Document:

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                                                     PRIVILEGED AND CONFIDENTIAL
                                                     STRICTLY CONFIDENTIAL

                                                  Exhibit 4.18

VIATEL HOLDING (BERMUDA) LIMITED
EBT CONTRIBUTION COVENANT

[NAME] DEPENDENT TRUST

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Contents

<TABLE>
<CAPTION>
CLAUSE                                                                               PAGE
<S>                                                                                  <C>
1.   DEFINITIONS..................................................................     1

2.   CONTRIBUTION TO THE EBT......................................................    17

3.   CALCULATION OF EQUITY VALUE AND TRANSACTION VALUE............................    24

4.   CESSATION OF EMPLOYMENT OF THE RELEVANT EMPLOYEE.............................    27

5.   PAYMENT OF PARTIAL LIQUIDITY CONTRIBUTIONS, CONTRIBUTIONS AND ADDITIONAL
     CONTRIBUTIONS WHERE CONSIDERATION IS PAYABLE OTHERWISE THAN IN CASH..........    28

6.   FULL LIQUIDITY EVENT.........................................................    30

7.   PARTIAL LIQUIDITY EVENT......................................................    30

8.   MULTIPLE LIQUIDITY EVENTS....................................................    31

9.   REORGANISATION...............................................................    32

10.  ADMINISTRATION...............................................................    32

11.  CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999.................................    32

12.  GOVERNING LAW................................................................    32

13.  DISPUTE RESOLUTION...........................................................    33
</TABLE>

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                           EBT CONTRIBUTION COVENANT

This covenant is entered into on the 19 day of July 2005

BETWEEN:

(i)   VIATEL HOLDING (BERMUDA) LIMITED (Company number 31325) whose registered
      office is at Canon's Court, 22 Victoria Street, Hamilton HM12, Bermuda
      (the "COMPANY"); and

(ii)  EB TRUSTEES LIMITED whose registered office is at Whiteley Chambers, Don
      Street, St Helier, Jersey JE4 9WG as trustee of the VTL Employee Benefit
      Trust (the "TRUSTEE").

WHEREAS:

(A)   The Company wishes to covenant with the Trustee to make certain
      contributions to the VTL Employee Benefit Trust on the terms set out in
      this covenant.

(B)   The Trustee wishes to accept the contributions from the Company on the
      terms set out in this covenant.

1.    DEFINITIONS

1.1   In this covenant, except where the context otherwise requires, the words
      and expressions set out below shall bear the following respective
      meanings, namely:

        "ADDITIONAL                 the amount (if any) to be paid by the
        CONTRIBUTION(S)"            Company to the Trustee in relation to a Full
                                    Liquidity Event calculated in accordance
                                    with clause 2.6;

        "ADDITIONAL PERCENTAGE      the meaning given to it in clause 2.6;
        CONTRIBUTION"

        "AFFILIATE"                 in relation to a company any other company
                                    Controlling, Controlled by or under common
                                    Control with, that company and "AFFILIATED"
                                    shall be construed accordingly;

        "BOARD"                     the board of directors of the Company from
                                    time to time;

        "BUSINESS DAYS"             all days excluding Saturdays, Sundays and
                                    any day on which the London Stock Exchange

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                                    is closed for the transaction of business;

        "CAUSE"                     the meaning set out in clause 4.2.1;

        "CHANGE OF CONTROL"         (a)   with respect to the Company, the
                                          Company ceasing to be Controlled
                                          directly or indirectly by the
                                          Investors (it being understood that
                                          the transfer by one or more Investors
                                          of shares that leaves such Investor or
                                          other Investors (on a Fully Diluted
                                          Basis) with Control of the Company
                                          does not constitute a Change of
                                          Control of the Company); and

                                    (b)   with respect to a Subsidiary, such
                                          Subsidiary ceasing to be Controlled by
                                          the Company;

         "CLOSING DATE"             21 April 2004;

         "CONTRIBUTION"             the amount (if any) to be paid by the
                                    Company to the Trustee in relation to a Full
                                    Liquidity Event calculated in accordance
                                    with clauses 2.4 and 2.5;

        "CONTROL"                   in relation to a company:

                                    (a)   a person shall be taken to have
                                          control of a company if he exercises,
                                          or is able to exercise or is entitled
                                          to acquire, direct or indirect control
                                          over the company's affairs, and in
                                          particular, but without prejudice to
                                          the generality of the preceding words,
                                          if he possesses or is entitled to
                                          acquire:

                                          (i)   the greater part of the share
                                                capital or issued share capital
                                                of the company or of the voting
                                                power in the company; or

                                          (ii)  such part of the issued share

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                                                capital of the company as would,
                                                if the whole of the income of
                                                the company were in fact
                                                distributed among the
                                                shareholders entitle him to
                                                receive the greater part of the
                                                amount so distributed; or

                                          (iii) such rights as would, in the
                                                event of the winding-up of the
                                                company or in any other
                                                circumstances, entitled him to
                                                receive the greater part of the
                                                assets of the company which
                                                would then be available for
                                                distribution among the
                                                shareholders;

                                    (b)   where two or more persons together
                                          satisfy any of the conditions of
                                          paragraph (a) above, they shall be
                                          taken to have control of the company;

                                    (c)   for the purposes of paragraph (a)
                                          above a person shall be treated as
                                          entitled to acquire anything which he
                                          is entitled to acquire at a future
                                          date, or will at a future date be
                                          entitled to acquire;

                                    (d)   for the purposes of paragraphs (a) and
                                          (b) above, there shall be attributed
                                          to any person any rights or powers of
                                          a nominee for him, that is to say, any
                                          rights or powers which another person
                                          possesses on his behalf or may be
                                          required to exercise on his direction
                                          or behalf; and

                                    (e)   for the purposes of paragraphs (a) and
                                          (b) above, there may also be
                                          attributed to any person all the
                                          rights and powers of any company or
                                          companies of which he has control,
                                          including those

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                                          attributed to a company under
                                          paragraph (d) above,

                                    and "Controlled" shall be construed
                                    accordingly;

        "CONTROLLING SUBSIDIARY"    any Subsidiary of the Company which owns or
                                    controls all or substantially all of the
                                    assets of the Group;

        "DATE OF CESSATION"         the date on which a Relevant Employee ceases
                                    to be an employee of any member of the Group
                                    and does not immediately become an employee
                                    of another member of the Group;

        "DEPENDENT TRUST"           that part of the Trust Fund held on distinct
                                    trust for the Relevant Employee and his
                                    family;

        "DETERMINATION DATE"        the meaning given to it in clause 3.5 or
                                    3.6, as appropriate;

        "DILUTIVE ISSUE"            the issue of shares in the Company such that
                                    on a Fully Diluted Basis no one Investor or
                                    group of Investors collectively, holds a
                                    Significant Interest in the Company;

        "DISTRIBUTION"              following a conversion of the Viatel
                                    Convertible Notes (i) the pro rata
                                    distribution of any of the Company's assets
                                    in cash or otherwise to the holders of all
                                    of the common stock of the Company including
                                    (without limitation) by way of repurchase,
                                    redemption or cancellation of shares; or
                                    (ii) the non-pro rata purchase or redemption
                                    of common stock of the Company from one or
                                    more Investors (in a transaction not made
                                    available to all holders of common stock);

        "EBT"                       the VTL Employee Benefit Trust as
                                    established by the Company on -, - 2005;

        "EQUITY VALUE"              the meaning set out in clause 3.1;

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        "EXCHANGE RATE"             with respect to a particular currency on a
                                    particular date, the closing mid-point rate
                                    for the conversion of that currency into US
                                    Dollars on that date as set out in the
                                    London edition of the Financial Times first
                                    published after that date;

