured Party may
         exercise its rights under the other Loan Documents.

(c)      Should the Secured Party elect to cause any of the Security Property to
         be disposed of as personal property as permitted by the terms hereof,
         it may dispose of any part thereof in any manner now or hereafter
         permitted by Article 9 of the UCC or in accordance with any other
         remedy provided by law, subject to the provisions of this Security
         Agreement. Each Grantor and the Secured Party agree that twenty days'

                                       32

         notice of any public or private sale or other disposition of personal
         property shall be reasonable notice thereof and such sale shall be at
         such location as the Secured Party shall designate in such notice. Any
         notice given with respect to any such sale shall be given in accordance
         with Section 9-611 of the UCC, or any successor provision, as in effect
         from time to time. The Secured Party need not give such notice with
         respect to Security Property that is perishable or threatens to decline
         speedily in value or is of a type customarily sold on a recognized
         market. At any public sale or disposition of the Security Property, the
         Secured Party shall have the right to bid and become the purchaser.
         Each Grantor hereby waives any right to require the Security Property
         to be disposed of seriatim or in any particular order or sequence.

(d)      Upon any taking of possession of any Pledged Project pursuant to this
         Security Agreement, the Secured Party may, from time to time at the
         expense of the applicable Project Owner Guarantor, make all such
         repairs, replacements, alterations, additions and improvements to such
         Pledged Project as the Secured Party may deem proper. In any such case,
         the Secured Party shall have the right to manage and control such
         Pledged Project and to carry on the business and to exercise all rights
         and powers of such Project Owner Guarantor with respect thereto as the
         Secured Party shall deem best, including the right to enter into any
         and all such agreements with respect to the leasing and/or operation of
         such Pledged Project or any part thereof as the Secured Party may see
         fit. The Secured Party shall be entitled to collect and receive all
         rents, issues, profits, fees, revenues and other income of the same and
         every part thereof. Such rents, issues, profits, fees, revenues and
         other income shall be applied to pay the actual incurred expenses of
         constructing, holding and operating such Pledged Project, of all
         maintenance, repairs, replacements, alterations, additions and
         improvements thereto, and of conducting the business of the applicable
         Project Owner Guarantor with respect thereto, to make all payments that
         the Secured Party may be required to or may elect to make, if any, for
         taxes, assessments, insurance and other charges upon such Pledged
         Project or any part thereof, and to make all other payments that the
         Secured Party may be required or authorized to make under any provision
         of this Security Agreement (including reasonable legal costs and
         attorneys' fees). The remainder of such rents, issues, profits, fees,
         revenues and other income, if any, shall be applied in accordance with
         Section 10.03 of the Amended Note Purchase Agreement. Without limiting
         the generality of the foregoing, the Secured Party shall have the right
         to apply for and have a receiver appointed by a court of competent
         jurisdiction in any action taken by the Secured Party to enforce its
         rights and remedies hereunder in order to manage, protect and preserve
         such Pledged Project and continue the operation of the business of the
         applicable Project Owner Guarantor and to collect all revenues and
         profits thereof and apply the same to the payment of all actual
         incurred expenses and other charges of such receivership including the
         compensation as aforesaid until a sale or other disposition of such
         Pledged Project shall be finally made and consummated, provided,
         however, that in no instance shall such revenues and profits thereof be
         applied to pay any local, state, provincial or federal income taxes of
         the Secured Party.

(e)      In order to facilitate the exercise by the Secured Party of the rights
         and remedies set forth in this Article, each Grantor does hereby
         irrevocably appoint the Secured Party its true and lawful
         attorney-in-fact with full power of substitution, for it and in its
         name, place and stead, to ask, demand, collect, receive, receipt for,
         sue for, compound and give acquittance for any and all of the Security
         Property pledged by it hereunder with full power to settle, adjust or
         compromise any claim hereunder or under such Security Property as fully
         as such Grantor could itself do, and to endorse the name of such
         Grantor on all commercial paper given in payment or in part payment
         thereof, and in its discretion to file any claim or take any other

                                       33

         action or commence any other proceedings, either in its own name or in
         the name of such Grantor, or otherwise, which the Secured Party may
         deem necessary or appropriate to collect any and all sums which may be
         or become due or payable hereunder or under such Security Property, or
         that may be necessary or appropriate to protect and preserve the right,
         title and interest of the Secured Party in and to such sums and the
         security intended to be afforded hereby and thereby. In addition, each
         Grantor hereby appoints the Secured Party or any of its officers and
         agents, or any other person whom the Secured Party may designate, as
         attorney-in-fact for such Grantor, at such Grantor's sole cost and
         expense, to exercise all or any of the following powers, which, being
         coupled with an interest, shall be irrevocable, shall continue until
         all Obligations have been paid in full and shall be in addition to any
         other rights and remedies that such Grantor may have: (i) to remove
         from any premises where they may be located any and all documents,
         instruments, files and records relating to the Security Property
         pledged by it hereunder and any receptacles and cabinets containing the
         same, and at such Grantor's sole cost and expense, to use such of the
         personnel, supplies and space of such Grantor at its place of business
         as may be necessary properly to administer and control the Security
         Property or the collections and realizations thereon; (ii) to take or
         bring, in such Grantor's name or in the name of the Secured Party, all
         steps, actions, suits or proceedings deemed by the Secured Party
         necessary or desirable to effect collection of or to realize upon the
         Security Property pledged by it hereunder; and (iii) to endorse the
         name of such Grantor or any of such Grantor's officers or agents upon
         any notes, checks, drafts, money orders, or other instruments of
         payment (including payments payable under any policy of insurance upon
         any Security Property pledged by it hereunder) that may come into
         possession of the Secured Party in full or in part payment of any
         amounts owed to the Secured Party.

