Document:

Exhibit 10.14

 

REDACTED

 

 

EXECUTION COPY

 

 

 

OPERATION AND MAINTENANCE AGREEMENT

 

by
and between

 

KGEN
HOT SPRING LLC

as Owner

 

and

 

CINERGY
SOLUTIONS O&M LLC

as Operator

 

for
the

 

KGEN
HOT SPRING GENERATING FACILITY

 

 

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE I DEFINITIONS

  	
   

  	
  1

  
	
  Section
  1.1

  	
   

  	
  Defined Terms

  	
   

  	
  1

  
	
  Section
  1.2

  	
   

  	
  Construction

  	
   

  	
  7

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE II RELATIONSHIP OF
  OWNER, OPERATOR AND SUBCONTRACTORS

  	
   

  	
  7

  
	
  Section
  2.1

  	
   

  	
  Status of Operator

  	
   

  	
  7

  
	
  Section
  2.2

  	
   

  	
  Subcontractors and
  Affiliates

  	
   

  	
  8

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE III OPERATOR
  RIGHTS AND RESPONSIBILITIES

  	
   

  	
  8

  
	
  Section
  3.1

  	
   

  	
  General

  	
   

  	
  8

  
	
  Section
  3.2

  	
   

  	
  Site Procedures

  	
   

  	
  8

  
	
  Section
  3.3

  	
   

  	
  Operation and Performance
  of Services

  	
   

  	
  8

  
	
  Section
  3.4

  	
   

  	
  Annual Management Plan

  	
   

  	
  9

  
	
  Section
  3.5

  	
   

  	
  Management/Meetings and
  Third Parties

  	
   

  	
  10

  
	
  Section
  3.6

  	
   

  	
  Maintenance and Technical
  Services

  	
   

  	
  10

  
	
  Section
  3.7

  	
   

  	
  Equipment, Spare Parts,
  Consumables, Tools and Materials

  	
   

  	
  11

  
	
  Section
  3.8

  	
   

  	
  Operator’s Personnel

  	
   

  	
  11

  
	
  Section
  3.9

  	
   

  	
  Reports by Operator

  	
   

  	
  12

  
	
  Section
  3.10

  	
   

  	
  Taxes and Employee Costs

  	
   

  	
  12

  
	
  Section
  3.11

  	
   

  	
  Environmental, Health and
  Safety Plan, Security and Hazardous Materials Management

  	
   

  	
  13

  
	
  Section
  3.12

  	
   

  	
  Emergencies

  	
   

  	
  13

  
	
  Section
  3.13

  	
   

  	
  Notice of Non-Compliance
  With Laws and Governmental Requirements

  	
   

  	
  14

  
	
  Section
  3.14

  	
   

  	
  Permits, Reporting and
  Liens

  	
   

  	
  14

  
	
  Section
  3.15

  	
   

  	
  Owner’s Access

  	
   

  	
  14

  
	
  Section
  3.16

  	
   

  	
  Records

  	
   

  	
  14

  
	
  Section
  3.17

  	
   

  	
  Title to Goods, Documents
  and Data

  	
   

  	
  15

  
	
  Section
  3.18

  	
   

  	
  Operator Guaranty

  	
   

  	
  15

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  IV OWNER RIGHTS AND RESPONSIBILITIES

  	
   

  	
  15

  
	
  Section
  4.1

  	
   

  	
  Management, Strategic
  Decisions and Owner Directions

  	
   

  	
  15

  
	
  Section
  4.2

  	
   

  	
  Owner’s Representatives
  and Review Committee

  	
   

  	
  16

  
	
  Section
  4.3

  	
   

  	
  Commodity Procurement,
  Scheduling and Trading

  	
   

  	
  16

  
	
  Section
  4.4

  	
   

  	
  Reports and Plans

  	
   

  	
  17

  
	
  Section
  4.5

  	
   

  	
  Taxes

  	
   

  	
  17

  
	
  Section
  4.6

  	
   

  	
  Accounting

  	
   

  	
  17

  
	
  Section
  4.7

  	
   

  	
  Permits and Reporting

  	
   

  	
  17

  
	
  Section
  4.8

  	
   

  	
  Operator’s Access

  	
   

  	
  17

  
	
  Section
  4.9

  	
   

  	
  Other Facilities and
  Services

  	
   

  	
  17

  

 

i

 

	
  ARTICLE
  V PAYMENTS

  	
   

  	
  17

  
	
  Section
  5.1

  	
   

  	
  Payments for Services

  	
   

  	
  17

  
	
  Section
  5.2

  	
   

  	
  O&M Account

  	
   

  	
  20

  
	
  Section
  5.3

  	
   

  	
  Advance O&M Cost
  Estimate; Progress Report

  	
   

  	
  20

  
	
  Section
  5.4

  	
   

  	
  Final Billing

  	
   

  	
  21

  
	
  Section
  5.5

  	
   

  	
  Invoice or Payment
  Disputes or Errors

  	
   

  	
  21

  
	
  Section
  5.6

  	
   

  	
  Employee Incentive Plan

  	
   

  	
  21

  
	
  Section
  5.7

  	
   

  	
  Interest on Late Payments

  	
   

  	
  21

  
	
  Section
  5.8

  	
   

  	
  Audit

  	
   

  	
  21

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  VI TERM OF AGREEMENT; TERMINATION

  	
   

  	
  22

  
	
  Section
  6.1

  	
   

  	
  Initial Term

  	
   

  	
  22

  
	
  Section
  6.2

  	
   

  	
  Termination Upon
  Insolvency

  	
   

  	
  22

  
	
  Section
  6.3

  	
   

  	
  Termination by Owner for
  Material Default; Right to Cure

  	
   

  	
  22

  
	
  Section
  6.4

  	
   

  	
  Termination for
  Convenience

  	
   

  	
  23

  
	
  Section
  6.5

  	
   

  	
  Termination by Operator
  for Material Default

  	
   

  	
  23

  
	
  Section
  6.6

  	
   

  	
  Rights and Obligations
  Upon Termination

  	
   

  	
  23

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  VII INDEMNITY AND LIMITATIONS ON LIABILITY

  	
   

  	
  25

  
	
  Section
  7.1

  	
   

  	
  General Indemnity

  	
   

  	
  25

  
	
  Section
  7.2

  	
   

  	
  Owner’s Property

  	
   

  	
  25

  
	
  Section
  7.3

  	
   

  	
  Third Party Claims

  	
   

  	
  25

  
	
  Section
  7.4

  	
   

  	
  Limitation of Liability

  	
   

  	
  27

  
	
  Section
  7.5

  	
   

  	
  Co-Owners

  	
   

  	
  27

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  VIII WARRANTIES

  	
   

  	
  27

  
	
  Section
  8.1

  	
   

  	
  Operator’s Warranty

  	
   

  	
  27

  
	
  Section
  8.2

  	
   

  	
  Third Party Warranties

  	
   

  	
  27

  
	
  Section
  8.3

  	
   

  	
  Warranties Limited

  	
   

  	
  28

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  IX REPRESENTATIONS

  	
   

  	
  28

  
	
  Section
  9.1

  	
   

  	
  Operator Representations

  	
   

  	
  28

  
	
  Section
  9.2

  	
   

  	
  Owner Representations

  	
   

  	
  29

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  X FORCE MAJEURE

  	
   

  	
  29

  
	
  Section
  10.1

  	
   

  	
  Definition of Force
  Majeure Event

  	
   

  	
  29

  
	
  Section
  10.2

  	
   

  	
  No Breach or Liability

  	
   

  	
  30

  
	
  Section
  10.3

  	
   

  	
  Mitigation

  	
   

  	
  30

  
	
  Section
  10.4

  	
   

  	
  Suspension of Performance

  	
   

  	
  30

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  XI INSURANCE

  	
   

  	
  31

  
	
  Section
  11.1

  	
   

  	
  Insurance to be Provided
  by Operator

  	
   

  	
  31

  
	
  Section
  11.2

  	
   

  	
  Insurance to be Provided
  by Owner

  	
   

  	
  31

  
	
  Section
  11.3

  	
   

  	
  Evidence of Insurance

  	
   

  	
  32

  
	
  Section
  11.4

  	
   

  	
  Subcontractors’ Insurance

  	
   

  	
  32

  
	
  Section
  11.5

  	
   

  	
  Right to Insure

  	
   

  	
  32

  

 

ii

 

	
  ARTICLE
  XII CONFIDENTIALITY

  	
   

  	
  32

  
	
  Section
  12.1

  	
   

  	
  Confidential Information

  	
   

  	
  32

  
	
  Section
  12.2

  	
   

  	
  Agreement Confidential

  	
   

  	
  33

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  XIII MISCELLANEOUS

  	
   

  	
  33

  
	
  Section
  13.1

  	
   

  	
  Entire Agreement

  	
   

  	
  33

  
	
  Section
  13.2

  	
   

  	
  Amendments

  	
   

  	
  33

  
	
  Section
  13.3

  	
   

  	
  Captions

  	
   

  	
  34

  
	
  Section
  13.4

  	
   

  	
  Notices

  	
   

  	
  34

  
	
  Section
  13.5

  	
   

  	
  Severability

  	
   

  	
  34

  
	
  Section
  13.6

  	
   

  	
  Assignment

  	
   

  	
  35

  
	
  Section
  13.7

  	
   

  	
  No Waiver

  	
   

  	
  35

  
	
  Section
  13.8

  	
   

  	
  Applicable Law

  	
   

  	
  35

  
	
  Section
  13.9

  	
   

  	
  Exhibits

  	
   

  	
  35

  
	
  Section
  13.10

  	
   

  	
  No Partnership Created

  	
   

  	
  36

  
	
  Section
  13.11

  	
   

  	
  Consequential Damages

  	
   

  	
  36

  
	
  Section
  13.12

  	
   

  	
  Limitations Application

  	
   

  	
  36

  
	
  Section
  13.13

  	
   

  	
  Accommodation of Owner’s
  Financing

  	
   

  	
  36

  
	
  Section
  13.14

  	
   

  	
  Survival

  	
   

  	
  36

  
	
  Section
  13.15

  	
   

  	
  Dispute Resolution

  	
   

  	
  36

  

 

iii

 

EXHIBIT LIST

 

	
  Exhibit A

  	
   

  	
  Organizational Chart

  
	
  Exhibit B

  	
   

  	
  Site Description

  
	
  Exhibit C

  	
   

  	
  Operator Permits

  
	
  Exhibit D

  	
   

  	
  Owner Permits

  
	
  Exhibit E

  	
   

  	
  Form of Monthly Management
  Report

  
	
  Exhibit F

  	
   

  	
  Material Project
  Agreements

  
	
  Exhibit G

  	
   

  	
  Support Functions

  
	
  Exhibit H

  	
   

  	
  Form of Guaranty

  
	
  Exhibit I

  	
   

  	
  Section 6.9 of the
  Purchase and Sale Agreement, dated May 3, 2004 by and among Duke Energy North
  America, LLC, Duke Energy Capital of Texas, Inc. and KGen Partners LLC

  

 

iv

 

OPERATION AND MAINTENANCE AGREEMENT

 

THIS OPERATION AND
MAINTENANCE AGREEMENT dated and effective as of September 13, 2004, is by and
between KGEN HOT SPRING LLC, a Delaware limited liability company, and its
successors and permitted assigns (“Owner”),
having its principal office at 1330 Post Oak Boulevard, Houston, Texas 77056
and CINERGY SOLUTIONS O&M LLC a Delaware limited liability company, and its
successors and assigns (“Operator”),
having a place of business at 139 East Fourth Street, 5 Atrium II, Cincinnati,
OH 45202.

 

W I T N E S S E T H:

 

WHEREAS, Owner owns the Facility (as hereinafter
defined) located in Hot Spring County, Arkansas;

 

WHEREAS, Operator, by itself and through suppliers,
subcontractors and Affiliates, desires to provide certain operation and
maintenance services for the Facility;

 

WHEREAS, Operator together with its Affiliates has
experience in performing services required for the operation and maintenance of
the Facility; and

 

WHEREAS, Owner and Operator desire to set forth the
terms of an Agreement pursuant to which Operator shall provide services for the
operation and maintenance of the Facility.

 

NOW, THEREFORE,
in consideration of the premises and the mutual promises and agreements of the
parties herein expressed, the parties, intending to be legally bound, hereby
agree to the following:

 

ARTICLE I

DEFINITIONS

 

Section 1.1     Defined
Terms. The following terms when used in this Agreement (or in exhibits to
this Agreement) with initial letters capitalized shall have the meanings set
forth below (such meanings to be equally applicable to both the singular and
the plural forms of the terms defined), unless otherwise expressly indicated:

 

“Advance O&M Cost Estimate” shall have the meaning set
forth in Section 5.3.

 

“Affiliate” shall mean any Person that directly, or indirectly,
through one or more intermediaries, controls, is controlled by or is under
common control with the Person specified. For purposes of this definition,
control of a Person means the power, direct or indirect, to direct or cause the
direction of the management and policies of such Person whether through
ownership of voting securities or ownership interests, by contract or otherwise,
and specifically with respect to a corporation, partnership or limited
liability company, means direct or indirect ownership of more than 50% of the
voting securities in such corporation or of the voting interest in a
partnership or limited liability company. For purposes of this Agreement,
Operator and Owner shall not be considered Affiliates.

 

 

“Agreement” shall mean this Operation and Maintenance Agreement
(including all exhibits attached hereto), as it may be amended and supplemented
from time to time.

 

“Annual Management Plan” shall have the meaning set forth in
Section 3.4.

 

“Asset Manager” shall mean an individual designated by Owner to
manage and administer Owner’s affairs and to act as liaison with Operator.

 

“Base Rate” shall mean for any day, a rate per annum equal to
the greater of (a) the rate of interest per annum from time to time published
in The Wall Street Journal as the
prime commercial lending rate, such rate to change when and as such prime
commercial lending rate (or such comparable rate, if The Wall Street Journal does not so designate a “prime
commercial lending rate”) changes and (b)  1/2 of one
percent above the Federal Funds Rate. If for any reason Operator shall have
determined (which determination shall be conclusive absent manifest error) that
it is unable to ascertain the Federal Funds Rate specified in clause (b) of the
first sentence of this definition, for any reason, including, without
limitation, the inability or failure of Operator to obtain sufficient
quotations in accordance with the terms hereof, the Base Rate shall be
determined without regard to clause (b) of the first sentence of this
definition until the circumstances giving rise to such inability no longer
exist. Any change in the Base Rate shall be effective on the effective date of
any change in such rate.