        "FLOTATION"                 the Company or a Controlling Subsidiary
                                    effecting a Listing (including the transfer
                                    of shares in the Company or a Controlling
                                    Subsidiary to a Listed Entity (other than a
                                    Qualified Transferee) and the amalgamation
                                    or merger of the Company with a Listed
                                    Entity or the subsidiary of a Listed Entity
                                    (in either cash not being a Qualified
                                    Transferee) in circumstances which do not
                                    constitute a Sale solely by virtue of the
                                    fact that following the transfer of such
                                    shares, amalgamation or transfer the
                                    Investors Control the Listed Entity (and if
                                    relevant, its subsidiary);

        "FULL LIQUIDITY EVENT"      the meaning set out in clause 6;

        "FULLY DILUTED BASIS"       means that all securities of an entity
                                    convertible into, or exchangeable or
                                    exercisable for, ordinary shares of that
                                    entity have been so converted, exchanged or
                                    exercised and such ordinary shares have been
                                    issued;

        "FURTHER CONTRIBUTION(S)"   any payment made or to be made by the
                                    Company to the Trustee, in accordance with
                                    clause 2.8;

        "GOOD REASON"               the meaning set out in clause 4.2.2;

        "GROUP"                     the Company and any Subsidiary of the
                                    Company or, where the context permits, any
                                    one or more of them, and references to
                                    "member of the Group" shall be construed
                                    accordingly;

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        "INVESTMENT AGREEMENT"      the investment and note purchase agreement
                                    entered into by the Company and others on 21
                                    April 2004;

        "INVESTORS"                 the Purchasers (as such term is defined in
                                    the Investment Agreement);

        "LIQUIDATION"               in relation to a company, the entry of a
                                    winding up order by a court having
                                    jurisdiction or the passing of a resolution
                                    by the shareholders of the company, for the
                                    solvent winding up of the company;

        "LIQUID CONSIDERATION"      cash equivalents and shares of a Listed
                                    Entity which (a) are not subject to any
                                    restrictions on sale and (b) have an average
                                    monthly trading volume at the Determination
                                    Date sufficient so that in the view of the
                                    Board, the Investors are likely to be able
                                    to dispose of all such shares received as
                                    consideration or otherwise in connection
                                    with a Full Liquidity Event or Partial
                                    Liquidity Event without adversely affecting
                                    the average trading price thereof;

        "LISTED ENTITY"             any company which has effected a Listing and
                                    continues to be Listed;

        "LISTING"                   in relation to a company:

                                    (a)   a public offering for cash of an
                                          amount of that company's shares equal
                                          to at least 20% of the issued share
                                          capital of that company where,
                                          following such offering, the shares of
                                          the company are registered with the US
                                          Securities and Exchange Commission
                                          pursuant to the Securities and
                                          Exchange Act 1934 or traded on a US
                                          securities exchange or in the National
                                          Association of Securities Dealers
                                          Automated Quotation System (NASDAQ);
                                          or

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                                    (b)   the admission of any part of the share
                                          capital of that company to listing on
                                          the Official List of the UK Listing
                                          Authority and to trading on the London
                                          Stock Exchange plc's market for listed
                                          securities; or

                                    (c)   the admission of any part of the share
                                          capital of that company to trading on
                                          any other securities exchange;

                                    in any case, following a resolution of the
                                    board of the relevant company, to pursue
                                    such a Listing, and "LISTED" shall be
                                    construed accordingly;

        "MATERIAL ASSET"            on any date, any asset(s) or undertaking of
                                    a member of the Group where:

                                    (a)   the amount payable on the transfer of
                                          such asset(s) or undertaking exceeds
                                          US$10 million; or

                                    (b)   such asset(s) or undertaking represent
                                          10% or more of the net assets of the
                                          entire Group (as shown in the audited
                                          consolidated accounts of the Group
                                          last published prior to that date); or

                                    (c)   the board of the Company determines
                                          that such assets or undertaking should
                                          otherwise be classed as material in
                                          the context of the business of the
                                          Group as a whole for the purposes of
                                          this covenant;

                                    and the following shall in any event (but
                                    without limitation) constitute `Material
                                    Assets' notwithstanding and without
                                    prejudice to paragraphs (a) to (c) above:

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                                    (i)   the asset(s) and undertaking
                                          comprising the Group's
                                          telecommunications network in any
                                          single country in Europe (as of the
                                          Closing Date), including (without
                                          limitation) ducts, cables, rights of
                                          way, easements, indefeasible rights of
                                          use, points of presence, co-location
                                          facilities and repeater stations;

                                    (ii)  the asset(s) and undertaking
                                          comprising the Group's commercial
                                          operations in the UK or Switzerland or
                                          in the whole of Europe including
                                          (without limitation) contracts for the
                                          supply of communications services;

        "MATERIAL SUBSIDIARY"       any Subsidiary of the Company which owns a
                                    Material Asset;

        "MAXIMUM ADDITIONAL         the maximum percentage of Equity Value used
        PERCENTAGE CONTRIBUTION"    to calculate the amount of any Additional
                                    Contribution due to the EBT pursuant to
                                    clause 2.6;

        "MAXIMUM PERCENTAGE         the maximum percentage of Equity Value used
        CONTRIBUTION"               to calculate the amount of any Contribution
                                    due to the EBT pursuant to clause 2.4;

        "PARTIAL LIQUIDITY          the amount (if any) paid or to be paid by
        CONTRIBUTION"               the Company to the Trustee in relation to a
                                    Partial Liquidity Event calculated in
                                    accordance with clause 2.7;

        "PARTIAL LIQUIDITY EVENT"   the meaning set out in clause 7;

        "PAYMENT DUE DATE"          the tenth Business Day following a
                                    Determination Date;

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        "POST-FLOTATION TRANSFER"   following a Flotation of the Company or a
                                    Controlling Subsidiary, a transfer by the
                                    Investors (or any one or more of them) of
                                    common stock in the Company or a transfer by
                                    the Company of shares in a Controlling
                                    Subsidiary, in either event to a person or
                                    to an entity that is not a Qualified
                                    Transferee the proceeds of which are either:

                                    (a)   together, equal to or in excess of
                                          $10 million; or

                                    (b)   when aggregated with the proceeds of
                                          all previous transfers (to persons or
                                          entities that are not Qualified
                                          Transferees) of common stock of the
                                          Company or shares in the Controlling
                                          Subsidiary made by any of the
                                          Investors or the Company (as
                                          appropriate) following such Flotation,
                                          equal to or in excess of $10 million;

                                    and so that (for the avoidance of doubt) any
                                    transfer of common stock by any Investor or
                                    shares by the Company (as appropriate)
                                    following a Flotation shall constitute a
                                    Post-Flotation Transfer if the aggregate
                                    proceeds of all previous transfers of common
                                    stock of the Company or shares of a
                                    Controlling Subsidiary (as appropriate) (to
                                    persons or entities that are not Qualified
                                    Transferees) by that Investor and/or any
                                    other Investor, or the Company (as
                                    appropriate) is equal to or in excess of $10
                                    million;

        "QUALIFIED TRANSFEREE"      any Investor or any Affiliate of any
                                    Investor, but excluding any such Affiliate
                                    that is primarily involved in a line of
                                    business that is substantially different
                                    from the lines of business primarily engaged
                                    in by the Investor (and any parent entity of
                                    the Investor on a

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                                    consolidated basis) with whom such Affiliate
                                    is Affiliated, it being understood that for
                                    this purpose the business of holding
                                    investments shall be deemed to be a business
                                    in which each Investor is primarily engaged;

        "RELEVANT DATE"             (a)   in relation to a Full Liquidity Event:

                                          (i)   by way of a Sale of the Company,
                                                the date of the transfer of the
                                                shares(s) which results in the
                                                occurrence of a Sale;

                                          (ii)  by way of a Liquidation of the
                                                Company, the date following
                                                commencement of the Liquidation
                                                on which the liquidator
                                                determines that a distribution
                                                of surplus assets of the Company
                                                can be made (without taking into
                                                account the provisions of this
                                                covenant);

                                    (b)   in relation to a Partial Liquidity
                                          Event:

                                          (i)   by way of the transfer (to a
                                                person or entity that is not a
                                                Qualified Transferee) of a
                                                Material Asset followed by a
                                                Distribution of proceeds, the
                                                date of the Distribution of the
                                                proceeds in connection with such
                                                transfer;