(f)      Notwithstanding any provision to the contrary contained in any Loan
         Document, the Secured Party may not take any action against any
         Guarantor pursuant to this Section 6.01 unless and until (i) the
         Secured Party has provided notice to the Grantors of an Event of
         Default and (ii) a period of ten days has elapsed after such notice has
         been received by the Grantors (provided, however, that the requirements
         of this sentence need not be met if an Event of Default described in
         Section 10.01(h) has occurred).

                                  Article VII
                          CONCERNING THE SECURED PARTY

Section 7.01.     Duties; Conduct; Protections.

(a)      Except during the continuance of an Event of Default:

(i)      the Secured Party undertakes to perform such duties and only such
         duties as are specifically set forth in this Security Agreement, and no
         implied covenants or obligations shall be read into this Security
         Agreement against the Secured Party; and

(ii)     in the absence of bad faith on its part, the Secured Party may
         conclusively rely, as to the truth of the statements and the
         correctness of the opinions expressed therein, including the accuracy
         of all sums and calculations, upon certificates or opinions furnished
         to the Secured Party and conforming to the requirements of this
         Security Agreement.

                                       34

(b)      If an Event of Default has occurred and is continuing, the Secured
         Party shall exercise such of the rights and powers vested in it by this
         Security Agreement, and use the same degree of care and skill in their
         exercise, as a prudent individual would exercise or use under the
         circumstances in the conduct of his or her own affairs.

(c)      The Secured Party may perform any of the duties or exercise any of the
         powers provided for in this Security Agreement either directly or
         through its attorneys, agents, custodians or nominees appointed with
         due care and duly authorized in writing.

(d)      The Secured Party may consult with counsel, appraisers, engineers,
         accountants, and other skilled persons to be selected by it, at the
         expense of the Grantors, and the written advice of any thereof shall be
         full and complete authorization and protection in respect of any action
         taken, suffered or omitted by it under this Security Agreement if
         relied upon reasonably and in good faith.

(e)      The Secured Party shall not be answerable or accountable under any
         circumstances except for its own willful misconduct or negligence. The
         negligence or willful misconduct of any taxing authority or any other
         Person may not be imputed to the Secured Party. No provision of this
         Security Agreement shall be construed to relieve the Secured Party from
         liability for its own negligent action, its own negligent failure to
         act or its own willful misconduct, except that:

(i)      this subsection shall not be construed to limit the effect of
         subsection (a) above;

(ii)     the Secured Party shall not be liable to any Person for any error of
         judgment made in good faith unless it shall be proved that the Secured
         Party was negligent in ascertaining or in failing to ascertain the
         pertinent facts;

(iii)    the Secured Party shall be entitled to rely conclusively upon any note,
         notice, resolution, request, consent, direction, certificate,
         affidavit, letter, telephone communication, telegram, teletype,
         message, statement, order or other document reasonably believed by the
         Secured Party to be genuine and correct and to have been signed or sent
         by a Responsible Officer of any Grantor; and

(iv)     no provision of this Security Agreement shall require the Secured Party
         to expend or risk its own funds or otherwise incur any financial
         liability in the performance of any of its duties hereunder, or in the
         exercise of any of its rights or powers, if it shall have reasonable
         grounds for believing that repayment of such funds or indemnity
         satisfactory to it against such risk or liability is not reasonably
         assured to it.

(f)      Subject to subsections (a) and (b) above and as required by law, the
         Secured Party shall have no duty:

(i)      to obtain or request further assurances pursuant to Section 5.02
         hereof;

(ii)     to file, record or deposit this Security Agreement or any other
         document contemplated hereby, or to maintain any such filing, recording
         or deposit or to refile, re-record or redeposit any such document;

                                       35

(iii)    to obtain or request insurance of any item of Security Property or to
         maintain any such insurance or to consent to any adjustment or
         settlement;

(iv)     to consent to any amendment, termination, waiver or modification of any
         Project Document, except that the Secured Party shall not withhold its
         consent unreasonably;

(v)      to effect any release of any item of the Security Property or to grant
         any other remedy to any Grantor or any other Person;

(vi)     to maintain or mark any item of the Security Property or any part
         thereof;

(vii)    to pay or discharge any tax, assessment or other governmental charge or
         any Lien of any kind owing with respect to or assessed against any item
         of the Security Property;

(viii)   to confirm, verify, investigate or inquire into the failure to receive
         any report or financial statement of any Grantor;

(ix)     to inspect any item of the Security Property;

(x)      to instruct any Grantor concerning the keeping and maintenance of books
         and records;

(xi)     to confirm or recalculate any calculation furnished to it; or

(xii)    to confirm the accuracy of any disbursement request submitted to it.