 

“Budget” shall mean a detailed (by month) projection of
expenses for the one year period following the Commencement Date, as
established pursuant to Section 3.4 and included in the Annual Management
Plan, which shall include major maintenance reserve accruals.

 

“Business Day” shall mean a day other than Saturday, Sunday or
any day on which banks located in the State of New York are authorized or
obligated to close.

 

“Commencement Date” shall mean September 15, 2004.

 

“Consumables” shall mean all items consumed or needing regular
periodic replacement during the operation and maintenance of the Facility,
including water treatment chemicals, small tools, lubricants, rags, oils,
filter media, additives, anti-corrosion devices, gases (CO2 , O2 , H2 , Halon,
etc.) and other expendable materials, but not spare parts or fuel.

 

“Contract Manager” shall mean an individual designated by
Operator pursuant to Section 3.8 hereof to manage Operator’s interests
with respect to this Agreement and to act as a liaison with Owner.

 

“Depositary Agreement” shall mean the Depositary Agreement
dated as of August 5, 2004, among KGen Murray LLC and certain of its
Affiliates, KGen Power LLC, The Bank of New York and Credit Suisse First Boston.

 

“Duke Personnel” shall have the meaning set forth in Section
3.8(d).

 

“Employee Incentive Plan” shall mean a plan, if any, developed
by Operator for an Operation Year in accordance with Section 5.7 pursuant
to which the Operator shall provide

 

2

 

payments to the Facility
Work Force based on the accomplishment of specific performance measures.

 

“Energy Management Agreements” shall mean any energy management
agreement and related agreements entered into from time to time with respect to
the Facility, in each case as amended from time to time.

 

“Equipment” shall mean, collectively, all equipment, materials,
apparatus, structures and other goods (other than spare parts, Consumables or
tools) installed at, or used for the operation of, the Facility.

 

“Facility” shall mean the Hot Spring Facility, located at the
Site and associated natural gas, water and waste water pipelines, pumping and
meter stations and electric transmission facilities on Owner’s side of the
Interconnection Point and under Owner’s control, in each case including any
additions, expansions, enhancements, improvements and betterments.

 

“Facility Work Force” shall mean employees of Operator or its
Affiliates who shall perform Services and who are employed on-Site at the
Facility.

 

“Federal Funds Rate” shall mean, for any period, a fluctuating
interest rate per annum equal for each day during such period to the weighted
average of the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers, as published for such
day (or, if such day is not a Business Day, for the next preceding Business
Day) by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day which is a Business Day, the average of the quotations
for such day for such transactions received by Operator from three Federal
funds brokers of recognized standing selected by it.

 

“Forced Outage” shall mean an unplanned interruption of the
Facility’s generation that causes the Facility to fail to maintain its
dispatched operating level (regardless of the level of such dispatch within the
design limits).

 

“Force Majeure Event” shall have the meaning set forth in
Section 10.1.

 

“GAAP” shall mean generally accepted accounting principles in
the United States of America.

 

“Governmental Authority” shall mean any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the United States or any state, county, city or other political subdivision or
similar governing entity, and including any governmental, quasi–governmental or
non-governmental body administering, regulating or having general oversight
over gas, electricity, power or other markets.

 

“Governmental Requirements” shall mean all authorizations,
consents, exemptions, decrees, licenses, permits, certificates, requirements,
orders and approvals imposing requirements enforced by any Governmental
Authority having jurisdiction or potential jurisdiction with respect to purchase
or transportation of fuel to the Facility, sale of capacity and corresponding
energy of the Facility, or the operation and maintenance of the Facility, other
than Laws.

 

3

 

“Hazardous Materials” shall mean (a) those materials included
within the definitions of “hazardous substances,” “hazardous materials,” “toxic
substances,” or “hazardous wastes” in the Federal Water Pollution Control Act,
as amended, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, the Hazardous Materials Transportation Act,
as amended, the Toxic Substance Control Act, as amended, or the Resource
Conservation and Recovery Act of 1976, as amended, or in the regulations
promulgated pursuant to said laws; (b) those substances defined as a “pesticide”
pursuant to Section 2(u) of the Federal Insecticide, Fungicide, and
Rodenticide Act as amended by the Federal Environmental Pesticide Control Act
of 1972 and by the Federal Pesticide Act of 1978 (7 U.S.C. Sections 136 et seq.), as amended or in the regulations
promulgated pursuant thereto; (c) those substances defined as “hazardous air
pollutants” pursuant to Section 112(a)(6) or “regulated substance”
pursuant to Section 12(a)(2)(B) of the Clean Air Act (42 U.S.C. Sections
7401 et seq.), as amended or in
the regulations promulgated pursuant thereto; (d) those substances for which
remediation standards are established in any applicable environmental clean-up
statutes; (e) those substances listed in the U.S. Department of Transportation’s
Hazardous Materials Table (49 CFR 172.101 and amendments thereto) or by the
U.S. Environmental Protection Agency as hazardous substances (40 CFR Part 302
or 40 CFR Part 116 and amendments thereto); and (f) those substances defined as
hazardous or toxic substances pursuant to other present or future applicable
Laws.

 

“Hot Spring Facility” shall mean that certain nominal 620 MW,
natural gas-fired, combined-cycle facility located approximately 55 miles
southwest of Little Rock, Arkansas.

 

“Indemnitee” shall have the meaning set forth in Section
7.3(d).

 

“Indemnitor” shall have the meaning set forth in Section
7.3(d).

 

“Inflation Index” shall mean 1.5 times the Consumer Price Index
for All Urban Consumers (CPI-U) published by the bureau for Labor Statistics of
the United States Department of Labor with respect to the previous year, or if
publication of that index ceases, a similar index published by such other
organization as Owner and Operator may mutually agree.

 

“Interconnection Agreements” shall mean (a) the Interconnection
and Operating Agreement dated March 22, 2001 between the Duke Energy Hot
Spring, LLC and Entergy Arkansas, Inc, a corporation organized and existing
under the laws of the State of Arkansas and (b) any other interconnection
agreement entered into from time to time with respect to the Facility, in each
case, as amended from time to time.

 

“Interconnection Point” shall mean (a) with respect to electric
transmission, each Interconnection Point as defined in the respective
Interconnection Agreements, and (b) with respect to pipelines, the physical
point(s) on the Site where the pipelines owned or leased by Owner connect with
the third-party pipelines transporting the relevant substance.

 

“Laws” shall mean all laws, statutes, ordinances, rules and
regulations, in each case of and from any Governmental Authority having valid
jurisdiction.

 

“Legacy Employees” shall have the meaning set forth in Section
6.6(d)(iv).

 

4

 

“Maintenance” shall mean Scheduled Maintenance, Unscheduled
Maintenance and Routine Maintenance.

 

“Major Line Item” shall mean, with respect to any Budget, the
following major expense line items in such Budget: (i) administration (labor),
(ii) administration (other), (iii) Scheduled and Routine Maintenance (including
labor costs), (iv) outage costs, (v) regular labor (operations), (vi) Monthly
Management Fee, (vii) utilities, (viii) auxiliary power, and (ix) other.

 

“Material Project Agreements” shall mean the agreements set
forth on Exhibit F hereto, as such schedule may be amended from time to time in
writing by the parties hereto.

 

“Monthly Management Fee” shall have the meaning set forth in
Section 5.1(a).

 

“Monthly Management Report” shall mean the report delivered
pursuant to Section 3.9(a) in the form of Exhibit E, as such form may
be modified by the parties hereto from time to time.

 

“Notice of Claim” shall have the meaning set forth in Section
7.3(d).

 

“O&M  Account”
shall mean the “Hot Spring O&M Account” as defined in the Depositary
Agreement.

 

“O&M Costs” shall have the meaning set forth in
Section 5.1(b).

 

“Operating Representative” shall have the meaning set forth in
Section 4.1(a)(iv).

 

“Operation Year” shall mean (a) for the initial year of operation
of the Facility, the period from Commencement Date until June 30 of the
following year and (b) for each successive year of operation, July 1 of such
year through June 30 of the following year, except that the final Operation
Year shall begin on July 1 and end upon the termination or expiration of this
Agreement. For an Operation Year of lass than 365 days, any calculation in this
Agreement determined by reference to an Operation Year shall be adjusted by
multiplication of the appropriate figure by a fraction, the numerator of which
shall be the number of days in that Operation Year and the denominator of which
shall be 365.

 

“Operator Guarantor” shall have the meaning set forth in
Section 3.18.

 

“Operator Permits” shall mean the authorizations, consents,
exemptions, decrees, licenses, permits, certificates, requirements, orders and
approvals identified on Exhibit C and all other authorizations, consents,
exemptions, decrees, licenses, permits, certificates, requirements, orders and
approvals (other than the Owner Permits) now or hereafter required under
applicable Law and Governmental Requirements to qualify Operator to operate the
Facility and to perform the Services.

 

“Owner Permits” shall mean the authorizations, consents,
exemptions, decrees, licenses, permits, certificates, requirements, orders and
approvals identified on Exhibit D and all other authorizations, consents,
exemptions, decrees, licenses, permits, certificates, requirements, orders and
approvals (other than the Operator Permits) now or hereafter required to be
obtained and

 

5

 

maintained under applicable
Law and Governmental Requirements in connection with the ownership and
operation of the Facility.

 

“Person” shall mean any natural person, corporation, general
partnership, limited partnership, limited liability company, proprietorship,
other business organization, trust, union, association or Governmental
Authority.

 

“Plant Manager” shall mean an individual designated by Operator
and approved by Owner pursuant to Section 3.8 hereof, who shall supervise
the day-to-day performance of the Services at the Facility on behalf of
Operator.

 

“PPA” shall mean any power purchase agreement entered into from
time to time with respect to the Facility, in each case as amended from time to
time.

 

 “Project
Company Permitted Liens” shall have the meaning set forth in the
Depositary Agreement.

 

“Prudent Industry Practices” shall mean, with respect to a
particular time, those practices, methods, techniques and standards, as at such
time, that are generally accepted for use in the electric generation and
transmission industry, and that at a particular time, in the exercise of
reasonable judgment in light of the facts known at the time a decision is made
or action is taken, would be expected to accomplish the design, engineering,
construction, testing, operation and maintenance of electric generation and
transmission equipment in a safe and prudent manner, including those practices,
methods, techniques and standards necessary to operate such equipment in
accordance with applicable Law (taking into account the written recommendations
of manufacturers of equipment) as at such time (as opposed to optimum practice,
method, technique or standard).

 

“Review Committee” shall have the meaning set forth in
Section 4.2(b).

 

“Routine Maintenance” shall mean maintenance, excluding
Scheduled and Unscheduled Maintenance, of a regular or minor nature that
reasonably should be performed periodically to keep the Facility in working order
including lubrication, repacking of valves, minor leak repair, adjustments,
preventive maintenance, calibrations, replacement of Consumables and similar
services, outage repairs and general housekeeping.

 

“Scheduled Maintenance” shall mean the planned periodic
inspection, overhaul and repair of the Equipment included in a Budget approved
by Owner or as otherwise documented and approved by Owner.

 

“Services” shall have the meaning set forth in Section 3.1(a).

 

“Site” shall mean the parcel of land located in Hot Spring
County, Arkansas, described on Exhibit B, as well as easements, rights of
way and other lands along which railroads, steam, water and gas pipelines,
wastewater discharge lines and other utilities that serve the Facility are
located.

 

6

 

“Subcontractor” shall mean any party with whom Operator enters
into an agreement for the performance of Services or for the supply of
Equipment to Operator, including parties at any level with whom any Subcontractor
has further subcontracted any part of the Services, and the representatives,
successors, and assigns of such party.

 

“Unscheduled Maintenance” shall mean unplanned maintenance,
replacement and repair of the Equipment (other than Routine Maintenance or
Scheduled Maintenance) that has not been scheduled and budgeted for in the
Budget and such repair, replacement or maintenance being limited to unforeseen
circumstances (including a change of Law) that would not reasonably be expected
to be scheduled and budgeted for in the Budget.

 

Section 1.2     Construction.

 

(a)     All
article, section, subsection, schedules and exhibit references used in this
Agreement are to articles, sections, subsections, schedules and exhibits to
this Agreement unless otherwise specified. The exhibits and schedules attached
to this Agreement constitute a part of this Agreement and are incorporated
herein for all purposes.

 

(b)     If
a term is defined as one part of speech (such as a noun), it shall have a
corresponding meaning when used as another part of speech (such as a verb). Unless
the context of this Agreement clearly requires otherwise words importing the
masculine gender shall include the feminine and neutral genders and vice versa.
The words “includes” or “ including” shall mean “including without limitation,”
the words “hereof,” “hereby,” “herein,” “hereunder” and similar terms in this
Agreement shall refer to this Agreement as a whole and not any particular
section or article in which such words appear and any reference to a Law shall
include any amendment thereof or any successor thereto and any rules and
regulations promulgated thereunder. Currency amounts referenced herein are in
currency of the United States.

 

(c)     Whenever
this Agreement refers to a number of days, such number shall refer to calendar
day(s), not Business Day(s).

 

(d)     All
accounting terms used herein and not expressly defined herein shall have the
meanings given to them under GAAP.

 

(e)     Each
party hereto acknowledges that it and its attorneys have been given an equal
opportunity to negotiate the terms and conditions of this Agreement and that
any rule of construction to the effect that ambiguities are to be resolved
against the drafting party or any similar rule operating against the drafter of
an agreement shall not be applicable to the construction or interpretation of
this Agreement.

 

ARTICLE II

RELATIONSHIP OF OWNER, OPERATOR AND SUBCONTRACTORS

 

Section 2.1     Status
of Operator.  Operator shall perform and execute its obligations
under this Agreement as an independent contractor to Owner and shall not be an
employee or, except as expressly provided in this Agreement, an agent of Owner.