                                          (ii)  by way of the Liquidation of a
                                                Material Subsidiary followed by
                                                a Distribution of the proceeds
                                                of the Liquidation, the date of
                                                Distribution of such proceeds in
                                                connection with such
                                                Liquidation;

                                          (iii) by way of a Post-Flotation
                                                Transfer of shares in a
                                                Controlling Subsidiary (to a
                                                person or entity

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                                                that is not a Qualified
                                                Transferee) followed by a
                                                Distribution of the proceeds of
                                                such transfer, the date of the
                                                Distribution of the proceeds in
                                                connection with such
                                                Post-Flotation Transfer;

                                          (iv)  by way of a Tag-Along
                                                Transaction, the date of the
                                                transfer of the relevant shares;

                                          (v)   by way of a Post-Flotation
                                                Transfer of shares in the
                                                Company, the date of the
                                                transfer of the relevant shares;

                                          (vi)  by way of an amalgamation or
                                                merger of the Company under
                                                clause 7.1.5, the date on which
                                                the amalgamation or merger takes
                                                place;

                                    and, for the avoidance of doubt, more than
                                    one Relevant Date can occur in relation to a
                                    Partial Liquidity Event in accordance with
                                    the provisions of clause 3.4;

        "RELEVANT EMPLOYEE"         [NAME];

        "REMUNERATION COMMITTEE"    the remuneration committee of the board of
                                    Directors of the Company as duly authorised
                                    from time to time;

        "REORGANISATION"            (a)   any amalgamation or merger for
                                          internal reorganisation purposes of
                                          the Company with another body
                                          corporate (other than where the
                                          Company is the principal surviving or
                                          remaining body corporate);

                                    (b)   any reorganisation of the Company as
                                          a result of which all or part of the

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                                          business of the Group becomes
                                          Controlled by a new company which is
                                          not currently a member of the Group,
                                          but which is itself Controlled by the
                                          Investors (whether alone or together
                                          with any other persons) in the same or
                                          substantially the same proportions as
                                          the Investors hold or would hold
                                          shares in the Company, on a Fully
                                          Diluted Basis, immediately prior to
                                          the reorganisation; or

                                    (c)   the acquisition (other than by way
                                          of a subscription for shares) by a
                                          company (including, without
                                          limitation, a Listed Entity) of shares
                                          in the Company or an amalgamation or
                                          merger of the Company with another
                                          company in circumstances which do not
                                          constitute a Sale by virtue of the
                                          fact that following the transfer,
                                          merger or amalgamation, given the
                                          shareholding structure of the
                                          acquiring company or surviving entity,
                                          either there has been no effective
                                          Change of Control of the Company or
                                          the Investors retain a Significant
                                          Interest in the acquiring company, or
                                          surviving entity; or

                                    (d)   a Dilutive Issue,

                                    but notwithstanding the foregoing, no
                                    amalgamation, reorganisation, acquisition,
                                    issue or other transaction that constitutes
                                    a Reorganisation shall, unless the Board
                                    determine otherwise in accordance with
                                    clause 8, also constitute a Partial
                                    Liquidity Event or a Full Liquidity Event
                                    and no amalgamation, reorganisation,
                                    acquisition, issue or other transaction that
                                    constitutes a Partial Liquidity Event or a
                                    Full Liquidity Event

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                                    shall, unless the Board determines otherwise
                                    in accordance with clause 8, also constitute
                                    a Reorganisation;

        "SALE"                      in relation to the Company, the transfer by
                                    one or more Investors of shares by way of
                                    Tag-Along Transaction or a Post-Flotation
                                    Transfer or the amalgamation or merger of
                                    the Company with another company, or other
                                    sale of shares following a Tag-Along
                                    Transaction or amalgamation or merger (in
                                    one transaction or as a series of related
                                    transactions) as a result of which:

                                    (a)   there is a Change of Control of the
                                          Company following which, no one
                                          Investor, or group of Investors
                                          collectively, holds a Significant
                                          Interest in the Company (or, following
                                          an amalgamation or merger, in the
                                          surviving entity); or

                                    (b)   (in the event of a transfer of shares
                                          following the previous occurrence of a
                                          Change of Control of the Company which
                                          does not constitute a Sale under
                                          paragraph (a) above) no one Investor,
                                          or group of Investors collectively,
                                          holds a Significant Interest in the
                                          Company (or, following an amalgamation
                                          or merger, in the surviving entity);

        "SERVICE AGREEMENT"         the service agreement between the Relevant
                                    Employee and [the Company][VTL UK Limited]
                                    dated [date];

        "SHAREHOLDER"               in relation to the Company, the holders of
                                    shares in the Company;

        "SHARES"                    any shares or common stock in a company and
                                    any right to acquire or convert any

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                                    security into, shares or common stock in a
                                    company;

        "SHAREHOLDERS' AGREEMENT"   the shareholders' agreement entered into by
                                    the Company and others on 21 April 2004;

        "SIDE LETTER"               the letter of even date herewith between the
                                    Company and the Trustee;

        "SIGNIFICANT INTEREST"      in relation to a company, the holding of or
                                    the ability to be able to exercise or to
                                    acquire direct or indirect control over,
                                    more than 20% of the voting rights attaching
                                    to that company's shares on a Fully Diluted
                                    Basis;

        "SUBSIDIARY"                a subsidiary undertaking as defined in
                                    section 258 of the Companies Act 1985;

        "TAG-ALONG TRANSACTION"     a sale of shares to a person or entity that
                                    is not a Qualified Transferee that triggered
                                    (or would have been capable of triggering)
                                    any of the "tag-along" rights as set out in
                                    Section 3.4(a) or 3.4(d) of the
                                    Shareholders' Agreement;

        "TAXES ACT"                 the Income and Corporation Taxes Act 1988;

        "TRANSACTION VALUE"         the meaning set out in clause 3.2;

        "TRANSACTION VALUE          at any date, the aggregate of the
        THRESHOLD"                  Transaction Values of all Partial Liquidity
                                    Events with Relevant Dates on or prior to
                                    such date being equal to or exceeding $100
                                    million;

        "TRANSFER"                  (in relation to any asset) the direct or
                                    indirect transfer of that asset (and for the
                                    avoidance of doubt, but without limitation,
                                    reference to an asset shall include a share)
                                    whether by way of sale, gift, holding on
                                    trust and whether at law or in equity,
                                    including in the case of a share, an
                                    agreement to exercise generally the voting
                                    rights attaching to that share at the
                                    direction of any third party, but excluding
                                    (a) the grant of a

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                                    revocable proxy with regard to any share;
                                    and (b) the grant, release or exercise of
                                    any security granted over any asset for the
                                    purposes of securing a monetary obligation
                                    (it being understood that a Flotation cannot
                                    of itself be a "transfer" and the transfer
                                    of shares in an entity shall only constitute
                                    a "transfer" of that entity (as distinct
                                    from the shares) if such transfer of shares
                                    results in a Change of Control of that
                                    entity);

        "TRIGGER DATE"              (a)   in relation to a Full Liquidity Event:

                                    (i)   by way of a Sale of the Company, the
                                          date of the transfer of the share(s)
                                          which result in the occurrence of a
                                          Sale;

                                    (ii)  by way of a Liquidation of the
                                          Company, the date on which the
                                          resolution to wind the Company up is
                                          passed by the shareholders or the date
                                          on which an order to wind up the
                                          Company is granted, whichever is the
                                          earlier; and

                                    (b)   in relation to a Partial Liquidity
                                          Event:

                                    (i)   by way of the transfer of a Material
                                          Asset, the date of disposal of such
                                          asset;

                                    (ii)  by way of the Liquidation of a
                                          Material Subsidiary the date on which
                                          the resolution to wind up the company
                                          is passed by the shareholders or the
                                          date on which an order to wind up the
                                          company is granted, whichever is the
                                          earlier;

                                    (iii) by way of a Post-Flotation Transfer of
                                          shares in a Controlling Subsidiary the
                                          date of the transfer of such shares;

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                                    (iv)  by way of a Tag-along Transaction, the
                                          date of the relevant transfer of
                                          shares;

                                    (v)   by way of a Post-Flotation Transfer of
                                          shares in the Company, the date of the
                                          relevant transfer of shares; and

                                    (vi)  by way of an amalgamation or merger of
                                          the Company under clause 7.1.5, the
                                          date on which the amalgamation or
                                          merger takes place;

        "TRUST FUND"                the meaning given to it under the EBT;

        "VIATEL CONVERTIBLE NOTES"  the Viatel Holding (Bermuda) Limited 8%
                                    Convertible Senior Secured Notes due 2014;
                                    and

        "WAIVER"                    the form of Waiver set forth in Annex A
                                    hereto.