(g)      The Secured Party shall not be responsible for the correctness of any
         recitals or statements in this Security Agreement or in any schedule
         attached hereto.

(h)      The Secured Party makes no representation as to the value or validity
         of the Security Property.

(i)      The Secured Party shall be under no obligation with respect to the
         application of any moneys paid to it except as may be expressly
         provided herein.

Section 7.02.     Special Rights.

         Notwithstanding anything contained elsewhere in this Security
Agreement, the Secured Party shall have the right, but shall not be required, to
demand the subjection of any after acquired property to the Lien of this
Security Agreement, or any other action whatsoever (other than a withdrawal of
cash) within the purview hereof, any showings, certificates, opinions,
appraisals or other information by or from any Grantor reasonably deemed
necessary or appropriate by it in order to maintain and preserve the security
interest granted hereby.

                                       36

Section 7.03.     Release of Certain Security Property.

         Notwithstanding any provision hereof to the contrary, the Secured Party
shall provide to the Grantors a partial release of the Lien created hereunder
(i) on any of the Brickyard Project, the Dixon/Lee Project, the Upper Rock
Project, the Roxanna Project and the Streator Project if the Landfill Owner for
such Pledged Illinois Project pays to the Secured Party an amount equal to the
then fair market value of such Pledged Illinois Project, such fair market value
to be determined and certified in writing to the Secured Party by the
Independent Engineer, or (ii) on the Barre Project if the Landfill Owner for the
Barre Project exercises its right to buy out the landfill lease for the Barre
Project pursuant to the terms of such landfill lease. The Issuer will apply an
amount equal to such fair market value or buyout amount to prepay the Notes in
accordance with Section 6.2 of the Amended Note Purchase Agreement. Upon payment
as described in clause (i) above to any Illinois Guarantor by the applicable
Landfill Owner, such Illinois Guarantor may apply any funds held in the ICC
Account relating to its Pledged Illinois Project (if the reimbursement
obligation under the Illinois Rate Incentive is not assumed by the purchaser of
such Pledged Illinois Project) to satisfy such Pledged Illinois Project's
reimbursement obligation under the Illinois Rate Incentive in such manner as the
ICC may require in connection with any transaction described in clause (i)
above.

                                  Article VIII
                        CONSENTS TO ASSIGNMENT AND PLEDGE

Section 8.01.     Consent to Pledge and Assignment.

(a) Each Grantor that holds any Pledged Interest in any Person hereby
acknowledges and consents to the pledge and assignment by each other Grantor of
its Pledged Interest in such Person pursuant to this Security Agreement as
collateral security for all the Secured Obligations.

(b) Each Grantor that is a party to a Project Document with one or more other
Loan Parties (each an "Obligor") hereby (i) acknowledges and consents to the
pledge and assignment by each such Obligor to the Secured Party, pursuant to
this Security Agreement, of all right, title and interest of such Obligor in, to
and under (but not its obligations, liabilities or duties with respect to) each
such Project Document as security for the Secured Obligations and (ii) confirms
to the Secured Party that all representations, warranties, indemnities and
agreements of such Grantor under such Project Document shall inure to the
benefit of, and shall be enforceable by, the Secured Party to the same extent as
if originally named in such Project Document.

(c) Each Grantor hereby grants to the Secured Party all consents, waivers and
approvals required from such Grantor under any Project Document, applicable
statute, rule, regulation or ordinance, or otherwise, in order for (i) the
Issuer to issue the Notes and enter into the Loan Documents and (ii) the Secured
Party to exercise any right or remedy under any Loan Document.

Section 8.02.     Representations and Warranties of Grantors.

         Each Grantor represents and warrants as follows:

                                       37

(a) Such Grantor affirms that it has no notice of any effective assignment
relative to the right, title and interest of any Obligor in, to and under (i)
the Project Documents to which such Grantor is a party and (ii) the Pledged
Interests in Persons in which such Grantor also owns an interest, other than the
pledge and assignment to the Secured Party under this Security Agreement and the
Amended BMC Group Security Agreement.

(b) There is not now, and, after giving effect to the pledge and assignment by
the Grantors to the Secured Party of the Project Documents hereunder, there will
not be, any event or condition (a "Termination Event") which would, either
immediately or with the passage of time or giving of notice, or both, constitute
a default under any Project Document and/or enable any party thereto to
terminate or suspend its obligations under any Project Document, and there are
no claims or rights of set-off pending by any party to any Project Document.

Section 8.03.     Agreements of Grantors.

(a) Each Grantor agrees that it will not terminate or suspend its obligations,
or otherwise exercise any remedies, under any Project Document or with respect
to any Pledged Interest resulting from a Termination Event relating to any
Obligor without first giving the Secured Party the notice and opportunity to
cure provided for in subsection (c) below.