 

7

 

Section 2.2     Subcontractors
and Affiliates.  Operator may have
all or any part of the Services accomplished by Subcontractors pursuant to
written agreements between Operator and such Subcontractors. The creation of
any subcontract relationship shall not (a) relieve Operator of any of its
obligations under this Agreement, (b) relieve Operator of its responsibility
for the performance of Services rendered by any such Subcontractor or (c)
create any relationship between Owner and any Subcontractor. Owner shall
communicate with any Subcontractor only through Operator. No Subcontractor is
intended to be or shall be deemed a third-party beneficiary of this Agreement. Operator
shall purchase goods and services at competitive rates comparable to those
generally available for similar contracts in the market to the maximum extent
feasible.

 

Without limiting the
preceding paragraph, Operator may have Services performed by its Affiliates,
but in such case Operator shall be responsible for such Services in accordance
with the terms of this Agreement and Owner shall look solely to Operator as if
the Services were performed by Operator.

 

ARTICLE III

OPERATOR RIGHTS AND RESPONSIBILITIES

 

Section 3.1     General.  During the term of this Agreement, Operator
shall manage the operation and maintenance of the Facility and do all things
necessary for the proper operation and maintenance of the Facility in
accordance with the provisions of this Agreement, including the standards set
forth in Section 3.3 (collectively, the “Services”).
In performance of the Services, Operator will follow the reasonable requests of
Owner not otherwise prohibited by Section 4.1(b). Operator shall promptly
notify Owner if it becomes aware of a request or direction by Owner to Operator
that violates Section 4.1(b).

 

Section 3.2     Site
Procedures.  Owner shall provide to
Operator any site procedures being used at the Facility on the Commencement
Date. Thereafter, Operator shall review and modify such site procedures as
Operator deems appropriate based on the obligations of Operator under this
Agreement, and shall provide Owner with copies of any and all site procedures
adopted from time to time by Operator in connection with performing the
Services at the Facility. Operator shall promptly notify Owner of any amendment
or modification to such site procedures. Any such site procedures shall (a) be
in compliance with all Governmental Requirements and Laws; (b) be in accordance
with Prudent Industry Practices; and (c) otherwise be consistent with the terms
of this Agreement. Any such site procedures provided by Operator to Owner are
hereby designated by Operator as confidential information and shall be
delivered to Owner subject to the restrictions set forth in Section 12.1.

 

Section 3.3     Operation
and Performance of Services.  Operator
shall perform the Services in accordance in all material respects with this
Agreement, the Annual Management Plan (other than variances in items contained
therein (including the Budget) to the extent permitted by this Agreement but
including requirements of Material Project Agreements included therein),
Prudent Industry Practices, Laws and Governmental Requirements and shall use
its reasonable efforts to minimize Facility Outages and downtime and maximize
the operating efficiency and availability of the Facility. Operator acknowledges
that Owner is party to or beneficiary of certain Material Project Agreements,
and that certain terms thereof pertain to

 

8

 

the operation and
maintenance of the Facility. The parties agree to identify such provisions and
to include them as requirements for Operator in the Annual Management Plan.

 

Section 3.4     Annual
Management Plan.

 

(a)     On
or before the Commencement Date, Owner shall provide Operator with the
operating plan currently in place for the Facility (the “Transition Plan”), which Transition Plan
will be utilized for a period of not to exceed sixty days. Owner and Operator
shall develop promptly after the Commencement Date the Annual Management Plan
(the “Annual Management Plan”) for
the initial Operation Year which shall replace the Transition Plan. The initial
Annual Management Plan shall adapt the Transition Plan and in addition shall
include (i) Operator’s annual goals and objectives in respect of
operations, maintenance and management of the Facility, (ii) major maintenance
schedule for the 24 month period after the beginning of the Operation Year,
(iii) capital investment plan, (iv) technical support plan, (v) environmental,
health and safety operating plan, (vi) if requested by Owner, supplies and
materials inventory recommendations, (vii) Budget, (viii) operational
requirements of Material Project Agreements with which Operator shall comply,
and (ix) PPA and Energy Management Agreement dispatch requirements plan. Owner
shall provide Operator with such information as shall be necessary for the
completion of the initial Annual Management Plan.

 

(b)     No
later than one hundred twenty (120) days before the beginning of each
successive Operation Year, Operator shall submit to Owner a proposed Annual
management Plan for the Operating Year succeeding the then current Operating
Year. Within forty-five (45) days after the Owner received such proposed Annual
Management Plan, Owner shall advise Operator of any required changes to such
Annual Management Plan as Owner may deem necessary (except to the extent that
such changes are inconsistent with the PPA, Prudent Industry Practice, Laws or
Governmental Requirements). Owner shall provide Operator with such information
as shall be necessary for the completion of the Annual Management Plan. Not
more than ten (10) days following Operator’s receipt of Owner’s comments on
such proposed Annual Management Plan, Owner and Operator shall meet to discuss
the terms of such Annual Management Plan and Owner’s requested changes thereto.
Owner and Operator shall use reasonable efforts to reach agreement thereon at
least sixty (60) days prior to the beginning of such Operation Year. If such
revised Annual Management Plan is not timely approved, Operator shall continue
to operate in accordance with the Annual management Plan then currently in use
(provided the Budget contained therein shall be adjusted pursuant to the
Inflation Index and any Budget overrun proposals previously approved or deemed
approved by Owner with respect to such Budget) and the approval of such
proposed Annual Management Plan shall be subject to dispute resolution pursuant
to Section 13.15 of this Agreement.

 

(c)     In
the event Operator determines that (i) the finalized Budget for any Operation
Year or (ii) any Major Line Item in such Budget, likely will be exceeded by
more than 10%, Operator promptly shall give Owner notice of such fact and
Operator shall promptly develop and deliver to Owner a Budget overrun proposal
for the remainder of such Operation Year. Such Budget overrun proposal shall be
prepared in the same form as the Budget and shall be subject to Owner’s
approval; provided, however, such Budget overrun proposal shall
be deemed approved to the extent such Budget overruns are due to operating
schedules in excess of the schedules contemplated in the current Budget and
requested by Owner subsequent to the approval of the

 

9

 

current Budget, and amounts
incurred by Operator pursuant to Sections 3.12, 3.14, 5.1(b)(x) and (xi),
5.7 and 11.5 shall not be included in any such 10% calculation.

 

Section 3.5     Management/Meetings
and Third Parties.

 

(a)     Pursuant
to Section 3.4, Operator shall develop management systems, policies, procedures
and programs as set forth in the Annual Management Plan to manage the technical
and business operations of the Facility, which management systems shall be
developed in conjunction with Owner’s management system. At Owner’s invitation,
or, in Operator’s sole discretion, as necessary for the daily operations of the
Facility (with prompt notice by Operator to Owner), Operator shall attend and
participate in any meetings and committees regarding the management, operations
and maintenance of the Facility, including (i) the Review Committee as provided
in Section 4.2(b), (ii) meetings with federal, state, county, or local
government entities (including in respect of environmental, health and safety
issues), and major suppliers and customers, and (iii) meetings with PPA
counterparties.

 

(b)     Operator
shall provide input to Owner as to the current and future planned operations of
the Facility as determined by the energy manager in place for the Facility and
any impact thereof on the Annual Management Plan and Facility operation.

 

Section 3.6     Maintenance
and Technical Services.

 

(a)     Operator
shall provide and perform all Maintenance and technical services for the
Facility in accordance with Section 3.3, including planning, outage management,
technical supervision (including technical oversight of turbines and overall
plant operation and performance, and boiler water and wastewater chemistries),
maintenance of computer systems and programs at the Facility, labor, tooling
and equipment, inspection reports and recommendations for Maintenance and
investigations of service disruptions, mechanical breakdowns and failures and
substandard performance. In the event Owner enters into any long term service
agreement for any maintenance services for the Facility, Operator shall manage,
monitor and oversee such agreement and the services provided thereunder as
agent for Owner.

 

(b)     Operator
shall provide procurement, accounting, legal, environmental and human resources
support necessary for the performance of the Services under this Agreement. The
rates for such additional services are set forth in Exhibit G.

 

(c)     In
the event Operator determines any material Unscheduled Maintenance is advisable
or necessary (other than in connection with an event described in Section 3.12
(i) Operator shall immediately inform Owner of the need, extent and
approximate cost of such Unscheduled Maintenance by contacting the Asset
Manager, or in the absence of the Asset Manager, his designee, by phone or in
person, (ii) Operator shall, at Owner’s expense, follow any direction provided
by Owner as a result of such contact (to the extent consistent with Prudent
Industry Practice, Laws, Governmental Requirements and this Agreement) and
(iii) in the event Operator, after reasonably diligent efforts (including that
provided for in subsection (i) of this sentence), is unable to reach and
receive direction from Owner for a 3 hour period (12 hour period for
Unscheduled Maintenance to the combustion turbine and the steam turbine),
Operator

 

10

 

shall, at Owner’s expense,
perform Unscheduled Maintenance in a manner consistent with Section 3.3.

 

(d)     Operator
shall advise Owner of any Forced Outage as soon as possible, but in no event
later than twenty-four (24) hours after its commencement. Within fifteen (15)
days after the conclusion of any Forced Outage, Operator shall deliver a report
to Owner describing the nature of the Forced Outage and detailing any remedial
measures undertaken to correct such Forced Outage and to minimize future Forced
Outages.

 

Section 3.7     Equipment,
Spare Parts, Consumables, Tools and Materials.

 

(a)     Operator
shall provide to Owner as set forth in the Annual Management Plan detailed
recommendations for inventory of Equipment, Consumables, spare parts, tools and
any other supplies and materials necessary to perform the Services and operate
the Facility and arrange for Owner’s account for prompt delivery of such
supplies and materials; provided, however, that the initial
inventory of Spare Parts and small tools, including appropriate storage spaces
or buildings therefore, shall be provided by Owner.

 

(b)     Operator,
for Owner’s account, shall purchase, maintain, manage and care for an inventory
of Equipment, Consumables, spare parts, tools and any other materials adequate
to support the operation of the Facility. Operator shall implement and manage
any agreements for the purchase of such Equipment, Consumables, spare parts,
tools and any other materials on Owner’s behalf. Operator may enter into such
agreements as principal or as agent for Owner. Operator shall exercise the same
degree of care and diligence with respect to such agreements and the materials
purchased thereunder and implement such agreements as Operator would if it were
contracting with the vendor as principal. On any agreement directly between
Owner  (or Operator as agent for
Owner)  and vendor, Owner and vendor
shall be obligated directly to each other under such agreements and Operator
shall have no liability for the performance of such vendors, provided, however,
that the foregoing shall not relieve Operator of any liability it may have for
failure to perform its Services with respect to such agreements. Operator shall
at the request of Owner evaluate the terms of and participate in negotiation of
any agreements pertaining to the Facility

 

Section 3.8     Operator’s
Personnel.

 

(a)     Operator’s
Facility Work Force organization structure and staffing plan as of the
Commencement Date is set forth in Exhibit A. The Operator shall not change
the organizational structure or staffing plan of the Facility Work Force
without the consent of Owner, which consent shall not be unreasonably withheld
or delayed.

 

(b)     Operator
shall designate a Plant Manager authorized to direct the day-to-day performance
of the Services at the Facility. Operator’s designation of the Plant Manager,
or any successor Plant Manager, shall be subject to Owner’s approval, which
approval shall not be unreasonably withheld. Owner shall be entitled to rely on
the authority of the Plant Manager to act on behalf of Operator with regard to
the day-to-day performance of the Services at the Facility.

 

11

 

(c)     Operator
shall designate a Contract Manager to represent and act on behalf of Operator
and receive communications from Owner. Notification of changes of Contract
Manager shall be provided to Owner in a timely manner. The Contract Manager
shall be responsible for representing Operator’s interests with respect to this
Agreement, other than the day-to-day performance of the Services at the
Facility directed by the Plant Manager. Owner shall be entitled to rely on the
authority of the Contract Manager to act on behalf of and commit Operator in regard
to all matters under this Agreement. Any notices given to the Contract Manager
pursuant to this Agreement shall be deemed to have been given to Operator. The
initial Contract Manager is Dave Ledonne, who is acceptable to Owner.

 

(d)     From
and after the Commencement Date, Operator shall provide and employ in
connection with the performance of Services under this Agreement:  (i) professional and technically competent
management personnel for the execution of the Services; and (ii) other
qualified, skilled and experienced labor, in each case as necessary for the
proper and timely execution of the Services; provided, however, that Owner
recognizes that Operator may hire personnel (“Duke
Personnel”) from the prior operator of the Facility in connection with
the acquisition of the Facility by Owner, and Operator will have no prior
experience with such personnel and therefore cannot warrant that they meet the
standards set forth above. Operator will determine as promptly as practical
whether such Duke personnel meet the standards set forth above, and if it
determines that such personnel do not meet such standards, then Operator will
terminate the employment of such personnel. Operator may provide certain
professional or technical support services using off-Site employees and
consultants. Operator shall comply with all Laws and Governmental Requirements
regarding licensing of personnel performing the Services at the Facility.

 

(e)     The
personnel provided and employed by Operator pursuant to (d) above shall include
the operating personnel employed by the previous operator, subject to customary
drug screening and background checks to be administered by Operator.

 

Section 3.9     Reports
by Operator.  Operator shall provide
the following reports to Owner in a form and content as reasonably requested by
Owner:

 

(a)     Annual
Management Plan in accordance with Section 3.4;

 

(b)     Monthly
Management Reports;

 

(c)     Weekly
summary reports of (i) production, availability and fuel usage, showing
all production commodities such as fuel, electricity and water produced,
consumed or on hand for each day, (ii) significant operations and major
maintenance events during such week and planned for subsequent periods, and
(iii) operational, safety, community and environmental events during such
week; and

 

(d)     Such
other reports reasonably requested by Owner, including periodic detailed
reports to support Owner’s accounting and early warning reports on any required
availability percentage levels and/or operational defaults specified in any
PPA.

 

Section 3.10    Taxes
and Employee Costs.  Operator shall
be responsible for the payment of actual wages and salaries of the Facility
Work Force for the performance of the Services,

 

12

 

including compensation,
payroll taxes, benefits, insurance and other terms and conditions of employment
and shall be reimbursed by Owner therefor pursuant to Article V. The benefits,
incentive pay and insurance provided for the Facility Work Force shall be
commensurate with the benefits of other non-union employees of Operator and its
Affiliates. Owner shall have no obligation for any income tax incurred by
Operator on its net income.