1.2   In this covenant:

        1.2.1 any reference to a statutory or regulatory provision shall be
              deemed to include that provision as it may from time to time be
              amended or re-enacted, and, wherever the context so admits or
              requires, the singular shall include the plural and vice versa and
              the masculine shall include the feminine;

        1.2.2 "PARENT UNDERTAKING" shall have the meaning ascribed to it in
              section 258 of the Companies Act 1985;

        1.2.3 reference to any English legal term for any action, remedy, method
              of judicial proceeding, legal document, legal status, court,
              official or any legal concept or thing includes, in respect of any
              jurisdiction other than England, a reference to whatever most
              closely approximates in that jurisdiction to the relevant English
              legal term;

        1.2.4 any phrase introduced by the terms "INCLUDE", "INCLUDING", "IN
              PARTICULAR" or any similar expression shall be construed as
              illustrative and shall not limit the sense of the words preceding
              those terms; and

        1.2.5 a reference to a company shall be to a body corporate, whenever
              incorporated.

1.3   Any reference in this covenant to a sum expressed in $ (US Dollars), in
      the context of any sum denominated in any other currency (such as for
      example, but without limitation, a

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      reference to the proceeds of sale of shares exceeding a sum in US Dollars)
      shall be converted into US Dollars at the Exchange Rate on the relevant
      date. In the case of any value required to be converted into US Dollars
      for the purposes of calculating the Transaction Value or Equity Value or
      the amount of a Partial Liquidity Contribution or Contribution or
      Additional Contribution, if appropriate, due following a Partial Liquidity
      Event or a Full Liquidity Event, the relevant date shall be the Relevant
      Date in relation to such Partial Liquidity Event or Full Liquidity Event.

2.    CONTRIBUTION TO THE EBT

2.1   The Company hereby undertakes, subject to the provisions of clause 5, that
      on or prior to any Payment Due Date, it will make a Partial Liquidity
      Contribution (if the Payment Due Date relates to a Partial Liquidity
      Event) or a Contribution and, if applicable, an Additional Contribution
      (if the Payment Due Date relates to a Full Liquidity Event) in cash to the
      Trustee, as trustee of the EBT, calculated in accordance with the terms of
      this covenant. The Trustee hereby declares itself trustee of the benefit
      of this covenant to hold the same for the benefit of the persons who are
      the beneficiaries under the terms of the EBT, in accordance with the terms
      of the EBT. Notwithstanding any other term of this covenant:

      2.1.1 if neither a Partial Liquidity Event nor a Full Liquidity Event has
            occurred by 21 April 2014 no Partial Liquidity Contribution or
            Contribution or Additional Contribution will be made to the Trustee
            and in this event this covenant shall terminate on 21 April 2014;

      2.1.2 no Partial Liquidity Contribution or Contribution or Additional
            Contribution shall be made with respect to any transaction or event
            with respect to which the Relevant Date is after 21 April 2014; and

      2.1.3 no Partial Liquidity Contribution or Contribution or Additional
            Contribution will be made with respect to any Relevant Employee who
            has not executed and delivered the Waiver on or prior to 10 Business
            Days after the date of this covenant.

2.2   Notwithstanding anything to the contrary in this covenant, the obligations
      of the Company under clause 2.1 above shall be alternative to and not
      additional to the obligations of [the Company] [VTL UK Limited] ("EXISTING
      OBLIGATIONS") under clause [ ] of the Service Agreement. If the Existing
      Obligations remain in full force and effect, the Company shall not be
      liable to make any payment under clause 2.1 above.

2.3   The Trustee agrees that any Partial Liquidity Contribution, Contribution
      (and, if applicable, any Additional Contribution) made by the Company
      under this covenant will

                                       17
<PAGE>

      immediately be transferred by the Trustee to the [NAME] Dependent Trust
      and will be held by the Trustee in accordance with the terms of that
      trust.

2.4   In relation to a Full Liquidity Event the amount of the Contribution will
      depend on:

      2.4.1 the Equity Value at the Relevant Date of the Full Liquidity Event
            and will be calculated as a percentage of such Equity Value as
            follows:

<TABLE>
<CAPTION>
EQUITY VALUE US$                 MAXIMUM PERCENTAGE CONTRIBUTION
---------------------            -------------------------------
<S>                              <C>
Less than 100 million                           0
100 million
350 million or more
</TABLE>

            and the Maximum Percentage Contribution used to calculate the amount
            of Contribution due where the Equity Value is greater than $US100
            million, but less than US$350 million, shall be pro rated on a
            straight line basis; and

      2.4.2 whether the Relevant Employee has ceased to be an employee of a
            member of the Group (and has not immediately become an employee of
            another member of the Group) prior to the Trigger Date relating to
            the Full Liquidity Event, in which case, only a proportion of the
            Contribution otherwise due will be deemed to have vested, as
            follows:

<TABLE>
<CAPTION>
                                                      AMOUNT OF MAXIMUM
                                                   PERCENTAGE CONTRIBUTION
TRANCHE               DATE OF CESSATION                  WHICH VESTS
-------        ------------------------------      -----------------------
<C>            <C>                                 <C>
1              prior to 21 April 2005                         1/3
2              21 April 2005 to 20 April 2006                 2/3
3              on or after 21 April 2006                      3/3
</TABLE>

            SAVE that:

            (a)   in the event of the cessation of employment of the Relevant
                  Employee due to one of the reasons set out in clause 4.1, the
                  vesting of the entitlement to a Contribution shall be
                  accelerated as set out in clause 4.1; and

            (b)   in the event that there has been a Change of Control of the
                  Company on or prior to the Date of Cessation the entitlement
                  to a Contribution shall be

                                       18
<PAGE>

                  accelerated in full so that the whole amount of the
                  Contribution (if any) shall be payable on any Full Liquidity
                  Event with a Trigger Date on or following such Date of
                  Cessation; and

      2.4.3 whether any Partial Liquidity Contributions have previously been
            made in connection with a Partial Liquidity Event or any other
            Further Contributions have been made under clause 2.8 (other than
            Further Contributions made under clause 2.8 which are not linked to
            a Partial Liquidity Event) and the Trustee has exercised its
            discretion and passed such payments to the Dependant Trust, in which
            case there shall be deducted from the Contribution due in relation
            to the Full Liquidity Event, the aggregate of all previous Partial
            Liquidity Contributions (if any) and any such Further Contributions
            made under clause 2.8. For the avoidance of doubt, if a payment has
            been made to the Trustee pursuant to clause 2.8 in connection with a
            Partial Liquidity Event, but at the Relevant Date of the Full
            Liquidity Event, such payment has not been transferred in its
            entirety to the Dependent Trust then payment shall, for the purposes
            of this clause and clause 2.5, be deemed to have been made into each
            dependent trust held by the Trustee for the benefit of employees of
            the Company and their families in force at that time, in accordance
            with any letter of wishes given by the Company to the Trustee in
            respect of such payment and, in the absence of any such letter, into
            each such dependent trust pro rata based on prior contributions.