(b) Each Grantor agrees that at the time any notice of a Termination Event or
any other notice pursuant to the provisions of any Project Document or with
respect to any Pledged Interest shall be given to any Obligor, such Grantor
shall at the same time give a duplicate of such notice to the Secured Party.
Without limiting the generality of the foregoing, if a Termination Event shall
occur relating to an Obligor, and any corresponding Grantor shall desire to
exercise its remedies under the applicable Project Document as provided in
subsection (a) above with respect to such Termination Event, such Grantor shall
promptly give notice to the Secured Party, at the address set forth below, of
such Termination Event, specifying in such notice all then existing Termination
Events of which it has knowledge, such notice to be delivered to the Secured
Party by hand delivery or by an overnight courier of recognized national
standing and to be confirmed by telephone, if possible with reasonable effort.
The Secured Party may, within 30 days after the receipt by it of such notice
(which shall include such Grantor's address), deliver to such Grantor a written
notice stating that it has elected to cure such Termination Event, together with
a written statement of the Secured Party that it will promptly commence to cure
all Termination Events relating to such Obligor that are susceptible of being
cured by the Secured Party, and that it will, during the cure period provided in
subsection (c) below, diligently attempt in good faith to complete the curing
of, to the reasonable satisfaction of such Grantor, all such Termination Events;
provided, however, that nothing set forth herein shall be deemed to create any
obligation of the Secured Party to cure any Termination Event.

(c) The Secured Party shall have a period of, (i) in the case of Termination
Events relating to an Obligor arising from monetary defaults, 90 days, and (ii)
in the case the case of all other Termination Events relating to an Obligor, 180
days (such period being hereinafter referred to as the "Cure Period") after the
delivery of the notice by the Secured Party referred to in subsection (b) above
in which to cure such Termination Events. In the event any Termination Event

                                       38

described in clause (ii) shall be incurable by the Secured Party within the Cure
Period, the applicable Grantor shall not exercise any remedies under the
applicable Project Document if the Secured Party shall, within the Cure Period,
initiate action to cure such Termination Event and proceed diligently to the
curing thereof. Any curing of any Termination Event under any Project Document
shall not be construed as an assumption by the Secured Party of any obligations,
covenants or agreements of the Obligor under such Project Document. If the
Secured Party is required to obtain the approval of any court or to take any
other action in any bankruptcy or other proceeding before exercising its rights
under this subsection (c), the Cure Period shall be extended by the period
required to obtain such approval or take such other action.

Section 8.04.     Rejection of Project Documents.

         In the event that any Project Document between two or more Grantors is
rejected under 11 U.S.C. Section 365, or successor legislation, and (i) no
amounts payable thereunder shall be due and payable to any Grantor at the time
of such rejection, (ii) the Secured Party shall have arranged for the curing of
any default under such Project Document susceptible of being corrected by the
Secured Party and (iii) such Project Document shall have been terminated
pursuant to the terms thereof by reason of a rejection by the applicable Obligor
or a trustee in bankruptcy under 11 U.S.C. Section 365, or successor
legislation, then the applicable Grantor shall, if requested by the Secured
Party within thirty (30) days after such rejection, execute and deliver a new
Project Document of like tenor to be in effect for the remainder of the term of
the rejected Project Document, and with substantially the same terms as those
contained therein.

Section 8.05.     Performance by Secured Party.

         The Secured Party shall not have any obligation or liability to any
Grantor for the performance of any obligations under any Project Document or
with respect to any Pledged Interest unless and until the Secured Party shall
have notified such Grantor in writing that it intends to assume the obligations
imposed upon the Obligor(s) by the Project Document and receive the benefits
thereunder. In the event that the Secured Party succeeds to the interest of an
Obligor under a Project Document by reason of the exercise of the Secured
Party's rights under this Security Agreement, such Grantor agrees that it will
accept performance by the Secured Party or its successors or assigns or
designees of the obligations of the Obligor(s) under and in accordance with such
Project Document notwithstanding any restrictions set forth in such Project
Document on the assignability of each such Obligor's rights. If the Secured
Party assumes the rights and/or obligations of any Obligor under any Project
Document, the Secured Party shall have the right to assign such Project Document
to a party that assumes the obligations of the Obligor(s) thereunder or with
respect thereto (notwithstanding any limitation or restriction thereon set forth
in any Project Document) and upon such assignment or transfer, the Secured Party
shall be released from any liability under such Project Document from and after
the date of such assignment or transfer and thereafter such Project Document
shall remain in full force and effect for the benefit of such assignee. Upon any
such assignment of a Project Document by the Secured Party, such assignee shall
have the right to terminate the Agreement by giving written notice thereof to
the applicable Grantor(s).

Section 8.06.     Waivers.

(a) Each Grantor (i) waives presentment, protest, notice of protest, notice of
dishonor, notice of nonpayment, notice of acceptance of this Security Agreement,

                                       39

notice of loans made, credit extended, Security Property received or delivered
or other action taken in reliance hereon and (ii) assents to any extension or
postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of the Security Property, to the addition or
release of any party or Person primarily or secondarily liable, to the
acceptance of partial payments thereon and the settlement, compromising or
adjusting of any thereof, all in such manner and at such time or times as the
Secured Party may deem advisable. In each of the foregoing instances, the
Secured Party shall be deemed to believe in good faith that the action in
question is commercially reasonable.