 

Section 3.11     Environmental,
Health and Safety Plan, Security and Hazardous Materials Management.

 

(a)     Operator
shall provide comprehensive environmental, health and safety operating plan for
the Facility as set forth in the Annual Management Plan pursuant to Section 3.4
and shall designate a representative for the purpose of managing such plan.

 

(b)     Operator
shall be responsible for maintaining security at the Site in accordance with
Prudent Industry Practices, Laws and Governmental Requirements, and any
requirements of Owner provided in writing to Operator. Operator shall provide a
plan for security of the Facility in the Annual Management Plan,

 

(c)     Operator
shall be responsible for the on-Site management of, and shall act as Owner’s
agent with respect to the off-Site transportation, treatment, storage and disposal
of, all Hazardous Materials generated on or brought onto the Site in connection
with the provision of the Services, all in compliance in all material respects
with applicable Laws. Owner and not Operator shall have title to any Hazardous
Materials generated on or brought onto the Site. In addition, Operator shall
use reasonable efforts to not allow any Hazardous Materials to adversely
affect, in any material manner, the operation of the Facility or threaten, in
any material manner, the health or safety of any person. Operator shall
promptly notify Owner should any Hazardous Materials problem arise and shall
work to remedy such situation. Operator shall give any notice required to be
made by Governmental Requirements or Laws with respect to a release of
Hazardous Materials, and in any such event, Operator shall, where possible,
provide Owner with advance notice of any such notice required to be made by
Operator. Owner shall maintain in place agreements for the off-Site
transportation, treatment, storage and disposal of Hazardous Materials.
Operator shall notify Owner promptly upon its discovery of the actual or
suspected presence of any such Hazardous Materials.

 

Section 3.12     Emergencies.
 In the event of any event or emergency
involving the Facility and materially endangering personnel or property,
Operator shall, at Owner’s expense, take such action as is necessary and
reasonable to prevent, avoid, or mitigate injury, damage or loss and shall, as
soon as practicable, contact the Asset Manager after any such material incident
and provide a written report to Owner of any such material incident and
Operator’s response within 48 hours. Whenever, in the opinion of Owner,
Operator has not taken sufficient precautions for the safety of the public or
persons at the Facility or the protection of the Facility or the structures or
property on or adjacent to the Facility, creating in the opinion of Owner an
emergency or material event or probability of an emergency or material event
requiring immediate action, then Owner may direct Operator to take such
corrective action as Owner deems appropriate, and Operator shall promptly
execute, at Owner’s expense, such corrective measures as directed by Owner. Any
costs incurred by Operator in handling any such event or emergency shall be
reimbursed or paid by Owner pursuant to Article V and shall not be included

 

13

 

in the amount spent for
purposes of determining, pursuant to Section 3.4, 5.1(b), 5.1(c) or 5.1(d),
whether expenditures are more than 10% in excess of the aggregate amount of the
Budget or the relevant Major Line Item, if applicable.

 

Section 3.13     Notice
of Non-Compliance With Laws and Governmental Requirements.  Operator shall promptly notify Owner of any known
non-compliance or potential non-compliance with any Governmental Requirements
or Laws.

 

Section 3.14     Permits,
Reporting and Liens.

 

(a)     Operator
shall be responsible for obtaining, renewing and maintaining all Operator
Permits. Upon Owner’s reasonable request, Operator shall (i) participate in
obtaining and maintaining the Owner Permits, (ii) participate in meetings with
Governmental Authorities regarding regulatory or compliance matters affecting
the Facility, and (iii) cooperate and provide information in preparing ordinary
course notices, reports and communications required under any Governmental
Requirement, Law or any power, sale, tolling, fuel supply, water supply,
regional transmission operator, independent system operator, transmission services
or other agreement relating to the Facility. Any costs incurred by Operator in
responding to such requests shall be reimbursed or paid by Owner pursuant to
Article V and shall not be included in the amount spent for purposes of
determining, pursuant to Section 3.4, 5.1(b), 5.1(c) or 5.1(d), whether
expenditures are more than 10% in excess of the aggregate amount of the Budget
or the relevant Major Line Item, if applicable. Operator shall provide prompt
notice to Owner of any known (A) investigation or inquiry by any
Governmental Authority, and (B) request by any Governmental Authority for
non-ordinary course notices, reports or communications.

 

(b)     Operator
shall immediately notify Owner in writing of any liens or encumbrances on the
Facility or Site, other than Project Company Permitted Liens, known to Operator
and shall provide Owner with copies of same.

 

Section 3.15     Owner’s
Access.  Subject to Article 12, upon
reasonable notice Operator shall provide Owner or its representatives with
unrestricted access to the Site and Operator’s records concerning the Facility
and this Agreement subject to Owner’s observance of safety measures reasonably
deemed by Operator to be necessary or appropriate; provided,  however, that (a) Operator shall
have no obligation to provide confidential records regarding the Facility Work
Force, including human resource files, personnel records, or Operator’s
internal financial records, (b) such access shall not unreasonably interfere
with the operation of the Facility and (c) such access shall not violate any
Governmental Requirement or Law. Operator shall also afford Site access to
others as may be necessary or appropriate to the servicing, maintaining,
modifying or upgrading of the land or facilities located thereon or as
otherwise directed by Owner, subject to such Person’s observance of safety
measures reasonably deemed by Operator to be necessary or appropriate.

 

Section 3.16     Records.
 Operator shall maintain in good order in
all material respects all books, records and accounts with respect to the
Services (including all records of Facility operation costs other than Operator’s
internal financial records), required pursuant to any Governmental Requirements
or Laws or, to the extent known by Operator, required pursuant to any agreement
relating to the Facility, and shall retain such records during the term of this

 

14

 

Agreement. Upon expiration
or earlier termination of this Agreement, Operator shall deliver to Owner all
records referred to in this Section 3.16.

 

Section 3.17     Title
to Goods, Documents and Data.  Owner
shall have full title and all rights in and to any goods and other property
paid for directly or indirectly by Owner immediately when such amounts are paid
and all reports and other documents provided by or on behalf of Operator to
Owner as part of the Services. Owner agrees that all programs, procedures,
inventions, processes and other intellectual property developed by Operator,
including for use on or at the Facility, shall remain the property of Operator.
Owner shall be granted, during the term of this Agreement and solely as may be
necessary for the provision of the Services hereunder, a non-transferable, non-exclusive
limited license to the use of such intellectual property of Operator used on or
at the Facility.

 

Section 3.18     Operator
Guaranty.  On the Commencement Date
and for the term of this Agreement, Operator shall provide and cause to be
maintained a guaranty by Cinergy Corp. (“Operator
Guarantor”) of the obligations of Operator under this Agreement in
the form attached as Exhibit H

 

ARTICLE IV

OWNER RIGHTS AND RESPONSIBILITIES

 

Section 4.1     Management,
Strategic Decisions and Owner Directions.

 

(a)     Owner
shall be responsible for making such business, management and strategic
decisions as may be required from time to time in connection with the operation
and maintenance of the Facility. To this end, Owner shall be obligated to:

 

(i)     Provide
written direction necessary to allow Operator to comply with the Annual
Management Plan;

 

(ii)     Provide
information reasonably requested by Operator to facilitate Operator’s
incorporation and utilization of existing management systems, policies,
procedures and programs in place as of the Commencement Date to manage the
technical and business operations of the Facility or performance of the
Services, including estimated run hours, starts, duration of run hours and
other Owner operating criteria (such estimated operating information as it relates
to the Annual Management Plan to be delivered not later than 90 days prior to
the required delivery date of each Annual Management Plan under Section 3.4 as
such information may be supplemented by mutual agreement of the parties);

 

(iii)     Participate
in the Review Committee with Operator;

 

(iv)     Provide
prompt notice to Operator if Owner receives any notice from a Governmental
Authority, PPA counterparty or, in the event such notice would impact the
ability of Operator or Owner to perform its obligations under this Agreement,
the PPA, or otherwise materially affect Owner or a significant contractual
counterparty of Owner related to the Facility; and

 

15

 

(vi)     Direct
and coordinate fuel and water supplies, electric transmission services and
dispatch at the Facility as provided in Section 4.3.

 

(b)     Owner
may request Operator to carry out the reasonable directions of Owner with
respect to the operation and maintenance of the Facility; provided, however,
Owner shall not request Operator, or require Operator by the refusal of Owner
to give an approval or consent which Operator is required to obtain pursuant to
this Agreement (including any approval under Section 3.4(b)), to act in a way
that conflicts with the requirements of this Agreement.

 

Section 4.2      Owner’s
Representatives and Review Committee.

 

(a)     Asset
Manager.  Owner shall designate an
Asset Manager to represent and act on behalf of Owner and receive
communications from Operator. Notification of changes of Asset Manager shall be
provided to Operator in a timely manner. The Asset Manager shall be responsible
for representing Owner’s interests in the day-to-day affairs of the Facility. The
Asset Manager shall also be responsible for specifying Owner’s instructions to
Operator as to the desired operating schedule and other operating objectives
within the Facility’s capabilities. The Asset Manager shall act on behalf of
Owner as the principal interface with the Operator. Operator shall be entitled
to rely on the authority of the Asset Manager, or any other person expressly
designated by Asset Manager to act as his designee from time to time, to act on
behalf of and commit Owner in regard to all matters under this Agreement. Any
notices given to the Asset Manager shall be deemed to have been given to Owner.

 

(b)     Review
Committee.  Operator and Owner will
establish an oversight committee (the “Review
Committee”), which shall meet quarterly for the purpose of
coordinating major operations at the Facility, including (i) interaction with
and major operational decisions that relate to PPA counterparties, Governmental
Authorities, and major suppliers and customers, (ii) planning major maintenance
events, and (iii) other significant operational matters deemed appropriate
by Owner and Operator; provided, however, that there shall at all
times be an equal number of representatives serving on the Review Committee
that have been appointed by Owner and Operator, respectively. Operator and
Owner shall appoint to the Review Committee the Asset Manager, Contract Manager
and Plant Manager and such other individuals mutually agreed upon by Owner and
Operator. Owner and Operator, as the case may be, shall provide written notice
of such appointments to the other party. Such appointments may be changed at
any time by similar written notice. The members of the Review Committee shall
meet as necessary, at a mutually agreeable time and place. Each party shall
cooperate in providing the Review Committee with all information reasonably
requested by the members of the Review Committee, as a group, for the
performance of their duties. All recommendations, decisions and agreements made
by the Review Committee shall be evidenced in writing; provided, however,
that the Review Committee shall not have the authority to modify or amend the
terms of this Agreement.

 

Section 4.3     Commodity
Procurement, Scheduling and Trading.  Owner or its designee shall market and arrange
for the supply, sale, shipment or transmission of gas or electricity, shall
procure fuel and water supplies and electric transmission rights at the times
and in the volumes

 

16

 

that Owner determines in its
sole discretion to be appropriate, shall arrange for communications at the
Facility and shall direct dispatch of electricity at the Facility.

 

Section 4.4     Reports
and Plans.  Owner shall make
available to Operator such operation and maintenance instructions and manuals,
as-built drawings, specifications, warranties, diagrams, test results,
accounting systems and reports, books and records, recommended inventories of
Spare Parts, all Material Project Agreements and all other documents and
information relating to the Facility to the extent available to Owner and
reasonably requested by Operator to facilitate the creation of reports and
plans to be delivered by Operator or to facilitate the performance of the
Services.

 

Section 4.5     Taxes.
 Owner shall pay any duty or tax as may
arise out of or relate to the operation of the Facility, except for duties or
taxes for which Operator is responsible under Section 3.10 or which arise out
of or relate to Operator’s net income. All payments to Operator shall be
without reduction for any duties or taxes. If Owner is exempt from the payment
of any applicable sales and or use taxes or has a direct payment permit with
respect to such taxes, Owner shall provide Operator with a copy of the
certificate or permit, duly executed and issued by the appropriate Governmental
Authority. Owner shall indemnify Operator from and against any taxes (and any
interest or penalties related thereto) that are the responsibility of Owner
under this Agreement, provided that such indemnification obligation
shall not arise with respect to taxes for which Operator has the responsibility
of making payment under Section 3.10.

 

Section 4.6     Accounting.
 Owner shall perform standard accounting
services and recordkeeping for Owner’s business.

 

Section 4.7     Permits
and Reporting.  Owner shall be responsible
for (a) obtaining, renewing and maintaining all Owner Permits, (b)
participating in all meetings with Governmental Authorities regarding
regulatory or compliance matters affecting the Facility and (c) preparing and
submitting in a timely manner, all ordinary course notices, reports and
communications required under any Governmental Requirement, Law or any power,
sale, tolling, fuel supply, water supply, regional transmission operator,
independent system operator, transmission services or other agreement relating
to the Facility. Upon Operator’s reasonable request, Owner shall cooperate and
assist in obtaining and maintaining the Operator Permits.

 

Section 4.8     Operator’s
Access.  Subject to any existing
restrictions on Owner’s access rights, Owner shall provide Operator and its
representatives with unrestricted access to the Site.

 

Section 4.9     Other
Facilities and Services.  Owner shall
provide office space, restroom and locker facilities, parking, potable water,
sanitary services, telephones and network services, and inventory storage for
Operator to be able to perform the Services.

 

ARTICLE V

PAYMENTS

 

Section 5.1     Payments
for Services.

 

(a)     Monthly
Management Fee. For Services provided to Owner by Operator, in addition to
the other payments specified in this Article V, Owner shall pay to Operator a
fee of

 

17

 

***** per month (the “Monthly Management Fee”) payable monthly
***** beginning on the Commencement Date and on the first Business Day of each
month thereafter *****.