2.5   For the avoidance of doubt, the Relevant Employee does not need to be an
      employee of any member of the Group at the Relevant Date, the
      Determination Date or the Payment Due Date, in relation to any Full
      Liquidity Event in order for the full amount of any Contribution to become
      payable pursuant to this covenant, provided that either he was an employee
      of any member of the Group at the Trigger Date relating to such Full
      Liquidity Event or, if he has ceased to be an employee at the Trigger
      Date, a Change of Control had occurred on or prior to the Date of
      Cessation. If the Relevant Employee has ceased to be an employee of a
      member of the Group (and does not immediately become an employee of
      another member of the Group) prior to the Trigger Date in relation to a
      Full Liquidity Event (and no Change of Control had occurred prior to the
      Date of Cessation), the amount of the Contribution to be made after the
      Date of Cessation in relation to such Full Liquidity Event, will be
      calculated as follows:

      [(A x B) x E] - C

      where:

      A  =  the Maximum Percentage Contribution applicable to that Full
            Liquidity Event, in accordance with clause 2.4.1;

                                       19
<PAGE>

      B  =  the fraction of the Maximum Percentage Contribution which has
            vested in accordance with clause 2.4.2 at the Date of Cessation
            (subject to any acceleration pursuant to clause 2.4.2);

      C  =  the aggregate of all previous Partial Liquidity Contributions (if
            any) made to the Trustee in respect of such Relevant Employee prior
            to the Relevant Date of that Full Liquidity Event, as a result of
            any previous Partial Liquidity Events and any other Further
            Contributions made under clause 2.8 (other than Further
            Contributions not linked to a Partial Liquidity Event) and in
            respect of which the Trustee has exercised its discretion to
            transfer such payment into the Dependent Trust (or is deemed to have
            done so pursuant to clause 2.4.3); and

      E  =  the Equity Value applicable to that Full Liquidity Event.

2.6   Additional Contributions

      2.6.1 In addition, the Company may, following the first anniversary of the
            Closing Date and any subsequent anniversary of the Closing Date, as
            appropriate at the discretion of the Remuneration Committee (after
            recommendations by the Chief Executive Officer of the Company) and
            dependent upon the Relevant Employee having achieved objectives and
            performance standards during the 12 months from the Closing Date
            and/or during any subsequent 12 month period for the duration of the
            Service Agreement, determine that, on a Full Liquidity Event, an
            Additional Contribution will be made. Any such Additional
            Contribution will be calculated as a percentage of the Equity Value
            at the Relevant Date of a Full Liquidity Event. The Board shall send
            a written notice to the Trustee within 10 Business Days of such a
            determination informing the Trustee that an award under this clause
            2.6.1 has been made and the applicable percentage range (within the
            maximum ranges set out below) for the purposes of calculating any
            Additional Contribution due ("ADDITIONAL PERCENTAGE Contribution").
            The total of all awards of an Additional Percentage Contribution
            under this clause 2.6.1 shall be within the following maximum
            aggregate Additional Percentage Ranges:

<TABLE>
<CAPTION>
                                           MAXIMUM ADDITIONAL PERCENTAGE
EQUITY VALUE US$                                   CONTRIBUTION
---------------------                      -----------------------------
<S>                                        <C>
Less than 100 million                                    0
100 million
350 million or more
</TABLE>

                                       20
<PAGE>

            and the Maximum Additional Percentage Contribution and/or the
            Additional Percentage Contribution used to calculate the amount of
            Additional Contribution due where the Equity Value is greater than
            US$100 million but less than US$350 million, shall be pro rated on a
            straight line basis. Additional Percentage Contributions where
            awarded, shall be fully vested on the date on which the Board
            determines that an Additional Percentage Contribution shall be made.

      2.6.2 For the avoidance of doubt, the Relevant Employee does not need to
            be an employee of any member of the Group at the Relevant Date, the
            Determination Date or the Payment Due Date in relation to any Full
            Liquidity Event in order for the amount of any Additional
            Contribution awarded under this paragraph 2.6 to become payable,
            provided that he was an employee of any member of the Group at the
            Trigger Date relating to such Full Liquidity Event or, if he has
            ceased to be an employee at the Trigger Date, a Change of Control of
            the Company had occurred on/or prior to the Date of Cessation.

2.7   In relation to a Partial Liquidity Event:

      2.7.1 the amount of the Partial Liquidity Contribution shall depend on
            whether, at the Relevant Date in relation to that Partial Liquidity
            Event, the Transaction Value Threshold has been met or exceeded, in
            which case the Partial Liquidity Contribution shall be calculated as
            follows:

            {[X x (Y + Z)] x TV} - PC

            where:

            X = 60% in relation to all Partial Liquidity Events where the
            aggregate of the Transaction Value relating to that Partial
            Liquidity Event and the Transaction Values of all previous Partial
            Liquidity Events does not exceed US$200 million, and 100% in
            relation to all Partial Liquidity Events where the aggregate of the
            Transaction Value relating to that Partial Liquidity Event and the
            Transaction Values of all previous Partial Liquidity Events exceeds
            US$200 million;

            Y = in relation to a Partial Liquidity Event, the Maximum Percentage
            Contribution payable in relation to that Partial Liquidity Event
            pursuant to the table set out in clause 2.4.1 if "TV" (as defined
            below) were substituted for "Equity Value" and "Partial Liquidity
            Event" were substituted for "Full Liquidity Event" in such clause;

            Z = in relation to a Partial Liquidity Event, the aggregate of any
            Additional Percentage Contributions (if any have been awarded by the
            Board pursuant to

                                       21
<PAGE>

            clause 2.6.1) payable in relation to a Partial Liquidity Event
            pursuant to any awards made by the Board under clause 2.6.1, (for
            the avoidance of doubt subject to the Maximum Additional Percentage
            Contribution set out in the table in clause 2.6.1) as if "TV" (as
            defined below) were substituted for "Equity Value" and "Partial
            Liquidity Event" were substituted for "Full Liquidity Event" in
            clause 2.6.1;

            TV = in relation to any Partial Liquidity Event in respect of which
            the Transaction Value Threshold has been met or exceeded, the
            aggregate of the Transaction Value relating to that Partial
            Liquidity Event and the Transaction Values of all previous Partial
            Liquidity Events; and

            PC = in relation to a Partial Liquidity Event, the aggregate amount
            of all previous Partial Liquidity Contributions made to the Trustee
            pursuant to this clause 2.7 in respect of the Relevant Employee
            prior to the Relevant Date of that Partial Liquidity Event;

            and so that, for the avoidance of doubt, once the Transaction Value
            Threshold has been met or exceeded, a Partial Liquidity Contribution
            shall (subject to the other terms of this covenant) be payable in
            respect of all subsequent Partial Liquidity Events;

      2.7.2 if a Partial Liquidity Contribution is required to be made under
            clause 2.7.1, such Partial Liquidity Contribution shall be made
            whether or not the Relevant Employee has ceased to be an employee of
            any member of the Group at the Relevant Date or the Determination
            Date or the Payment Due Date so long as the Relevant Employee was
            employed by a member of the Group at the Trigger Date relating to
            that Partial Liquidity Event (and, if no Partial Liquidity
            Contributions have previously been made, at the Trigger Date
            relating to the most recent Partial Liquidity Event). Subject to the
            following provisions of this clause 2.7.2, no Partial Liquidity
            Contribution shall be made with respect to any Partial Liquidity
            Event, the Trigger Date of which occurs following the Date of
            Cessation of the Relevant Employee's employment. Notwithstanding the
            foregoing provisions of this clause 2.7.2, in the event that,
            pursuant to clause 3.4, there is more than one Relevant Date, more
            than one Determination Date, and more than one Payment Due Date in
            relation to any Partial Liquidity Event, then provided that the
            Relevant Employee was employed by a member of the Group at the
            Trigger Date relating to that Partial Liquidity Event he shall be
            entitled to receive all Partial Liquidity Contributions which become
            payable following any number of subsequent Relevant Dates relating
            to that same Partial Liquidity Event, except that such Relevant
            Employee shall not be entitled

                                       22
<PAGE>

            to receive payments with respect to any Partial Liquidity Event
            following the Relevant Date of a Full Liquidity Event.