(b) Any delay, omission or failure by the Secured Party to insist upon the
strict performance by any Grantor of any of the covenants, conditions and
agreements herein or to exercise any right or remedy available to it upon the
occurrence and continuance of an Event of Default shall not impair any such
right or remedy or be considered or taken as a waiver or relinquishment of the
future right to insist upon and to enforce, by injunction or other appropriate
legal or equitable remedy, strict compliance by each Grantor with all such
covenants, conditions and agreements or of the right to exercise any such rights
or remedies if such default by such Grantor be continued or repeated. Regardless
of consideration and without notice to or consent of any of the holders of any
subordinate Lien on the Security Property, the Secured Party may (i) release any
part of the Security Property, (ii) release the obligations of any Person
primarily or contingently liable for the Secured Obligations, or (iii) extend
the time for payment under, or otherwise modify the terms of, this Security
Agreement, and no such release, extension or modification shall impair or affect
the Lien of this Security Agreement, or the priority of such Liens over any
subordinate Lien. No Grantor shall be relieved of any liability by reason of (A)
any such release, extension or modification, (B) the failure of the Secured
Party to comply with any request of any or all of the Grantors to foreclose this
Security Agreement or exercise any other remedy available under this Security
Agreement, or (C) any agreement or stipulation between any subsequent owner of
the Security Property and the Secured Party extending the time of payment or
modifying the terms of this Security Agreement.

Section 8.07.     Unconditional Nature of Secured Obligations.

         The obligations and liabilities of the Grantors hereunder are absolute
and unconditional and shall remain in full force and effect until the
satisfaction of all of the Secured Obligations, without regard to any event,
circumstance or condition that might constitute a legal or equitable defense or
discharge of any Grantor or that might in any way limit recourse against any
Grantor, including without limitation: (i) any waiver, consent or indulgence by
the Secured Party or any exercise or non-exercise of any right, power or remedy
against any Grantor; (ii) any limitation or cessation of any Grantor's liability
under any Loan Document, including without limitation any invalidity,
unenforceability or impaired liability resulting from any Grantor's lack of
capacity, power and/or authority to enter into any Loan Document or from the
execution and delivery of any Loan Document by any person acting for any Grantor
without or in excess of authority; (iii) any failure to join any Grantor in an
action to enforce any Loan Document; or (iv) any Grantor's insolvency,
bankruptcy, reorganization, dissolution, liquidation or any similar action with
respect to any Grantor.

                                       40

                                   Article IX
                                     GENERAL

Section 9.01.     Submission to Jurisdiction.

(a) THIS SECURITY AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF
THE STATE OF NEW YORK (WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES THEREOF
(OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW)).

(b) ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATED TO THIS SECURITY
AGREEMENT OR THE TRANSACTION CONTEMPLATED HEREIN SHALL BE BROUGHT, IF AT ALL, IN
THE COURTS OF EITHER (I) THE STATE OF NEW YORK SITTING IN NEW YORK CITY OR OF
THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK OR (II) THE PROVINCE OF
ONTARIO, AND BY EXECUTION AND DELIVERY OF THIS SECURITY AGREEMENT, EACH PARTY
HERETO CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE EXCLUSIVE
JURISDICTION OF THOSE COURTS. THE PARTIES HERETO IRREVOCABLY WAIVE ANY
OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE
GROUNDS OF FORUM NON CONVENIENS, WHICH THEY MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS
SECURITY AGREEMENT. THE PARTIES HERETO WAIVE PERSONAL SERVICE OF ANY SUMMONS,
COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY
THE LAW OF THE STATE OF NEW YORK OR THE PROVINCE OF ONTARIO.

Section 9.02.     Authority of Resources.

         Each Guarantor authorizes Resources to act on its behalf under this
Agreement, including without limitation with respect to giving and receiving
notices and granting consents or waivers.

Section 9.03.     Excluded Assets.

         None of the representations, warranties, covenants (financial or
other), reporting requirements or calculations in this Security Agreement
includes, makes reference to or in any way contemplates the Excluded Assets. For
purposes of this Security Agreement, the Grantors' connection with the Excluded
Assets is disregarded in its entirety.

Section 9.04.     Amendments, Consents and Waivers.

         This Security Agreement may be amended, and the observance of any term
of this Security Agreement may be waived or its nonobservance consented to,
with, and only with, the written consent of the Secured Party and the Grantors.
No amendment, consent or waiver hereunder shall be effective unless in writing
and signed by an officer, employee or other Person authorized to execute such
amendment or waiver.

                                       41

Section 9.05.     Notices.

         All notices, requests, demands and other communications shall be in
writing and shall be given by overnight courier, next business day delivery. Any
notice, request, demand or other communication given hereunder (i) to the
Secured Party shall be addressed to it at 246 Waterloo Street, London, Ontario
N6B 2N4, Canada, Attention: Vice President Administration, with a copy to
Countryside US Power Inc., c/o U.S. Energy Systems, Inc., One North Lexington
Avenue, White Plains, NY 10601, Attention: President, (ii) to the Issuer shall
be addressed to it at One North Lexington Avenue, White Plains, New York, 10601
(iii) to any Grantor shall be addressed to it in care of the Issuer at One North
Lexington Avenue, White Plains, New York, 10601 and (iv) shall be deemed to have
been given on the earlier of the date when delivered or one business day after
being sent. Any party, by notice given in accordance with this Section, may
designate a further or different address for future notices.

Section 9.06.     Successors and Assigns.

         This Security Agreement shall inure to the benefit of and be binding
upon the successors and assigns of each of the parties hereto.

Section 9.07.     Security Agreement.