 

(b)        O&M
Costs. Owner shall advance funds for the payment of, or reimbursement to
Operator for, the below-enumerated costs to the extent actually incurred (such
costs being the “O&M Costs”); provided
that Owner shall not have any obligation to pay or reimburse any such amount to
the extent such amount, when taken together with other amounts not approved by
Owner hereunder, is more than ***** in excess (in the aggregate for the one
year period following the Commencement Date) of the aggregate amount of the
Budget or the relevant Major Line Item, if applicable (other than additional
amounts approved by Owner in a Budget overrun proposal or amounts otherwise
specifically excluded from this calculation under this Agreement, including
those in Section 5.1(e)):

 

(i)     Facility
Work Force Wages and Salaries:  The
actual wages, salaries and employee incentives determined in accordance with
Section 5.7 for such time as is devoted to the Services at a rate equal to
such actual wages, salaries and employee incentives (including overhead and
benefits) performed by the Facility Work Force;

 

(ii)    Maintenance
Costs. The actual cost to Operator of costs associated with daily ongoing
and required Maintenance of the Facility, including labor costs associated with
the advisory oversight by Operator of original equipment manufacturers for
Maintenance, repair and inspection of major Equipment;

 

(iii)   Communication
Expense. The actual cost of postage, long distance telephone, cellular
phone, and teletype expense incurred in the direct performance of the Services;

 

(iv)    Prints
and Reproductions. The actual cost of prints and reproductions expenses
incurred in the direct performance of the Services;

 

(v)     Computer
Services. The actual cost of computer services expenses incurred in the
direct performance of the Services;

 

(vi)    Materials
and Equipment. The actual cost of Equipment, Consumables, materials,
supplies, spare parts (to the extent not directly provided by Owner pursuant to
Section 3.7, tools and miscellaneous supplies procured for the Facility and the
Facility Work Force;

 

(vii)   Transportation
of Materials and Equipment. The actual cost of transportation expenses
related to materials and Equipment for the Facility, including the cost of
loading, hauling, unloading, and insurance;

 

(viii)  Subcontracts.
The actual invoice costs attributable to third party subcontractors to perform
the Services;

 

 

*** Certain information on this page has been omitted and filed separately
with the SEC.  Confidential treatment has
been requested with respect to the omitted portions.

 

18

 

(ix)    Utilities.
The actual cost of all water, sewer, telephone, waste disposal and other
utilities for the Facility;

 

(x)     Legal
Expenses. The actual cost of attorneys’ fees and costs incurred in
connection with any labor or commercial matter related to the performance of
the Services (except for such matters solely between Owner and Operator)
incurred on behalf of or as instructed by Owner that is not covered under
Section 5.1(b)(xii), except those legal expenses incurred by Operator as a
result of (A) Operator’s breach of its obligations under this Agreement or
negligent acts or omissions in each case in an amount not to exceed (when added
with the amount of all other damages subject to Section 7.4) the limitation of
liability set forth in Section 7.4 or (B) gross negligence or willful
misconduct (done with an intent to harm). Costs enumerated in this Section
5.1(b)(xi) shall be reimbursed or paid by Owner pursuant to this Article V and
shall not be included for purposes of determining whether expenditures are more
than 10% in excess of the aggregate amount of the Budget or the relevant Major
Line Item, if applicable;

 

(xi)    Claims
and Judgments. The actual cost of attorneys’ fees, costs, settlements,
and/or judgments incurred in connection with any litigation, claims or disputes
(except for such matters solely between Owner and Operator) arising out of or
in connection with the performance of this Agreement, (including the
performance of the Services on real property of or to which Owner does not have
sole right, title and possession), except (A) those expenses, fines and
penalties resulting from Operator’s negligent acts or omissions or its
operation of the Facility or performance of the Services in a manner in
violation of this Agreement or any Law or Governmental Requirement in each case
in an amount not to exceed (when added with the amount of all other damages
subject to Section 7.4) the limitation of liability set forth in Section 7.4,
(B) those expenses, fines and penalties resulting from Operator’s gross
negligence or willful misconduct (done with an intent to harm) and (C) fees,
costs, settlements, and/or judgments for which Operator is reimbursed by
proceeds of insurance provided pursuant to Section 11.1 of this Agreement. Costs
enumerated in this Section 5.1(b)(xii) shall be reimbursed or paid by Owner
pursuant to this Article V and shall not be included for purposes of
determining whether expenditures are more than ***** in excess of the aggregate
amount of the Budget or the relevant Major Line Item, if applicable;

 

(xii)   Insurance
Expenses. The premiums and other costs incurred by Operator to maintain the
insurance coverages described in Article 11; and

 

(xiii)  Other.
All other actual direct costs incurred in connection with the Services,
including travel costs and additional Services.

 

(c)          If
Owner (i) rejects a request by Operator for approval of a cost or expense that
when taken together with other amounts not approved by Owner hereunder is more
than ***** in excess (in the aggregate for the one year period following the
Commencement Date) of the aggregate amount of the Budget or the relevant Major
Line Item, if applicable (other than additional amounts approved by Owner in a
Budget overrun proposal or amounts otherwise specifically excluded from this
calculation under this Agreement), and such cost or expense if incurred would be
an O&M Cost if it were within the Budget, or (ii) rejects a request by

 

 

*** Certain information on this page has been omitted and filed
separately with the SEC.  Confidential
treatment has been requested with respect to the omitted portions.

 

19

 

Operator for approval of an
increase to the Budget, then, notwithstanding anything in this Agreement to the
contrary, (A) Operator shall not be required to take the action or incur the
cost or expense that is the subject of the rejected Budget increase or the
rejected cost or expense, (B) Operator’s failure to take such action or incur
such cost or expense and the consequences thereof shall not be a breach of this
Agreement, and (C) Operator shall be relieved of any liability which it would
otherwise have under this Agreement as a result of its failure to take such
action or incur such cost or expense and the consequences thereof provided
that Operator’s performance of its Services are otherwise in compliance with this
Agreement.

 

(d)     Owner
shall not unreasonably withhold approval of a request by Operator for approval
of a cost or expense for preservation or protection of property, health or
safety that would exceed by more than ***** (in the aggregate for the one year
period following the Commencement Date) the aggregate amount of the Budget for
such period or the relevant Major Line Item, if applicable (in each case, as
modified by any relevant Owner-approved Budget overrun proposal).

 

(e)     Notwithstanding
anything to contrary in this Agreement, amounts incurred by Operator pursuant
to Sections 3.1(b)(iii), 3.12, 3.14, 5.1(b)(xi) and (xii), and 5.8 or to comply
with changes in Law since the date of the then current Budget shall not be
included in any such ***** calculation under this Section 5.1 or *****
calculation under Section 3.4(b).

 

Section 5.2     O&M
Account.  Owner will provide for
payments from the O&M Account for all O&M Costs, the Monthly Management
Fee or for any other amounts payable by or on behalf of Owner to or on behalf
of Operator hereunder in accordance with the Depositary Agreement. The parties
may agree on a payment procedure whereby Owner advances funds to Operator for
all O&M Costs (including Advance O&M Cost Estimates) for Operator to pay
such O&M Costs from such funds advanced by Owner. With respect to O&M
Costs for goods and services provided by third-parties to Owner or Operator in
connection herewith and costs incurred directly by Operator that are not
covered by Section 5.3, Operator promptly shall review invoices received
for such goods and services and, if Operator determines such invoices are
properly payable, promptly shall forward such invoices to Owner for payment. Owner
shall use commercially reasonable efforts to pay on or before the due date
therefor, for Owner’s account (except to the extent Operator has, in its sole
discretion, directly incurred an O&M Cost, in which case for Operator’s
account), such invoices, except for any portion that Owner in good faith
disputes, directly to the third-party payee. Operator shall endeavor to resolve
any dispute with a third-party payee under a contract between Operator and such
third party, and will support Owner in any dispute with a third-party payee in
a contract between Owner and such third party.

 

Section 5.3     Advance
O&M Cost Estimate; Progress Report.  With respect to O&M Costs that are
estimatable, on or about the tenth day of each month Operator shall furnish
Owner with a billing covering the estimated amount of such O&M Costs for
the following month (each, an “Advance
O&M Cost Estimate”). Each Advance O&M Cost Estimate shall
(a) itemize requested payments by type, (b) provide reasonable substantiation
and documentation supporting such request, (c) be generated, where applicable,
using Owner’s billing system, and (d) otherwise be in the form reasonably
requested by Owner. Owner shall pay each Advance O&M Cost Estimate within
twenty (20) days after receipt. Together with the Advance O&M Cost
Estimate, Operator shall furnish Owner with a detailed progress report of all
O&M Costs for the preceding

 

 

*** Certain information on this page has been omitted and filed
separately with the SEC.  Confidential
treatment has been requested with respect to the omitted portions.

 

20

 

month and, for such
preceding month, shall compare O&M Costs not paid directly by Owner to
third-parties with the Advance O&M Cost Estimate, and shall set forth any
credits received from third-party vendors. Any net deficiencies or excesses
against the Advance O&M Cost Estimate (after taking into account any
third-party credits) for any month shall be reflected as a credit or debit, as
appropriate, in the Advance O&M Cost Estimate for the following month. Each
progress report will be supported by documentation substantiating all O&M
Costs actually incurred in such month and otherwise shall be in form reasonably
acceptable to Owner. Each progress report also shall compare the month’s
O&M Costs and year-to-date O&M Costs incurred against the Budget on a
line-item basis as set forth in the Budget.

 

Section 5.4     Final
Billing.  If requested by Owner,
after the end of each Operation Year, Operator shall submit a statement
summarizing O&M Costs incurred and payments and credits received during
such Operation Year.

 

Section 5.5     Invoice
or Payment Disputes or Errors.  If
either party discovers an error in the amount of any Operator or Owner invoice
or payment made pursuant to this Article V or disputes a payment requested
pursuant to this Article V, such party shall notify the other party within
sixty (60) days of discovery of such dispute or error; provided that
neither party shall be entitled to correction of any such error if notice of
such error is not delivered in writing to the other party within one year of
the applicable invoice or payment. If the correct amount of any Operator or
Owner invoice is disputed in good faith, the party with the payment obligation
shall pay any amount not in dispute, and failure to pay the amount in dispute
shall not be deemed to be a default hereunder.

 

Section 5.6     Employee
Incentive Plan.  Operator may develop
and deliver to Owner an Employee Incentive Plan for such Operation Year, which
plan shall be generally consistent with similar plans established by Operator
or its Affiliates at the Facility or at other facilities owned by Operator’s
Affiliates.

 

Section 5.7     Interest
on Late Payments.  Any amounts (a)
disputed and subsequently found to have been correctly invoiced or owed, or (b)
not timely paid in accordance with this Agreement shall accrue interest at the
lesser of (i) the maximum rate of interest permitted by applicable Law and
(ii) with respect to amounts less than sixty (60) days past due, a rate
equal to 5% over the Base Rate or with respect to amounts that are sixty (60)
or more days past due, a rate equal to 2% over the interest rate set forth in
the Reimbursement Agreement; provided if such overdue amounts are being
contested in good faith and adequate reserves have been deposited into a
segregated account in which the Operator has a perfected security interest then
the interest rate with respect to amounts less than sixty (60) days past due
shall apply to such amounts.

 

Section 5.8     Audit.
 Subject to Article 12, upon reasonable
prior notice (a) Owner, its representatives or any agent on behalf of the Owner’s
financing parties may inspect, copy and audit Operator’s books, records,
accounts, ledgers, time cards, estimates, schedules, correspondence and other
documents related to Operator’s performance of its obligations hereunder and
amounts due to Operator hereunder and amounts for which Operator is reimbursed
hereunder and (b) Operator agrees to provide copies of such information to
Owner upon request, at Owner’s expense; provided,  however, that (i) Operator shall
have no obligation

 

21

 

to provide access to or
copies of confidential records regarding the Facility Work Force, including
human resource files, personnel records, or Operator’s internal financial
records, (ii) such inspection shall not unreasonably interfere with the
operation of the Facility and (iii) such inspection shall not result in the
Operator being in violation of any Governmental Requirement or Law. Owner shall
reimburse Operator for its actual and reasonable costs incurred by Operator for
such audits to the extent such audit assistance is not otherwise reimbursed by
Owner pursuant to this Agreement. Any such costs incurred by Operator shall be
reimbursed or paid by Owner pursuant to Article V and shall not be included in
the amount spent for purposes of determining, pursuant to Section 3.4, 5.1(b),
5.1(c) or 5.1(d) whether expenditures are more than 10% in excess of the
aggregate amount of the Budget or the relevant Major Line Item, if applicable. Owner’s
acceptance or approval or payment of Operator’s charges shall not operate as a
waiver of Owner’s right to audit the Operator in accordance with this
Section 5.8.

 

ARTICLE VI

TERM OF AGREEMENT; TERMINATION

 

Section 6.1     Initial
Term.  This Agreement shall become
effective upon full execution and delivery of this Agreement. The term of this
Agreement shall commence on the Commencement Date and, unless earlier
terminated in accordance with the terms and conditions of this Article 6, shall
continue through one year following the Commencement Date and shall be
automatically renewed for additional periods of one (1) year (subject to
termination pursuant to Section 6.2 through 6.5).

 

Section 6.2     Termination
Upon Insolvency.  If Operator (or
Operator Guarantor) or Owner makes a general assignment for the benefit of its
creditors, or institutes a proceeding in bankruptcy, or if a receiver, trustee,
custodian or assignee is appointed on account of its insolvency and not
dismissed within sixty (60) days, or if a proceeding in bankruptcy is
instituted against Operator (or Operator Guarantor) or Owner and not dismissed
within sixty (60) days, or if Operator (or Operator Guarantor) or Owner
dissolves or is dissolved or its legal existence is otherwise terminated, then
the other party may, without prejudice to any right or remedy available to it
under this Agreement, terminate this Agreement.

 

Section 6.3     Termination
by Owner for Material Default; Right to Cure.  If (a) Operator violates a material provision
of this Agreement (or Operator Guarantor violates a material provision of its
guaranty) and fails to cure or to commence and continue good faith remedial
efforts to cure such default within sixty (60) days of receipt of notice
thereof from Owner; or (b) a default, event of default or other similar
condition or event in respect of Operator or Operator Guarantor under one or
more agreements or instruments, individually or collectively, relating to any
obligation (whether present or future, contingent or otherwise, as principal or
surety or otherwise) for the payment or repayment of any money in an aggregate
amount of not less than $50 million, which results in such indebtedness
becoming, or becoming capable at such time of being declared, immediately due
and payable; or (c) a default, event of default or other similar condition or
event in respect of Operator or any Affiliate of Operator under any one or more
agreements for operations and maintenance or energy management services with
Owner or any Affiliate of Owner which results in such agreement being
terminated or becoming capable at such time of being terminated as a result of
such event, then Owner may, without prejudice to any right or remedy available
to it under this Agreement, terminate this Agreement. Owner, at

 

22

 

its option, shall have the
right to cure such default on behalf of Operator without terminating the
Agreement. Owner shall also have the right to perform such defaulted obligation
upon termination.