2.8   In addition, the Company may, at the discretion of the Remuneration
      Committee (after recommendations by the Chief Executive Officer of the
      Company), make Further Contributions to the Trustee in such amounts as the
      Remuneration Committee, in its sole discretion, determines, such payments
      to be held on the terms of the EBT.

2.9   Side Letter Cap

      Notwithstanding anything to the contrary in this covenant:

      2.9.1 on any Partial Liquidity Event, the Company shall be under no
            obligation to make any payment in excess of the Partial Liquidity
            Contribution due under clause 2.7.1;

      2.9.2 on a Full Liquidity Event, the Company shall be under no obligation
            to make any payment in excess of the aggregate of the Maximum
            Percentage Contribution due under clause 2.4.1 and the Maximum
            Additional Percentage Contribution (if any) due under clause 2.6,
            minus, the amount of all previous Partial Liquidity Contributions;
            and:

      2.9.3 the Company shall not be under any obligation to make any payment to
            the Trustee under this covenant or otherwise to the extent that such
            payment together with any other payments made to the Trustee under
            or in connection with the EBT in relation to any Partial Liquidity
            Event or Full Liquidity Event would cause a violation of the
            provisions of paragraph 5 of the Side Letter ("SIDE LETTER CAP");

      provided that:

      (a)   this clause 2.9 shall not prevent the Company in its discretion from
            making Further Contributions pursuant to clause 2.8 in relation to
            any Full Liquidity Event or Partial Liquidity Event as long as the
            Side Letter Cap is not exceeded or from making Further Contributions
            pursuant to clause 2.8 otherwise than in connection with any Full
            Liquidity Event or Partial Liquidity Event, irrespective of the Side
            Letter Cap; and

      (b)   nothing in this covenant shall require the Trustee to repay any
            amounts previously received by it in respect of any Partial
            Liquidity Event occurring prior to any other Partial Liquidity Event
            or Full Liquidity Event.

                                       23
<PAGE>

3.    CALCULATION OF EQUITY VALUE AND TRANSACTION VALUE

3.1   For the purposes of this covenant and in relation to a Full Liquidity
      Event, "EQUITY VALUE" shall have the meaning as determined pursuant to and
      in accordance with Schedule 3 to the Investment Agreement (for the
      avoidance of doubt excluding the value of any shares no longer in issue
      due to their having been repurchased, redeemed or otherwise ceasing to be
      outstanding following the Closing Date), as adjusted to include the value
      of all Distributions made to shareholders since the Closing Date but prior
      to the Relevant Date in relation to such Full Liquidity Event, and subject
      to any further adjustments deemed to be equitable and necessary, in the
      complete discretion of the Board, in order to give effect to the
      intentions of all parties pursuant to the principles set out in this
      covenant (provided that such valuation and adjustments do not result in
      double counting). For the purposes of calculating Equity Value, the value
      of any non-cash Distribution or consideration received shall be calculated
      in accordance with clause 3.3.

3.2   For the purposes of this covenant the following terms shall have the
      following meanings:

      "TRANSACTION VALUE" shall mean the following, it being understood that in
      any case in which there is any ambiguity with respect to the proper
      determination of Transaction Value, it shall be in the discretion of the
      Board to determine the Transaction Value in a manner that operates fairly
      as between the Company and the Trustee:

      (a)   with respect to a Partial Liquidity Event described in clauses 7.1.1
            to 7.1.3 (inclusive) the aggregate amount of all Distributions
            (being an amount equal to the aggregate amount of all cash
            Distributions and the value (as determined in accordance with clause
            3.3) of all non-cash Distributions) made by the Company in
            connection with such Partial Liquidity Event; and

      (b)   with respect to a Partial Liquidity Event described in clauses 7.1.4
            to 7.1.6 (inclusive) the aggregate of all of the Individual
            Transaction Values in relation to such Partial Liquidity Event;

            where:

            "INDIVIDUAL TRANSACTION VALUE" in relation to each Investor
            transferring shares or in the case of an amalgamation or merger,
            surrendering shares for consideration as envisaged by clause 7.1.5,
            as part of any Partial Liquidity Event, the Implied Value in
            relation to that transfer or surrender of shares by that Investor as
            part of that Partial Liquidity Event multiplied by the Applicable
            Fraction in relation to that transfer or surrender of shares by that
            Investor as part of that Partial Liquidity Event;

                                       24
<PAGE>

            "IMPLIED VALUE" shall mean in relation to the transfer or surrender
            of any shares of common stock by any Investor as part of any Partial
            Liquidity Event, the per common share consideration received by that
            Investor, net of all transaction and brokerage costs, and (subject
            to clause 3.4) net of the maximum amount of consideration due to
            that Investor that may be held back in any escrow arrangements,
            multiplied by the number of shares of common stock of the Company in
            issue at the date of such transfer or surrender, immediately prior
            to such transfer or surrender, on a Fully Diluted Basis; and

            "APPLICABLE FRACTION" shall mean a fraction, the numerator of which
            is the number of shares of common stock in the Company transferred
            or surrendered by that Investor on such Partial Liquidity Event, and
            the denominator of which is the total number of shares of common
            stock in the Company [in issue] on the date of such transfer or
            surrender, immediately prior to such transfer of surrender on a
            Fully Diluted Basis.

3.3   In the event that any part of the Distribution made in connection with a
      Partial Liquidity Event arising under clause 7.1.1, to 7.1.3 (inclusive)
      or the consideration received by any Investor in connection with a Partial
      Liquidity Event arising under clauses 7.1.4 to 7.1.6 (inclusive) consists
      of assets other than cash (excluding the right to be paid a sum in cash or
      receive a non-cash asset on a future date (whether or not, in the case of
      cash that sum is quantifiable on the Relevant Date) which rights shall be
      taken into consideration in accordance with the provisions of clause 3.4)
      the value of such assets shall be determined in good faith by the Board
      within 30 days of the Relevant Date.

3.4   In the event that:

      3.4.1 in relation to a Partial Liquidity Event arising under clauses 7.1.1
            to 7.1.3 (inclusive), either:

            3.4.1.1  a Distribution is declared, but not immediately paid; or

            3.4.1.2  more than one Distribution is declared in relation to such
                     Partial Liquidity Event; or

      3.4.2 in relation to a Partial Liquidity Event arising under clauses
            7.1.4, 7.1.5 or 7.1.6 either:

            3.4.2.1  the consideration payable in relation to that Partial
                     Liquidity Event includes a right to be paid a sum in cash
                     or to receive a non-cash asset on a future date; or

                                       25
<PAGE>

            3.4.2.2  any amount of cash which is deducted from, or any assets
                     which are withheld from, the amount payable or the assets
                     transferred to, the relevant Investors and placed into
                     escrow, is released from escrow to the relevant Investors;

      and, as a result of which either the shareholders of the Company or the
      relevant Investors (as applicable) receive additional cash or other assets
      on a future date ("DEFERRED PAYMENT") then each date or dates on which any
      such Deferred Payment becomes payable to the shareholders of the Company
      or the relevant Investors (as applicable) shall constitute an additional
      Relevant Date in relation to that Partial Liquidity Event and shall
      trigger an additional obligation on the Board to determine the Transaction
      Value in accordance with clause 3.5 as if such event constituted a
      separate Partial Liquidity Event (and an additional obligation of the
      Company to make an additional Partial Liquidity Contribution in relation
      to that Partial Liquidity Event) and, for the avoidance of doubt the
      payment of any cash or the transfer of any assets, released from any
      escrow or similar arrangements to any relevant Investors (whether before
      or after any subsequent Full Liquidity Event) shall trigger such
      obligations on the part of the Board and the Company. If, in accordance
      with the foregoing provisions of this clause 3.4, a release of additional
      consideration to Investors from an escrow (or similar) arrangement is made
      after a Full Liquidity Event, in calculating the additional Partial
      Liquidity Contribution due, the Equity Value of the Full Liquidity Event
      shall be taken into account when determining whether the Transaction Value
      Threshold has been met or exceeded, and for determining "X" for the
      purposes of clause 2.7.1. Notwithstanding the foregoing, if any payment
      that would be required to be made pursuant to this clause 3.4 after the
      Relevant Date of a Full Liquidity Event would have resulted in a reduction
      of the amount payable pursuant to clauses 2.4 and 2.5 if such payment
      pursuant to this clause 3.4 had been made prior to the Determination Date
      of such Full Liquidity Event, then such payment otherwise required by this
      clause 3.4 shall be reduced to the extent of such otherwise resulting
      reduction (but not below zero).