         This Security Agreement is a "security agreement" within the meaning of
the UCC. Each Grantor, by executing and delivering this Security Agreement, has
granted to the Secured Party, as security for the Secured Obligations, a
security interest in the Security Property in which it has an interest to the
full extent that a security interest may be granted under applicable law.

Section 9.08.     Partial Invalidity.

         The unenforceability or invalidity of any provision or provisions of
this Security Agreement shall not render any other provision or provisions
herein contained unenforceable or invalid.

Section 9.09.     Release.

         The security interest created under this Security Agreement shall
automatically terminate upon indefeasible payment and performance in full of all
Secured Obligations. The Secured Party shall execute and deliver, at the expense
of the Grantors, such instruments as shall be reasonably requested by the
Grantors to evidence the termination of the security interest created hereby and
the release of the Security Property from the Lien of this Security Agreement.

Section 9.10.     Counterparts.

         This Security Agreement may be executed in any number of counterparts,
each of which shall be an original but all of which together shall constitute
one instrument. Each counterpart may consist of a number of copies hereof, each
signed by less than all, but together signed by all, of the parties hereto.

                                       42

Section 9.11.     Headings.

         The table of contents and any headings or captions preceding the text
of the several Articles and Sections hereof are intended solely for convenience
of reference and shall not constitute a part of this Security Agreement, nor
shall they affect its meaning, construction or effect."

         SECTION 2. TRUSTEE.

         Upon executing and delivering this Amendment, the Trustee shall have no
further rights or obligations under the Original Security Agreement, as amended
by this Amendment, except any rights under the Original Security Agreement to
indemnification of the Trustee for actions, circumstances or events occurring on
or prior to the date hereof.

         SECTION 3. FORMER HANCOCK ISSUERS.

         Upon executing and delivering their consent to this Amendment, the
Former Hancock Issuers shall no further rights or obligations under the Original
Security Agreement, as amended by this Amendment.

         SECTION 4. COUNTERPARTS.

         This Amendment may be executed in any number of counterparts, each of
which shall be an original but all of which together shall constitute one
instrument. Each counterpart may consist of a number of copies hereof, each
signed by less than all, but together signed by all, of the parties hereto.

         SECTION 5. GOVERNING LAW.

         THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE
OF NEW YORK (WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES THEREOF (OTHER
THAN SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW)).

         ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATED TO THIS
AMENDMENT OR THE TRANSACTIONS CONTEMPLATED HEREIN SHALL BE BROUGHT, IF AT ALL,
IN THE COURTS OF EITHER (I) THE STATE OF NEW YORK SITTING IN NEW YORK CITY OR OF
THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK OR (II) THE PROVINCE OF
ONTARIO, AND BY EXECUTION AND DELIVERY OF THIS AMENDMENT, EACH PARTY HERETO
CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE EXCLUSIVE
JURISDICTION OF THOSE COURTS. EACH PARTY HERETO IRREVOCABLY WAIVES ANY
OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE

                                       43

GROUNDS OF FORUM NON CONVENIENS, WHICH THEY MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS
AMENDMENT. EACH PARTY HERETO WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT
OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY THE LAW OF
THE STATE OF NEW YORK OR THE PROVINCE OF ONTARIO.

                           [Signatures to Follow]

                                       44

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

                             U.S. ENERGY BIOGAS CORP.

                           By___________________________________________________
                             Richard J. Augustine
                             President

                             AVON ENERGY PARTNERS, L.L.C.
                             By Resources Generating Systems, Inc., Manager

                           By___________________________________________________
                             Richard J. Augustine
                             President

                             BARRE ENERGY PARTNERS, L.P.
                             By Resources Generating Systems, Inc., General
                             Partner

                           By___________________________________________________
                             Richard J. Augustine
                             President

                             BRICKYARD ENERGY PARTNERS, LLC
                             By Resources Generating Systems, Inc., Manager

                          By __________________________________________________
                             Richard J. Augustine
                             President

                             BURLINGTON ENERGY, INC.

                          By___________________________________________________
                            Richard J. Augustine
                            President

                          CAPE MAY ENERGY ASSOCIATES, L.P.
                          By Resources Generating Systems, Inc., General Partner

                          By___________________________________________________
                            Richard J. Augustine
                            President

                          DEVONSHIRE POWER PARTNERS, L.L.C.
                          By Resources Generating Systems, Inc., Manager

                          By __________________________________________________
                             Richard J. Augustine
                             President

                          DIXON/LEE ENERGY PARTNERS, LLC
                          By Resources Generating Systems, Inc., Manager

                          By___________________________________________________
                            Richard J. Augustine
                            President

                          DUNBARTON ENERGY PARTNERS,
                          LIMITED PARTNERSHIP
                          By Resources Generating Systems, Inc., General Partner

                         By __________________________________________________
                            Richard J. Augustine
                            President

                            ILLINOIS ELECTRICAL GENERATION PARTNERS, L.P.
                            By Resources Generating Systems, Inc., General
                            Partner
                            By Resources Generating Systems, Inc., Manager

                         By___________________________________________________
                           Richard J. Augustine
                           President

                                      S-2

                           ILLINOIS ELECTRICAL GENERATION
                           PARTNERS II, L.P.
                           By Resources Generating Systems, Inc., General
                           Partner

                         By___________________________________________________
                           Richard J. Augustine
                           President

                           LAFAYETTE ENERGY PARTNERS, L.P.
                           By ZFC Energy, Inc., General Partner

                          By___________________________________________________
                            Richard J. Augustine
                            President

                            OCEANSIDE ENERGY INC.