 

Section 6.4     Termination
for Convenience.  Following the one
year anniversary of the Commencement Date, Operator and Owner shall have the
right to terminate this Agreement for convenience upon sixty (60) days written
notice.

 

Section 6.5     Termination
by Operator for Material Default.  If
(a) Owner violates a material provision of this Agreement (including a payment
default) and fails to cure or to commence and continue good faith remedial
efforts to cure such default within thirty (30) days (or, with respect to a
payment default, five (5) days) of receipt of notice thereof from Operator, or
(b) a default, event of default or other similar condition or event in respect
of Owner under one or more agreements or instruments, individually or
collectively, relating to any obligation (whether present or future, contingent
or otherwise, as principal or surety or otherwise) for the payment or repayment
of any money in an aggregate amount of not less than $1 million, which results
in such indebtedness becoming, or becoming capable at such time of being
declared, immediately due and payable; or (c) a default, event of default or
other similar condition or event in respect of Owner or any Affiliate of Owner
under any one or more agreements for operations and maintenance or energy
management services with Operator or any Affiliate of Operator which results in
such agreement being terminated or becoming capable at such time of being
terminated as a result of such event, then Operator may, without prejudice to
any right or remedy available to it under this Agreement, terminate this
Agreement.

 

Section 6.6     Rights
and Obligations Upon Termination.

 

(a)     Upon
the expiration or termination of this Agreement, Operator shall have no further
rights under this Agreement (except as set forth in Section 13.14) and
shall not be entitled to receive any further payments under this Agreement
except as set forth in this Section 6.6.

 

(b)     Upon
the termination of this Agreement pursuant to Sections 6.4 or 6.5, Owner shall
pay a termination fee of (i) ***** if such termination takes place within the
first ***** following the Commencement Date, (ii) ***** if such termination
takes place between ***** and ***** following the Commencement Date, (iii)
***** if such termination takes place between ***** and ***** following the
Commencement Date and (iv) ***** if such termination takes place after *****
following the Commencement Date.

 

(c)     Upon
the expiration or termination of this Agreement Owner shall pay Operator its
reasonable and duly documented costs to demobilize from the Facility; provided,
however that the Operator shall only be obligated to pay demobilization
costs for Legacy Employees that continue to be employed by Operator, which
demobilization costs shall not exceed $60,000 per person.

 

(d)     In
the event this Agreement is terminated or expires by its terms:

 

(i)     Owner
shall have the right to take possession of all of the Equipment, Consumables,
fuel, tools, spare parts, and other supplies located at the Site for the

 

 

*** Certain information on this page has been omitted and filed
separately with the SEC.  Confidential
treatment has been requested with respect to the omitted portions.

 

23

 

purpose of performing the
Services that were paid for by Owner and may employ any other Person to perform
the Services by whatever method Owner may deem expedient;

 

(ii)     Owner
and Operator shall continue to be bound by such provisions of this Agreement
that survive the date of termination as set forth in Section 13.14;

 

(iii)     Operator
shall, at Owner’s expense, perform (for a period not to exceed thirty (30) days
following termination) the following relative to the Services affected by
termination action to the extent reasonably requested by Owner:  (A) discontinue the Services as of the
date of termination of this Agreement or such earlier date specified by Owner;
(B) place no further orders or subcontracts for Equipment or Services as
of the date of termination of this Agreement or such earlier date specified by
Owner; (C) as of the termination date or such earlier date designated by
Owner, assign to Owner or its designee all orders, subcontracts and other
contractual agreements related solely to the Services or Facility as may be
designated by Owner, provided that (I) Owner or its designee shall
assume Operator’s obligations under such agreements from and after the date of
such assignment, (II) such assignment is permitted under the applicable
agreement and (III) Operator shall be entitled to retain such rights under
such agreements as are necessary to prosecute at Owner’s expense a claim
against the counterparty for amounts owing Operator for which Owner has not
reimbursed Operator and to enforce rights with respect to liabilities that
Operator may have to Owner after such assignment, provided that Operator
shall keep Owner informed about and cooperate with Owner with respect to any
such action against a counterparty so as to minimize any adverse effect on the
relationship between Owner and counterparty; (D) promptly make every
reasonable effort to procure cancellations of all such orders and agreements
not so assigned upon terms reasonably satisfactory to Owner; (E) assist
Owner in preparing an inventory of all Equipment, tools, Consumables, spare
parts and other supplies in use or in storage at the Site; (F) assist Owner in
training Operator’s successor and in otherwise transitioning Operator’s
successor; and (G) remove from the Site goods, equipment, material and the like
belonging to Operator;

 

(iv)     Operator
will make the Facility Work Force available to Owner, its Affiliate or designee
(the “Subsequent Operator”) to
discuss potential employment with such Subsequent Operator. Such Subsequent
Operator may make offers of employment to such employees and such employees
that are hired shall become the employees of the Subsequent Operator. Owner
shall be responsible for termination issues and/or severance costs associated
with any employees of Operator who were not Legacy Employees and who are
terminated by Operator and not hired by the Subsequent Operator. “Legacy
Employees” are persons who were employees of Operator or its Affiliates on the
date of this Agreement or who were employed thereafter by Operator or its
Affiliates for facilities other than the Facility (or any other facility owned
by Owner or an Affiliate of Owner) and were subsequently moved to the Facility.

 

24

 

ARTICLE VII

INDEMNITY AND LIMITATIONS ON LIABILITY

 

Section 7.1     General
Indemnity.

 

(a)     Except
as set forth in Section 7.2, Operator hereby irrevocably indemnifies, and
agrees to defend and hold harmless Owner, its Affiliates and subcontractors,
and its and their respective officers, directors, employees and agents from and
against any claims, demands, damages, liabilities, interest, attorneys’ fees,
costs (including settlement costs) and expenses for bodily injury, property
damage or fines or penalties from violation of applicable Laws or Governmental
Requirements (“Claims and Damages”),
arising from third-party claims, demands, suits, causes of action, proceedings,
investigations, judgments or liabilities to the extent caused by or arising out
of any breach by Operator of this Agreement (including the failure to handle
properly Hazardous Materials pursuant to Section 3.11) or any negligent acts or
omissions or willful misconduct (done with an intent to harm) of Operator or
its Affiliates, employees, agents or Subcontractors (other than Owner’s
subcontractors) or anyone acting under Operator’s direction or control or on
Operator’s behalf in connection with or incident to the performance of this
Agreement. Operator’s total liability under the above indemnity with respect to
the term of this Agreement shall be subject to the limitation of liability set
forth in Section 7.4.

 

(b)     Owner
hereby irrevocably indemnifies, and agrees to defend and hold harmless
Operator, its Affiliates and Subcontractors, and its and their respective
officers, directors, employees and agents from and against Claims and Damages,
arising from third party claims, demands, suits, causes of action, proceedings,
investigations, judgments or liabilities to the extent caused by or arising out
of any breach by Owner of this Agreement, the existence of any Hazardous
Materials on the Site at the commencement of this Agreement or arising
thereafter (other than as a result of Operator’s negligence or breach of this
Agreement) or any negligent acts or omissions or willful misconduct of Owner or
its Affiliates, employees, agents or subcontractors (other than Operator and
its Subcontractors) or anyone acting under Owner’s direction or control or on
Owner’s behalf (which in no event shall include Operator) in connection with or
incident to the performance of this Agreement. Owner further agrees that, if
any former Duke Energy employee hired by Operator in accordance with Section
6.9 of that certain Purchase and Sale Agreement dated May 3, 2004, asserts any
claim for which Duke Energy has agreed to indemnify Owner pursuant to the
Purchase and Sale Agreement, Owner shall assert such claims for indemnity
against Duke Energy.

 

Section 7.2     Owner’s
Property.  Owner assumes
responsibility for and waives its rights of recovery against Operator with
respect to all loss of or damage to the Facility and other property of Owner,
however such loss or damage shall occur.

 

Section 7.3     Third
Party Claims.

 

(a)     If
Operator receives any claim or demand of a third party relating to Services or
the Facility, Operator shall promptly notify the Owner in writing of the basis
for such claim or demand setting forth the nature of the claim or demand in
reasonable detail.

 

25

 

(b)     If
any legal proceeding or action is brought by a third party against Operator in
connection with the Services or the Facility, and Owner reasonably anticipates
that it shall be required by this Agreement to indemnify or reimburse Operator
for such claim or for litigation expenses connected therewith, Owner will be
entitled to participate in such proceeding and, to the extent that it wishes,
to assume the defense of such proceeding if (i) Owner provides prompt
written notice to Operator after receipt of Operator’s notice of such
proceeding pursuant to Section 7.3(a) of Owner’s intention to assume
control of such defense and to indemnify Operator with respect thereto, (ii)
Operator approves such assumption of control, which such approval shall not
unreasonably be withheld, and (iii) Owner conducts the defense of the
third party claim actively and diligently with counsel reasonably satisfactory
to Operator. Operator shall, in its sole discretion, have the right to employ
separate counsel (who may be selected by Operator in its sole discretion) in
any such action and to participate in the defense thereof, and the fees and
expenses of such counsel shall be paid by Operator and shall not be reimbursed
hereunder by Owner. If Owner has acknowledged in writing its obligation to indemnify
Operator with respect to such claim, Operator shall fully cooperate with Owner
and its counsel in the defense or compromise of such claim or demand, provided
that all reasonable out-of-pocket expenses incurred thereby by Operator shall
be paid by the Owner (except as otherwise set forth in
Section 5.1(b)(xii)(B).

 

(c)     If
(i) notice is given to the Owner of the commencement of any proceeding and
the Owner does not promptly give notice to Operator of its election to assume
the defense of such proceeding, (ii) the condition set forth in
Section 7.3(b)(iii) above becomes unsatisfied, or (iii) Operator
determines in good faith that there is a reasonable probability that a
proceeding will adversely affect it other than as a result of monetary damages
for which it would be entitled to reimbursement under this Agreement, Operator
will (upon further notice to Owner) without prejudice of its right to be
indemnified with respect thereto have the right to undertake the defense,
compromise or settlement of such claim.

 

(d)     Whenever
any claim arises for indemnification under this Agreement, the party to be
indemnified (“Indemnitee”) shall
notify the party to provide such indemnification (“Indemnitor”) in writing as soon as practicable after the
Indemnitee has knowledge of the facts constituting the basis for such claim
(the “Notice of Claim”); provided,
however, that in the event of any failure or delay by Indemnitee in
delivering the Notice of Claim, the Indemnitor shall not be released from its
indemnification obligations hereunder except to the extent such failure or
delay by Indemnitee results in actual prejudice to Indemnitor. Such Notice of
Claim shall specify, in reasonable detail, the facts known to Indemnitee giving
rise to such indemnification right and the amount or an assessment of the
amount of the liability arising therefrom. The parties shall cooperate in the
defense or prosecution of claims giving rise to indemnification hereunder and
shall furnish such records, information and testimony and attend such
conferences and discovery as reasonably requested in connection therewith.

 

(e)     Neither
party shall consent to the entry of any judgment or enter into any settlement
with respect to a claim for indemnification (or for which Owner is required under
this Agreement to reimburse Operator) without the prior written consent of the
other party to this Agreement (not to be unreasonably withheld) provided that
after agreeing in writing to indemnify the Operator, as set forth in
Section 7.3(b)(i) above, the Owner may settle or compromise any claim
without the approval of the Operator so long as such claim is solely for

 

26

 

monetary damages that are
paid in full by the Owner and so long as the Operator is fully released from
liability by the claimant.

 

Section 7.4     Limitation
of Liability.  Except to the extent
such damages relate solely to the gross negligence or willful misconduct (done
with an intent to harm) of Operator or its Affiliates, employees or Subcontractors
or anyone acting under Operator’s direction or control or on Operator’s behalf,
notwithstanding anything to the contrary contained in this Agreement, the
annual aggregate liability of Operator for damages arising out of or relating
in any manner to the performance or nonperformance of obligations in connection
with this Agreement or the performance or nonperformance of the Services
(including pursuant to Section 8.1), whether based on contract, warranty,
indemnity, tort (including negligence), strict liability, or otherwise, shall
be capped at ***** not including any amounts Owner received as insurance
proceeds.

 

Section 7.5     Co-Owners.
 If, at any time while this Agreement is
in effect, Owner does not have the sole right, title and possession of and to
the Facility and all property for which Operator has responsibility hereunder
to provide Services, Owner shall obtain an undertaking from all the other
entities who have any such right, title and/or possession, that is sufficient
to provide Operator with the same releases from, limitations of and protections
from liability, including the protection from Liability set forth in
Sections 7.2 and 7.4 and the insurance coverage set forth in Section 11.2,
as would be afforded to Operator in this Agreement if Owner had such sole
right, title and possession. If Owner fails to obtain such an undertaking,
then, unless Operator agrees otherwise, Owner shall indemnify Operator against
all liability Operator incurs as a result of such failure by Owner.

 

ARTICLE VIII

WARRANTIES

 

Section 8.1     Operator’s
Warranty.  Operator warrants that its
Services (as opposed to those provided by a third party vendors) shall be
performed in accordance with the requirements set forth in this Agreement. If
Operator fails to so perform any Services and during the twelve month period
following completion of the Services at issue and Owner notifies Operator
thereof, Operator shall perform such remedial Services within the original
scope of Services as is necessary to make its Services conform with this
warranty. Owner will not be obligated to pay the costs of correcting or
re-performing such Services, except to the extent that such costs would have
been incurred had such error or defect not occurred; provided, however,
that the aggregate amount of such costs to be borne by Operator (together with
all other damages subject to Section 7.4) is subject to the limitation of
liability set forth in Section 7.4.