3.5   Subject to clause 3.6 within 30 days of the Relevant Date of a Full
      Liquidity Event or a Partial Liquidity Event (including, for the avoidance
      of doubt, each Relevant Date relating to the same Partial Liquidity Event
      pursuant to clause 3.4) the Board shall determine the Equity Value in
      accordance with clause 3.1 (with respect to Full Liquidity Events) or the
      Transaction Value in accordance with clauses 3.2 to 3.4 inclusive (with
      respect to Partial Liquidity Events), and shall give written notice of
      their determination to the Company and the Trustee within such 30-day
      period the date of such notice being, in each case, the "DETERMINATION
      Date" in relation to such Full Liquidity Event or Partial Liquidity Event,
      save in relation to (a) a Partial Liquidity Event in respect of which no
      Partial Liquidity Contribution is due by virtue of the fact that the
      Transaction Value Threshold has not been reached, in which case, the
      Determination Date in relation to that Partial Liquidity

                                       26
<PAGE>

      Event shall be the Determination Date (if any) of the first Partial
      Liquidity Event in respect of which a Partial Liquidity Contribution is
      made pursuant to clause 2.7; and (b) if the Full Liquidity Event is a
      Liquidation then the Determination Date shall be the date on which the
      Liquidator makes a distribution to shareholders of a substantial
      proportion of the assets available for distribution in the Liquidation.

3.6   In the event that a Full Liquidity Event also triggers an obligation to
      calculate Total Equity Value (as defined in the Viatel Convertible Loan
      Notes) then Equity Value shall be determined in accordance with the same
      procedure as is set out in Section 4.3(b) of the Viatel Convertible Notes
      for the determination of Total Equity Value (which, for the avoidance of
      doubt means that negotiations between the Board and the holders of the
      Viatel Convertible Notes shall, so far as they are relevant for the
      calculation of Equity Value, bind the Trustee) but adjusted as
      contemplated by clause 3.1 hereof, and the Board shall give written notice
      to the Company and the Trustee of the Equity Value, within 10 Business
      Days of the date on which the "EQUITY VALUE" is agreed or determined
      pursuant to such procedure and the date of such notice shall, unless such
      Full Liquidity Event is a Liquidation, constitute the "DETERMINATION DATE"
      in relation to that Full Liquidity Event. If the Full Liquidity Event is a
      Liquidation then the Determination Date shall be the date on which the
      Liquidator makes a distribution to shareholders of a substantial
      proportion of the assets available for distribution in the Liquidation.

4.    CESSATION OF EMPLOYMENT OF THE RELEVANT EMPLOYEE

4.1   If the Relevant Employee ceases to be an employee of a member of the Group
      (and does not immediately become an employee of another member of the
      Group) due to:

      4.1.1 the Company or another member of the Group terminating the Relevant
            Employee's employment without Cause; or

      4.1.2 the Relevant Employee terminating his employment for Good Reason; or

      4.1.3 the Relevant Employee's death or disability (disability for these
            purposes being as determined by the Remuneration Committee),

      the amount of the Maximum Percentage Contribution which shall be deemed to
      have vested (as contemplated by clause 2.4.2) in relation to a Full
      Liquidity Event, the Trigger Date of which occurs following the Date of
      Cessation but on or prior to 21 April 2014, shall be increased by assuming
      that the Relevant Employee's Date of Cessation falls into the "Tranche"
      immediately following the "Tranche" in which the Date of Cessation falls
      for the purposes of clause 2.4.2. Any part of the Maximum Percentage
      Contribution which does not vest in accordance with this clause 4.1 (or is
      not accellerated in accordance with clause 2.4.2(b)) shall lapse
      automatically at the Date of Cessation.

                                       27
<PAGE>

4.2   For the purpose of clause 4.1 above:

      4.2.1 "CAUSE" means (i) the grounds on which the Relevant Employee's
            employment may be summarily terminated without further payment to
            the Relevant Employee as set out in clause 11.4 of the Service
            Agreement; and/or (ii) the Relevant Employee's failure to
            satisfactorily perform (as determined by the CEO) the duties set out
            in his Service Agreement or assigned to him by the CEO or his
            immediate line manager and/or (iii) the Relevant Employee's failure
            to achieve the objectives assigned to him by the CEO or his
            immediate line manager.

      4.2.2 The Relevant Employee's employment will be terminated by him with
            "Good Reason" if he resigns in circumstances where the Company (or
            the Group Company which is his employer, if different) is in
            fundamental breach of its obligations under his Service Agreement
            such that on the balance of probabilities the circumstances of the
            resignation amount to constructive dismissal as determined within 15
            Business Days of appointment by a barrister of at least 7 years'
            standing appointed jointly by the Company and the Relevant Employee.
            The cost of such appointment shall be paid by the Company if the
            barrister determines that on the balance of probabilities the
            circumstances did amount to constructive dismissal and otherwise by
            the Relevant Employee.

4.3   Subject to the provisions of clause 2.4.2(b), if the Relevant Employee
      ceases to be an employee of a member of the Group (and does not
      immediately become an employee of another member of the Group ) for any
      reason other than those set out in clause 4.1 above, the Trustee will be
      entitled, upon the Payment Due Date in relation to any Full Liquidity
      Event the Trigger Date of which occurs following the Date of Cessation but
      on or prior to 21 April 2014, to be paid (with respect to the Relevant
      Employee) only that part of the Maximum Percentage Contribution which has
      vested on or prior to the Date of Cessation and will be paid that amount
      by the Company in accordance with clause 2.1. In such event, any part of
      the Maximum Contribution in relation to a Full Liquidity Event which has
      not vested prior to such Date of Cessation shall lapse automatically at
      the Date of Cessation.

5.    PAYMENT OF PARTIAL LIQUIDITY CONTRIBUTIONS, CONTRIBUTIONS AND ADDITIONAL
      CONTRIBUTIONS WHERE CONSIDERATION IS PAYABLE OTHERWISE THAN IN CASH

5.1   In the event that:

      5.1.1 a Partial Liquidity Event requiring a Partial Liquidity Contribution
            occurs; or

                                       28
<PAGE>

      5.1.2 a Full Liquidity Event occurs;

      and in any case, the amounts payable to the shareholders of the Company
      and/or relevant Investors (as applicable) in relation to such Partial
      Liquidity Event and/or Full Liquidity Event are not payable wholly in cash
      or Liquid Consideration ("NON-LIQUID PAYMENT") then the following
      provisions of this clause 5 shall apply.

5.2   To the extent that, in relation to any Full Liquidity Event or Partial
      Liquidity Event the amount payable to the shareholders of the Company
      and/or relevant Investors (as applicable) is payable in cash, then the
      same pro rata portion of the Partial Liquidity Contribution, in relation
      to a Partial Liquidity Event, or the Contribution (and, if applicable,
      Additional Contribution) in relation to a Full Liquidity Event shall be
      payable in cash.