                         By___________________________________________________
                           Richard J. Augustine
                           President

                           ONONDAGA ENERGY PARTNERS, L.P.
                           By Resources Generating Systems, Inc., General
                           Partner

                         By___________________________________________________
                           Richard J. Augustine
                           President

                           POWER GENERATION (SUFFOLK), INC.

                         By___________________________________________________
                           Richard J. Augustine
                           President

                           RESOURCES GENERATING SYSTEMS, INC.

                        By___________________________________________________
                          Richard J. Augustine
                          President

                                      S-3

                          RIVERSIDE RESOURCE RECOVERY, L.L.C.
                          By Resources Generating Systems, Inc., Manager

                        By___________________________________________________
                          Richard J. Augustine
                          President

                          ROXANNA RESOURCE RECOVERY, L.L.C.
                          By Resources Generating Systems, Inc., Manager

                        By___________________________________________________
                          Richard J. Augustine
                          President

                          STREATOR ENERGY PARTNERS, LLC
                          By Resources Generating Systems, Inc., Manager

                        By___________________________________________________
                          Richard J. Augustine
                          President

                          SUFFOLK ENERGY PARTNERS, L.P.
                          By Power Generation (Suffolk), Inc., General Partner

                        By___________________________________________________
                          Richard J. Augustine
                          President

                          SUFFOLK TRANSMISSION PARTNERS, L.P.
                          By Resources Generating Systems, Inc., General Partner

                        By___________________________________________________
                          Richard J. Augustine
                          President

                                      S-4

                          TAYLOR ENERGY PARTNERS, L.P.
                          By ZFC Energy, Inc., General Partner

                        By___________________________________________________
                          Richard J. Augustine
                          President

                          TUCSON ENERGY PARTNERS, L.P.
                          By Resources Generating Systems, Inc., General Partner

                        By___________________________________________________
                          Richard J. Augustine
                          President

                          UPPER ROCK ENERGY PARTNERS, LLC
                          By Resources Generating Systems, Inc., Manager

                        By___________________________________________________
                         Richard J. Augustine
                         President

                         BIOGAS FINANCIAL CORPORATION (formerly known as Zahren
                         Financial Corporation)

                      By___________________________________________________
                        Richard J. Augustine
                        President

                        ZAPCO ENERGY TACTICS CORPORATION

                      By___________________________________________________
                        Richard J. Augustine
                        President

                        ZAPCO ILLINOIS ENERGY, INC.

                      By___________________________________________________
                        Richard J. Augustine
                        President

                                      S-5

                       ZAPCO READVILLE COGENERATION, INC.

                     By___________________________________________________
                       Richard J. Augustine
                       President

                       ZFC ENERGY, INC.

                      By___________________________________________________
                        Richard J. Augustine
                        President

                                      S-6

                       COUNTRYSIDE CANADA POWER INC., as secured party and as
                       trustee

                     By___________________________________________________
                       Name:
                       Title:

                                      S-8

Consented to by:

GARLAND ENERGY DEVELOPMENT, LLC
By Resources Generating Systems, Inc., Manager

By _________________________________
   Richard J. Augustine
   President

OYSTER BAY ENERGY PARTNERS, L.P.
By Resources Generating Systems, Inc., General Partner

By _________________________________
   Richard J. Augustine
   President

SMITHTOWN ENERGY PARTNERS, L.P.
By Resources Generating Systems, Inc., General Partner

By _________________________________
   Richard J. Augustine
   President

SPRINGFIELD ENERGY ASSOCIATES LTD. PARTNERSHIP
By Resources Generating Systems, Inc., General Partner

By _________________________________
   Richard J. Augustine
   President

ZAPCO DEVELOPMENT CORPORATION

By _________________________________
   Richard J. Augustine
   President

                                      S-8

ZAPCO EQUIPMENT CORP.

By _________________________________
   Richard J. Augustine
   President

ZAPCO READVILLE COGENERATION, INC.

By _________________________________
   Richard J. Augustine
   President

                                      S-9

                                                             Schedule 4.03(a)

                         Illinois Permitted Investments

Funds in the Other ICC Account may be invested in Cash Equivalents, Fixed Income
Securities and Equities, each as defined below (the foregoing being "Illinois
Permitted Investments"). In no event, however, may the aggregate amount of
Illinois Permitted Investments that are made consist of (i) less than 30% Fixed
Income Securities, (ii) more than 65% Equities or (iii) more than 65% Fixed
Income Securities rated lower than BB by Standard & Poor's Ratings Services (or
any successor thereto) or Ba2 Moody's Investor's Service, Inc. (or any successor
thereto).

"Cash Equivalents" shall mean:
        (i)      Shares in money market mutual funds;
        (ii)     United States treasury bills;
        (iii)    Commercial paper denominated in U.S. dollars rated A-2 or
better by Standard & Poor's Ratings Services (or any successor thereto) or P-2
or better by Moody's Investor's Service, Inc. (or any successor thereto); and
        (iv) Certificates of deposit denominated in U.S. dollars issued by any
bank or trust company whose deposits are insured by the Federal Deposit
Insurance Corporation.