 

Section 8.2     Third
Party Warranties.  Operator shall,
for the protection of Owner, use reasonable efforts to obtain customary
warranties from all vendors, contractors, Subcontractors and suppliers from
which Operator procures Equipment, spare parts or other goods and services for
the Facility which shall be assignable to Owner to the full extent of the terms
thereof. Operator shall be responsible for enforcing all such third-party
warranties during the term of this Agreement. Operator shall ensure that, to
the extent feasible, any third-party warranties that are still in existence at
the termination of this Agreement shall be assigned on such date to Owner, and
Operator hereby assigns, effective as of the date of termination of this
Agreement, all of its rights with respect to such warranties to Owner, provided,
that Operator shall retain such rights

 

 

*** Certain information on this page has been omitted and filed
separately with the SEC.  Confidential
treatment has been requested with respect to the omitted portions.

 

27

 

as are necessary to
prosecute any claims against the third-parties for amounts owing Operator, for
which Owner has not reimbursed Operator, and to enforce rights with respect to
liabilities that Operator may have to Owner after such assignment, provided
that Operator shall keep Owner informed about and cooperate with Owner with
respect to any such action against a third-party so as to minimize any adverse
effect on the relationship between Owner and the third-party. Operator’s
obligations with respect to Equipment, spare parts or other goods purchased by
Operator from third parties shall be limited to those set forth in this
Section 8.2, provided, however, that nothing in this
sentence shall release Operator from any obligation under this Agreement with
respect to services performed by or on behalf of Operator in connection with
any such goods.

 

Section 8.3     Warranties
Limited.  All warranties made by
Operator in connection with the Services are limited to those set forth in this
Article VIII. Operator makes no other warranties or guarantees, express or
implied, other than those expressly set forth herein. OPERATOR EXPRESSLY
DISCLAIMS ALL IMPLIED GUARANTEES OR WARRANTIES OF ANY NATURE WHATSOEVER IN
CONNECTION WITH THE SERVICES AND OBLIGATIONS UNDERTAKEN AND/OR PERFORMED
HEREUNDER, WHETHER STATUTORY, ORAL, WRITTEN, EXPRESS OR IMPLIED, INCLUDING ANY
IMPLIED CONDITIONS OR WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.

 

ARTICLE IX

REPRESENTATIONS

 

Section 9.1     Operator
Representations.  Operator represents
and warrants to Owner as follows:

 

(a)     Standing.
 Operator is a limited liability company
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Operator has the power and authority to execute and deliver
this Agreement and perform its obligations hereunder. Operator is, to the
extent required by Law, qualified to do business in the State of Arkansas. Operator’s
execution, delivery and performance of this Agreement have been duly authorized
all by requisite corporate or other action of Operator and do not violate any
provision of Operator’s charter, by-laws, articles of organization or operating
agreement or any indenture, agreement or instrument to which Operator is a
party, or by which Operator or its property is bound or affected. This
Agreement has been duly and validly executed and delivered by Operator and
constitutes the valid, legal and binding obligation of Operator enforceable in
accordance with its terms, except as enforceability may be limited by equitable
principles or by bankruptcy, fraudulent conveyance or insolvency laws affecting
the enforcement of creditor’s rights generally.

 

(b)     No
Violation of Law.  Operator is not in
violation of any applicable laws or any judgment entered by any Governmental
Authority, which violations or judgments, individually or in the aggregate,
would affect Operator’s ability to perform its obligations under this Agreement.
Neither the execution, delivery and performance by the Operator of its
obligations under this Agreement, nor the consummation of the transactions
contemplated hereby, violates any Laws or Governmental Requirements.

 

28

 

(c)     Licenses.
 Operator is the holder of all federal,
state, local and other governmental consents, licenses, permits or other
authorizations required to be held by Operator on the date hereof to conduct
its business now and as contemplated by this Agreement.

 

(d)     Litigation.
 Operator is not a party to or, to the
best of Operator’s knowledge, threatened with any legal or administrative
proceeding, arbitration, investigation, or other proceeding or controversy that
would materially and adversely affect Operator’s ability to perform its
obligations under this Agreement.

 

Section 9.2      Owner
Representations.  Owner represents
and warrants to Operator as follows:

 

(a)     Standing.
Owner is a limited liability company duly organized, validly existing and in
good standing under the laws of the State of Delaware. Owner has the power and
authority to execute and deliver this Agreement and perform its obligations
hereunder. Owner is, to the extent required by Law, qualified to do business in
the State of Arkansas. Owner’s execution, delivery and performance of this
Agreement have been duly authorized by all requisite corporate or other action
of Owner and do not violate any provision of Owner’s charter, by-laws, articles
of incorporation or operating agreement or any indenture, agreement or
instrument to which Owner is a party, or by which Owner or its property is
bound or affected. This Agreement has been duly and validly executed and
delivered by Owner and constitutes the valid, legal and binding obligation of
Owner enforceable in accordance with its terms, except as enforceability may be
limited by equitable principles or by bankruptcy, fraudulent conveyance or
insolvency laws affecting the enforcement of creditor’s rights generally.

 

(b)     No
Violation of Law. Owner is not in violation of any applicable laws or any
judgment entered by any Governmental Authority, which violations or judgments,
individually or in the aggregate, would affect Owner’s ability to perform its
obligations under this Agreement. Neither the execution, delivery and
performance by the Owner of its obligations under this Agreement, nor the
consummation of the transactions contemplated hereby, violates any Laws or
Governmental Requirements.

 

(c)     Licenses.
Owner is the holder of all federal, state, local and other governmental
consents, licenses, permits or other authorizations required to be held by
Owner on the date hereof to own and operate the Facility.

 

(d)     Litigation.
Owner is not a party to or, to the best of Owner’s knowledge, threatened with
any legal or administrative proceeding, arbitration, investigation, or other
proceeding or controversy that would materially and adversely affect Owner’s
ability to perform its obligations under this Agreement.

 

ARTICLE X

FORCE MAJEURE

 

Section 10.1     Definition
of Force Majeure Event.  For the
purposes of this Agreement, a “Force Majeure
Event” as to any party means any occurrence, nonoccurrence or set of

 

29

 

circumstances that is beyond
the reasonable control of such party and is not caused by such party’s
negligence, lack of due diligence, or failure to follow Prudent Industry
Practices, including flood, ice, earthquake, windstorm or eruption; fire;
explosion; invasion, riot, civil war, commotion or insurrection; sabotage,
terrorism or vandalism; military or usurped power; act of God or of a public
enemy; or failure of equipment (to the extent not caused by any occurrence,
nonoccurrence or set of circumstances that is beyond the reasonable control of
such party and is not caused by such party’s negligence, lack of due diligence,
or failure to follow Prudent Industry Practices). The term Force Majeure Event
shall not include:  (a) the
inability to meet a Law or Governmental Requirement or the change in a Law or
Governmental Requirement after the date of this Agreement which increases the
costs of performance by a Party of its obligations hereunder but which does not
preclude or make illegal such performance; (b) a Site-specific strike,
walkout, lockout or other labor dispute over employment conditions at the
Facility, (but not including any such action or matter as a result of an
organizational campaign at the Facility); (c)  changes in market
conditions; and (d) failures of contractors, suppliers or vendors, unless
such failures are caused by an event which would be a Force Majeure Event, if
experienced by a party.

 

Section 10.2     No
Breach or Liability.  Either party
shall be excused from performance of its obligations hereunder other than
payment obligations and shall not be construed to be in default in respect of
such obligations to the extent that and for so long as failure to perform such
obligations is due to a Force Majeure Event.

 

Section 10.3     Mitigation.
 Following the occurrence of a Force
Majeure Event, the affected party shall:

 

(a)     give
the other party notice thereof, followed by written notice if the first notice
is not written, as promptly as possible after such party becomes aware of such
Force Majeure Event, describing the particulars of such Force Majeure Event,
and furnish periodic reports to the other party regarding the progress in
overcoming the adverse effects of such Force Majeure Event and setting forth
its best, good faith estimate concerning when it will be able to resume the
performance of its obligations under this Agreement;

 

(b)     remedy
its inability to perform as soon as reasonably practicable; provided, however,
that this Section shall not require the settlement of any non-Site specific
strike, walkout, lockout or other general labor dispute on terms which, in the
sole judgment of the party involved in the dispute, are contrary to its
interest; and

 

(c)     resume
performance of its obligations under this Agreement as soon as is reasonably
practicable after the Force Majeure Event is remedied or ceases to exist, and provide
the other party with written notice thereof.

 

Section 10.4    Suspension
of Performance.  The suspension of
performance due to a Force Majeure Event shall be of no greater scope and of no
longer duration than is required by such Force Majeure Event. No Force Majeure
Event shall extend this Agreement beyond its term.

 

30

 

ARTICLE XI

INSURANCE

 

Section 11.1     Insurance
to be Provided by Operator.  Operator
shall provide the following insurance coverages and limits, written by an
insurance company or companies with a Best’s rating of no less than “A- VII”,
and shall maintain such insurance in full force and effect during the term of
this Agreement:

 

(a)     worker’s
compensation insurance as required by applicable state Laws;

 

(b)     commercial
general liability insurance with limits of not less than $1,000,000 per
occurrence;

 

(c)     business
automobile liability insurance with per accident limits of $1,000,000 covering
owned, hired and non-owned vehicles; and

 

(d)     excess
and/or umbrella liability insurance with a limit of $10,000,000 per occurrence
in excess of the limits of insurance provided in (a)-(c).

 

The amounts of insurance
required by this Section 11.1 may be satisfied by Operator’s purchasing primary
coverage in the amounts of the combined primary and excess and/or umbrella
limits specified or by buying a combination of primary and excess umbrella
liability policies. The structure of the coverage is Operator’s option, so long
as the total amount of insurance meets the overall requirements of this
Agreement. Operator shall cause Operator’s insurance underwriters to waive
their rights of subrogation against Owner for all insurance required by this
Section 11.1. Notwithstanding the foregoing insurance requirements, Operator
may self-insure all or any part of the insurance coverage provided for in this
Agreement and all such self-insurance coverage shall be treated as if it were
an insurance policy; provided that the premiums for such self-insurance
are comparable to or more favorable than the premiums for similar insurance
that could be obtained by Operator from third-party insurers.

 

Section 11.2     Insurance
to be Provided by Owner.  Owner shall
provide the following insurance coverages and limits, written by an insurance
company or companies with a Best’s rating of no less than “A- VII”, and shall
maintain such insurance in full force and effect during the term of this
Agreement:

 

(a)      all
risk property damage insurance in an amount sufficient to cover 100% of the
replacement cost of the Facility;

 

(b)      worker’s
compensation insurance as required by applicable state Laws;

 

(c)      commercial
general liability insurance with limits of not less than $1,000,000 per
occurrence;

 

(d)      business
interruption insurance covering at any given time at least 100% of the Owner’s
continuing operating expenses for a period of at least 12 months, including
O&M Costs, Monthly Management Fee and debt service including a 60 day
deductible period; and

 

31

 

(e)      excess
and/or umbrella liability insurance with a limit of $10,000,000 per occurrence
in excess of the limits of insurance provided in (a)-(d).

 

The amounts of insurance
required by this Section 11.2 may be satisfied by Owner’s purchasing primary
coverage in the amounts of the combined primary and excess and/or umbrella
limits specified or by buying a combination of primary and excess umbrella
liability policies. The structure of the coverage is Owner’s option, so long as
the total amount of insurance meets the overall requirements of this Agreement.
Owner shall cause Owner’s insurance underwriters to waive their rights of
subrogation against Operator for all insurance required by this Section 11.2. Owner
shall ensure that Operator is named as an additional insured on each insurance
policy relating to the ownership, operation and maintenance of the Facility,
which Owner is required to procure and maintain pursuant to any financing or
other project agreements.

 

Section 11.3      Evidence
of Insurance.  Operator and Owner
shall cause its insurer(s) to furnish evidence of the insurance required
hereunder, including evidence of the subrogation waiver, in the form of
insurance certificates. All such insurance certificates shall provide that the
policies may not be canceled or changed without thirty (30) days’ prior written
notice to the other party to this Agreement, given by any method that is
approved for notices hereunder.

 

Section 11.4      Subcontractors’
Insurance.  Before permitting any
Subcontractor to perform any Services at the Site, Operator shall obtain a
certificate of insurance for such Subcontractor evidencing that such
Subcontractor has obtained insurance in such amounts and against such risks as
is customarily carried by persons engaged in similar type and size businesses
performing similar work in the same geographic area. All such insurance shall
include a waiver of any rights of subrogation of the insurer as against Owner.

 

Section 11.5      Right
to Insure.  Should Operator fail to
provide or maintain any of the insurance coverage required by Section 11.1
hereof, Owner shall have the right to provide or maintain such coverage at
Owner’s expense. Should Owner fail to provide or maintain any of the insurance
coverage required by Section 11.2 hereof, Operator shall have the right, but
not the obligation, to provide or maintain such coverage on behalf of Owner and
at Owner’s expense. The cost of any such insurance obtained by Operator in
accordance with the preceding sentence shall be reimbursed or paid by Owner
pursuant to Article V and shall not be included in the amount spent for
purposes of determining, pursuant to Section 3.4, 5.1(b), 5.1(c) or 5.1(d)
whether expenditures are more than 10% in excess of the aggregate amount of the
Budget or the relevant Major Line Item, if applicable.

 

ARTICLE XII

CONFIDENTIALITY

 

Section 12.1      Confidential
Information.  Except as hereinafter
provided, each of the parties shall treat as confidential and not disclose to
any third party confidential or proprietary information concerning the Facility
or this Agreement and designated by the other party as confidential (either by
specific reference on the face of a document containing the information or by written
communication regarding a reasonable class of information), unless such
confidential information (a) was already in the possession of such party or its
Affiliates in a non-confidential form at the time such entity obtained such
confidential information hereunder, (b) was or is

 

32

 

published or otherwise is or
becomes generally available to the public through no fault of such party, or
any of its Affiliates, (c) was or is made available to such party, or its
Affiliates, without restriction by any Person which is not bound by, and does
not impose, an obligation of confidentiality or use with respect thereto,
(d) is developed independently by employees of such party or its
Affiliates who have not had access to confidential information pursuant to this
Agreement, or (e) is required to be disclosed under any Governmental
Requirement or Law. Each of the parties may use any such confidential
information only in connection with its activities under this Agreement and
disclose, reveal, or otherwise make any such confidential information available
to third parties, in either case, only with the prior written consent of the
other party hereto. Each of the parties shall provide the other party hereto
prompt notice of any disclosure required under any Governmental Requirement or
Law so that such other party may seek a protective order or other appropriate
remedy and shall cooperate with such other party’s efforts to obtain such
remedy. Operator agrees that, with respect to information provided by Owner to
Operator for which Owner owes confidential obligations to third-parties,
Operator shall abide by such obligations to the extent Owner informs Operator
in writing of such obligations. Operator shall establish and enforce reasonable
procedures for the protection of confidential information and shall restrict
disclosure of such information to only those employees, officers, and agents of
Operator or its Affiliates who need to know such information in connection with
the performance of this Agreement as set forth herein. Each of the parties
shall take such reasonable and prudent steps and precautionary measures as are
required to assure compliance with this Section 12.1 by such of its
employees, officers, agents, Affiliates and other Persons as shall be given
access to such confidential information and shall be liable for any
non-compliance with this Section 12.1 by itself, its Affiliates’ and their
respective employees and officers.