"Fixed Income Securities" shall mean:
        (i) Direct obligations of the United States of America, or of any agency
thereof, or obligations guaranteed as to principal and interest by the United
States of America, or by any agency thereof (other than United States treasury
bills);
        (ii) Notes or bonds or convertible notes or bonds of any corporation,
which notes or bonds are rated BB or better by Standard & Poor's Ratings
Services (or any successor thereto) or Ba2 or better Moody's Investor's Service,
Inc. (or any successor thereto);
        (iii) Obligations evidenced by notes, bonds, debentures or similar
instruments that are secured by mortgages;
        (iv) Preferred or convertible preferred stock of any corporation
incorporated under any State of the United States of America, which preferred
stock is rated BB or better by Standard & Poor's Ratings Services (or any
successor thereto) or  Ba2 or better Moody's Investor's Service, Inc. (or any
successor thereto); and
        (v) Fixed income securities of foreign governments, which securities are
rated A or better by Standard & Poor's Ratings Services (or any successor
thereto) or A2 or better Moody's Investor's Service, Inc. (or any successor
thereto).

"Equities" shall mean:
        (i)      Common stock of any corporation;
        (ii)     Shares in real estate investment trusts, master limited
partnerships, income trusts or royalty trusts (other than the Fund) that are
organized under the laws of the United States of America or any State thereof or
the laws of Canada, so long as (A) with respect to each such trust or
partnership, the aggregate net asset value of such trust or partnership on the
date of acquisition of any shares thereof is not less than $300,000,000, and (B)
such shares are traded on any of the New York Stock Exchange, Toronto Stock
Exchange, American Stock Exchange or National Association of Securities Dealers
Automated Quotation;
        (iii) Convertible Preferred Stock of any corporation, which
convertible preferred stock is traded on any of the New York Stock Exchange,
Toronto Stock Exchange, American Stock Exchange or National Association of
Securities Dealers Automated Quotation; and
        (iv) American Depositary Receipts.

                                                        Schedule 4.03(b

                           Other Permitted Investments

Funds in the Debt Service Reserve Account and the Construction Reserve Account
may be invested in Convertible Debt, Corporate Fixed Income Securities,
Equities, Preferred Stock or Other Investments, each as defined below (the
foregoing being "Other Permitted Investments"). In no event, however, may the
aggregate amount of Other Permitted Investments that are made consist of (i)
more than 50% Fixed Income Securities, (ii) 10% Preferred Stock, (iii) 10%
Convertible Notes or Bonds or (iv) 5% Equities.

"Convertible Notes or Bonds" shall mean convertible notes or bonds of any
corporation incorporated under the laws of any State of the United States of
America, which convertible notes or bonds are rated BB or better by Standard &
Poor's Ratings Services (or any successor thereto) or Ba2 or better Moody's
Investor's Service, Inc. (or any successor thereto) and which convertible notes
or bonds are traded on any of the New York Stock Exchange, Toronto Stock
Exchange, American Stock Exchange or National Association of Securities Dealers
Automated Quotation.

"Corporate Fixed Income Securities" shall mean (i) Preferred Stock and (ii)
notes or bonds of any corporation incorporated under the laws of any State of
the United States of America, which notes or bonds are rated BB or better by
Standard & Poor's Ratings Services (or any successor thereto) or Ba2 or better
Moody's Investor's Service, Inc. (or any successor thereto).

"Equities" shall mean shares in real estate investment trusts, master limited
partnerships, income trusts or royalty trusts, so long as (A) with respect to
each such trust or partnership, the aggregate net asset value of such trust or
partnership on the date of acquisition of any shares thereof is not less than
$300,000,000, and (B) such shares are traded on any of the New York Stock
Exchange, Toronto Stock Exchange, American Stock Exchange or National
Association of Securities Dealers Automated Quotation.

"Preferred Stock" shall mean preferred stock of any corporation incorporated
under the laws of any State of the United States of America, which preferred
stock is rated BB or better by Standard & Poor's Ratings Services (or any
successor thereto) or Ba2 or better Moody's Investor's Service, Inc. (or any
successor thereto).

"Other Investments" shall mean:
        (i)      Shares in money market mutual funds;
        (ii) Direct obligations of the United States of America, or of any
agency thereof, or obligations guaranteed as to principal and interest by the
United States of America, or by any agency thereof;
        (iii) Commercial paper issued by
any corporation incorporated under the laws of any State of the United States of
America denominated in U.S. dollars rated A-2 or better by Standard & Poor's
Ratings Services (or any successor thereto) or P-2 or better by Moody's
Investor's Service, Inc. (or any successor thereto);
        (iv) Certificates of deposit denominated in U.S. dollars issued by any
bank or trust company whose deposits are insured by the Federal Deposit
Insurance Corporation;
        (v) Obligations evidenced by notes, bonds, debentures or similar
instruments that are secured by mortgages; and Fixed income securities of
foreign governments, which securities are rated A or better by Standard & Poor's
Ratings Services (or any successor thereto) or A2 or better Moody's Investor's
Service, Inc. (or any successor thereto).

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