 

Section 12.2      Agreement
Confidential.  Each of parties shall
treat as confidential and not disclose to any third party the terms of this
Agreement without the prior written consent of the other. Notwithstanding the
foregoing, the terms of this Agreement may be disclosed to (a) any lender
or potential lender in connection with any financing, refinancing, proposed
financing, or proposed refinancing for the Facility, (b) to a prospective
purchaser of all or part of the Facility, or all or part of Owner’s interest in
the Facility, or substantially all of the output of the Facility and (c) to a
prospective purchaser of all or part of an interest in Owner or Operator; provided
in each of (b) and (c) that the recipient executes a confidentiality agreement
similar in substance to Section 12.1 prior to such disclosure.

 

ARTICLE XIII

MISCELLANEOUS

 

Section 13.1      Entire
Agreement.  This Agreement contains
the entire agreement of Owner and Operator with respect to the subject matter
hereof and supersedes all prior agreements and commitments with respect thereto.
There are no oral understandings, terms or conditions between the parties that
either party has relied upon any representation, expressed or implied, not
otherwise contained in this Agreement.

 

Section 13.2      Amendments.
 No change, amendment, or modification of
this Agreement shall be valid or binding upon the parties hereto unless such
change, amendment, or modification shall be in writing and duly executed by the
parties hereto.

 

33

 

Section 13.3      Captions.
 The captions and subheadings contained
in this Agreement are for convenience and reference only and in no way define,
describe, extend, or limit the scope or intent of this Agreement or the intent
of any provision contained herein.

 

Section 13.4      Notices.
 Except as otherwise expressly provided
herein, any notice, demand, offer, or other instrument required or permitted to
be given pursuant to this Agreement shall be in writing, signed by the party
giving such notice, demand, offer, or other instrument and shall be delivered
by telecopier, hand delivery, registered or certified mail, return receipt
requested, postage prepaid, or nationally recognized overnight courier to the
other party at the address set forth below:

 

If to Owner:

 

*****

*****

*****

*****

*****

*****

*****

*****

Fax: (713) 979-1950

 

If to Operator:

 

*****

*****

*****

*****

*****

 

with a copy to:

 

*****

*****

*****

*****

*****

 

Each party shall have the
right to change the place to which notice, demand, offer, or other instrument
shall be sent or delivered by similar notice sent in like manner to the other
party. The effective date of any notice, demand, offer, or other instrument
issued pursuant to this Agreement shall be the date (a) of delivery, if
delivered by telecopier with answer back confirmation, (b) when delivered,
if hand delivered, (c) if sent by overnight courier, one Business Day
after delivery to such courier, and (d) if sent by registered or certified
mail, three (3) Business Days after being deposited in U.S. mail.

 

Section 13.5      Severability.
 The invalidity of one or more of the
provisions or sections contained in this Agreement shall not affect the
validity of the remaining portion of the

 

 

*** Certain information on this page has been omitted and filed
separately with the SEC.  Confidential
treatment has been requested with respect to the omitted portions.

 

34

 

Agreement so long as the
material purposes of this Agreement can be determined and effectuated. In the
event that any portion or all of this Agreement is held to be void or
unenforceable, the parties agree to negotiate in good faith to reach an
equitable agreement on such portion that is void or unenforceable which shall
effect the intent of the parties as set forth in this Agreement. If any
indemnity and hold harmless obligation (or portions thereof) in this Agreement
are for any reason held to be invalid or unenforceable in any respect, and if
the parties fail to agree on a replacement provision, then such obligation
shall be construed to apply to the fullest extent permitted by Law but in no
event beyond the scope and limits of those original indemnity and hold harmless
obligations determined to be invalid or unenforceable.

 

Section 13.6      Assignment.
 Either party may assign its rights and
obligations hereunder to an Affiliate, provided that (a) such assignment shall
not release such party from its obligations hereunder and (b) in the case of an
assignment by Operator, the guaranty of the Operator Guarantor shall remain in
full force and effect. Except as provided in the preceding sentence, neither
this Agreement nor any right, interest or obligation hereunder may be assigned
by any Party without the prior written consent of the other Party, and any
attempt to do so will be void, except for assignments and transfers by
operation of Law; provided that no consent shall be required for any
transfer that is in connection with a financing. Subject to this
Section 13.6, this Agreement is binding upon, inures to the benefit of and
is enforceable by the Parties and their respective successors and permitted
assigns. If a transferee assumes all or any part of the transferor’s
obligations under this Agreement, then such assignment shall relieve the
transferor of the transferred obligations under this Agreement, subject to the
reasonable approval of the other party to this Agreement based on evidence of
the financial capability of the transferee to undertake the transferor’s
obligations under this Agreement. If an Owner transfers all or any part of its
interest in this Agreement which results in more than one Owner, then unless
all of such Owners appoint one agent to act on their behalf under this
Agreement and notify Operator thereof in writing, transferor Owner shall act as
agent for all such Owners under this Agreement.

 

Section 13.7      No
Waiver.  Any failure of either party
to enforce any of the provisions of this Agreement or to require compliance
with any of its provisions at any time during the pendency of this Agreement
shall in no way affect the validity of this Agreement, or any part hereof, and
shall not be deemed a waiver of the right of either party thereafter to enforce
any and each such provision.

 

Section 13.8      Applicable
Law.  This Agreement shall be
governed by the laws of the State of New York.

 

Section 13.9      Exhibits.
 All exhibits referenced in this
Agreement shall be incorporated into this Agreement by such reference and shall
be deemed to be an integral part of this Agreement. In the event of a conflict
or inconsistency between the exhibits and this Agreement (exclusive of the
exhibits), the provisions of this Agreement (exclusive of the exhibits) shall
prevail. In the event of any conflict among the exhibits, the exhibit of the latest
date shall control.

 

Section 13.10     No
Partnership Created.  Nothing
contained in this Agreement shall be construed as constituting a joint venture
or partnership between Owner and Operator.

 

35

 

Section 13.11     Consequential
Damages.  Neither party shall in any
event be responsible or liable to the other party for consequential, indirect
or punitive damages, including liability for loss of use of the Facility or
existing property, loss of profits, loss of product or business interruption,
however caused, except to the extent any third-party claims against which a
party is entitled to indemnification are deemed to be consequential damages.

 

Section 13.12     Limitations
Application.  Neither party makes any
representations, covenants, warranties or guarantees, express or implied, other
than those expressly set forth herein. The parties’ rights, liabilities,
responsibilities and remedies with respect to the Services, whether in contract
or otherwise, shall be exclusively those expressly set forth in this Agreement.
Except as specifically otherwise provided herein, indemnities against, releases
from, assumptions of, and limitations on liability expressed in this Agreement,
as well as waivers of subrogation rights expressed herein, shall apply even in
the event of the fault, negligence or strict liability of the party indemnified
or released or whose liability is limited or assumed or against whom rights of
subrogation are waived and shall extend to each party, their Affiliates, and
their respective officers, directors, employees, and agents.

 

Section 13.13     Accommodation
of Owner’s Financing.  Operator
acknowledges that Owner may at any time assign, in whole or in part, its rights
under this Agreement for collateral security purposes to any lender providing
financing to Owner, and any such lender (or collateral agent acting on its
behalf) may exercise all of the rights and remedies of Owner hereunder, and
Operator agrees to execute and deliver a consent in favor of such lenders (or
collateral agent acting on their behalf) with respect to the collateral
assignment contemplated by this Section 13.13 containing customary and
reasonable provisions for similar nonrecourse financings, provided that
such documents do not materially change Operator’s rights or obligations in
connection with this Agreement.

 

Section 13.14     Survival.
 The provisions of Sections 3.16,
4.5, 5.1(b)(x), 5.8, 13.4, 13.5, 13.8, 13.11, 13.12 and this Section 13.14
and Articles VII, VIII and XII and those provisions which by their nature
are intended to survive, including confidentiality and indemnity obligations,
shall survive the termination of this Agreement without limitation or as
otherwise specified.

 

Section 13.15     Dispute
Resolution.  In the event that a
controversy, dispute or claim between the parties cannot be resolved
informally, either party may send a notice of dispute, request a conference for
resolution of such dispute and shall have an arbitrator appointed by the American
Arbitration Association (“AAA”)
within thirty (30) days of such notice, which arbitrator shall have experience
in the operation of power plants and power plant operation disputes. Such
request must be made no later than the date when the institution of a civil
action based on the dispute would be barred by the applicable statute of
limitations or repose of the State of New York.

 

(a)        Within
five (5) Business Days after delivery of such notice, each party shall nominate
a senior officer of its management to meet at the Facility, or at any other
mutually agreed location, to resolve the dispute, which conference shall be
convened within ten (10) days after exchange of those nominations unless the
parties mutually agree to another date;

 

36

 

(b)     In
the event that the parties are unable to resolve the dispute through the
procedures above, either party shall submit such dispute to arbitration by
delivering to the other a notice demanding expedited arbitration of the dispute
in accordance with the commercial arbitration rules of the AAA then in effect. The
place of arbitration shall be at a site chosen by the parties or, in the
absence of agreement, by the arbitrator and the arbitrator shall determine the
rules of procedure for discovery, which discovery shall be limited in scope
with no depositions, no interrogations or requests for admissions. The
arbitrator shall begin hearing evidence within thirty (30) days of appointment
and shall render his or her decision within thirty (30) days after the close of
evidence. Each party shall have fifteen (15) days in which to present evidence;

 

(c)     If
the arbitrator determines that a default under this Agreement has occurred, the
non-defaulting party may pursue any or all of its rights and remedies under
this Agreement or at law and, where the defaulting party is Operator, remove
Operator. The parties agree to submit to the jurisdiction of the courts of the
State of New York and the courts of the United States for the Southern District
of New York for all purposes of this Agreement, including any action or
proceeding instituted for the enforcement of any right, remedy, obligation or
liability arising hereunder.

 

(d)     Pending
resolution of a dispute pursuant to this Section 13.15, the parties shall
continue to perform their obligations under this Agreement.

 

37

 

IN WITNESS WHEREOF, the
parties hereto have caused this Agreement to be executed and delivered by their
representatives thereunto duly authorized as of the date hereof.

 

	
   

  	
  OWNER:

  
	
   

  	
   

  	 

	
   

  	
  KGEN HOT SPRING LLC

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
  By:

  	
  /s/ GERALD K. LINDNER

  	 

	
   

  	
   

  	
  Name:  Gerald K. Lindner

  	 

	
   

  	
   

  	
  Title:  Chief Executive Officer

  	 

 

1

 

	
   

  	
  OPERATOR:

  
	
   

  	
   

  	
   

  
	
   

  	
  CINERGY
  SOLUTIONS O&M LLC

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ TIMOTHY B. FERGUSON

  
	
   

  	
   

  	
  Name:  Timothy B. Ferguson

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:  Vice President

  

 

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Exhibit 10.15    
    

July 21,
2006 

DEGS
O&M, LLC

139 East Fourth Street

5 Atrium II

Cincinnati, Ohio 45202 

Attn:
Mr. Dave Ledonne, General Manager 

        Reference
is made to the seven (7) Operation and Maintenance Agreements each dated September 13, 2004 (each an "Agreement", collectively the "Agreements") between DEGS O&M,
LLC (formerly known as Cinergy Solutions O&M LLC) ("DEGS") and the KGcn project companies signatory hereto ("KGen Companies"). 

        DEGS
and each of the KGen Companies hereby agree that subject to the Lenders Consents described below, Section 6.4 of each Agreement is amended by replacing the reference to
"sixty (60) days" contained therein to "one hundred twenty (120) days." 

        The
amendment described above shall be effective upon the date that the KGen Companies notify DEGS that the KGen Companies have received all consents and approvals of its lenders
necessary for the amendment of the Agreements contained herein ("Lenders Consents"). The KGen Companies agree that they shall provide DEGS prompt notice of their receipt of the Lender Consents. 

        Except
as amended hereby, the Agreements shall remain in full force and effect. 

[Signatures
follow] 

 

	KGEN ENTERPRISE LLC	 	KGEN NEW ALBANY LLC
	

By:	
 	

/s/ Donald E. Boyd
 Donald E. Boyd

Sr. Vice President—Operations	
 	

By:	
 	

/s/ Donald E. Boyd
 Donald E. Boyd

Sr. Vice President—Operations
	

KGEN HINDS LLC	
 	

KGEN SANDERSVILLE LLC
	

By:	
 	

/s/ Donald E. Boyd
 Donald E. Boyd

Sr. Vice President—Operations	
 	

By:	
 	

/s/ Donald E. Boyd
 Donald E. Boyd

Sr. Vice President—Operations
	

KGEN HOT SPRING LLC	
 	

KGEN SOUTHAVEN LLC
	

By:	
 	

/s/ Donald E. Boyd
 Donald E. Boyd

Sr. Vice President—Operations	
 	

By:	
 	

/s/ Donald E. Boyd
 Donald E. Boyd

Sr. Vice President—Operations
	

KGEN MARSHALL LLC	
 	

 	
 	

 
	

By:	
 	

/s/ Donald E. Boyd
	
 	

AGREED TO AND ACKNOWLEDGED BY:
	 	 	Donald E. Boyd

Sr. Vice President—Operations	 	

DEGS O&M, LLC
	

 	
 	

 	
 	

By:	
 	

/s/ David A. Ledonne

	

 	
 	

 	
 	

Name:	
 	

David A. Ledonne

	

 	
 	

 	
 	

Title:	
 	

Vice President

2

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Exhibit 10.15

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