5.3   To the extent that, in relation to any Full Liquidity Event or Partial
      Liquidity Event, the amount is to be satisfied by Liquid Consideration
      then:

      5.3.1 the Company shall use reasonable endeavours prior to the relevant
            Payment Due Date, to ensure that the Partial Liquidity Contribution,
            in relation to a Partial Liquidity Event, or the Contribution (and,
            if applicable, Additional Contribution) in relation to a Full
            Liquidity Event, can be satisfied entirely in cash; but

      5.3.2 if the Company having used reasonable endeavours to ensure payment
            in cash pursuant to clause 5.3.1 prior to the relevant Payment Due
            Date, is unable to do so on a basis reasonably satisfactory to the
            Board, then the Company shall be entitled to satisfy its obligation
            to make the Partial Liquidity Contribution, in relation to a Partial
            Liquidity Event or the Contribution (and, if applicable, Additional
            Contribution) in relation to a Full Liquidity Event, and the Trustee
            shall be bound to accept satisfaction of the Partial Liquidity
            Contribution, or the Contribution and, if applicable, Additional
            Contribution (as appropriate) by transfer into the EBT of such
            amount of the Liquid Consideration as has a value (in the discretion
            of the Remuneration Committee) equal to the amount of the Partial
            Liquidity Contribution or Contribution and, if applicable,
            Additional Contribution (as appropriate) which is not payable in
            cash pursuant to clause 5.2.

5.4   To the extent that in relation to any Full Liquidity Event or Partial
      Liquidity Event, the amount is to be satisfied by a Non-liquid Payment,
      then the Company shall satisfy its obligation to make the Partial
      Liquidity Contribution, in relation to a Partial Liquidity Event or the
      Contribution (and, if applicable, Additional Contribution) in relation to
      a Full Liquidity Event, and the Trustee shall be bound to accept
      satisfaction of the Partial Liquidity Contribution or the Contribution
      and, if applicable, Additional Contribution (as appropriate) by transfer
      into the EBT of (at the discretion of the Board) either: (a) such

                                       29
<PAGE>

      amount of the Non-liquid Payment as has a value (in the discretion of the
      Board) equal to the amount of the Partial Liquidity Contribution or
      Contribution and, if applicable, Additional Contribution (as appropriate)
      which is not payable in cash or Liquid Consideration pursuant to clauses
      5.2 and/or 5.3 and for the avoidance of doubt, if the Non-liquid Payment
      constitutes shares which are subject to restrictions on sale, the
      Trustee's entitlement hereunder shall be to receive such shares subject to
      equivalent restrictions on sale as those applicable to the shares received
      by the Company and/or the relevant Investors (as applicable); or (b) an
      amount of cash equal to the amount of such Partial Liquidity Contribution
      or Contribution and, if applicable, Additional Contribution (as
      appropriate).

5.5   Notwithstanding anything to the contrary in this covenant, neither:

      5.5.1 complying with the obligation to use "reasonable endeavours" in
            clause 5.3.1; nor

      5.5.2 any other provision of this covenant will oblige the shareholders of
            the Company, any of the Investors or any other person to incur
            costs, fees or expenses in connection with the conversion of any
            amount of Liquid Consideration into cash, which in the aggregate are
            in excess of 1% of the total value of that amount of Liquid
            Consideration.

6.    FULL LIQUIDITY EVENT

6.1   A Full Liquidity Event shall be the first occurrence of any of the
      following events:

      6.1.1 a Sale; or

      6.1.2 a Liquidation of the Company,

      and under no circumstances shall there be more than one Full Liquidity
      Event pursuant to this covenant.

7.    PARTIAL LIQUIDITY EVENT

7.1   A Partial Liquidity Event shall be the occurrence of any of the following
      events, in each case prior to a Full Liquidity Event:

      7.1.1 the transfer of any Material Asset including without limitation an
            amalgamation or merger of a Material Subsidiary, to or with a person
            or entity that is not a Qualified Transferee whether in one
            transaction or a series of related transactions (but excluding a
            transfer or amalgamation or merger by one member of the Group to
            another member of the Group) but only if followed by a Distribution
            of proceeds of

                                       30
<PAGE>

            such transfer to the Investors and/or (if appropriate as determined
            by the Board) their Qualified Transferees;

      7.1.2 the Liquidation of a Material Subsidiary followed by a Distribution
            of proceeds of such Liquidation to the Investors and/or (if
            appropriate as determined by the Board) their Qualified Transferees;

      7.1.3 a Post-Flotation Transfer of shares in a Controlling Subsidiary but
            only if followed by a Distribution of proceeds of such transfer to
            the Investors and/or (if appropriate as determined by the Board)
            their Qualified Transferees;

      7.1.4 a Tag-Along Transaction (which is not a Sale);

      7.1.5 an amalgamation or merger of the Company which is not a Sale but
            results in the receipt by Investors of proceeds as consideration in
            exchange for the surrender of common stock of the Company (it being
            understood that interests in the Company or in a successor thereto
            are not such proceeds, and an amalgamation or merger by which the
            Company is making an acquisition is not a Partial Liquidity Event);
            or

      7.1.6 a Post-Flotation Transfer of shares in the Company (which is not a
            Sale);

      and for the purposes of this covenant, and in accordance with clause 8, if
      an event or series of events could be classified as a Partial Liquidity
      Event under more than one sub-clause of this clause 7.1, the Board shall
      determine which, if any, subsection applies, but no event or series of
      events shall be deemed to constitute two or more separate Partial
      Liquidity Events simply because such event or series of events could be
      considered a Partial Liquidity Event under more than one such sub-clause.
      The Board shall have the responsibility to determine if an amalgamation or
      merger of the Company is one in which the Company is making an
      acquisition.

8.    MULTIPLE LIQUIDITY EVENTS

      In the event that more than one Event (as defined below) occurs as part of
      one single transaction or a series of closely connected transactions, then
      the Board shall determine which provisions of this covenant shall apply
      and, if necessary, any adjustment to the provisions of this covenant which
      should be made to ensure that the provisions of this covenant operate
      fairly as between the Company and the Trustee and for the avoidance of
      doubt but without limitation, shall be entitled (in its sole discretion)
      to find that a Partial Liquidity Event and a Reorganisation can both take
      place pursuant to this covenant and shall be entitled (in its sole
      discretion) to find that any particular Partial Liquidity Event is not
      also a Reorganisation. For the purposes of this clause 8, each or any of a
      Partial Liquidity Event, a Full Liquidity Event and a Reorganisation shall
      constitute an "EVENT".

                                       31
<PAGE>

9.    REORGANISATION

      In the event that at any time prior to a Full Liquidity Event a
      Reorganisation occurs, the Company shall (so far as it is legally able)
      ensure that the body corporate principally surviving or resulting from the
      Reorganisation, or the new holding company of the Group following the
      Reorganisation, ("NEWCO"), or, in the case of a Reorganisation under
      sub-paragraph (d) of the definition of Reorganisation, the Company,
      covenants to the Trustee on identical or substantially similar terms to
      the terms of this covenant (in any event, reasonably acceptable to the
      Board, taking into account the intentions of the parties to this covenant)
      so that the Relevant Employee should be in the same economic position
      (taking account of any ongoing obligations of any other entity that holds
      or retains assets of the Group and taking into account the principles of
      Section 3.1 hereof and Schedule 3 of the Investment Agreement) following
      the Reorganisation as he was before. Such covenant may be contingent upon
      the Company receiving a release (in form and substance reasonably
      acceptable to it) from all obligations (other than accrued obligations,
      unless these are also assumed by Newco) hereunder.

10.   ADMINISTRATION

10.1  Any notice or other document which the Company is required or may desire
      to give to the Trustee pursuant to this covenant shall be sufficiently
      given if delivered to it by post in a prepaid cover addressed to the
      Trustee at its registered office and if so sent shall be deemed to have
      been duly given on the date of posting.

10.2  Any notice or other document which the Trustee is required or may desire
      to give to the Company pursuant to this covenant shall be sufficiently
      given if delivered to it by post in a prepaid cover addressed to the
      Company at its registered office and if so sent shall be deemed to have
      been duly given on the date of posting.

11.   CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999

      A person who is not the Trustee or a company who is not a member of the
      Group has no right under the Contracts (Rights of Third Parties) Act 1999
      to rely upon or enforce any provisions of this covenant.

12.   GOVERNING LAW AND COUNTERPARTS

12.1  This covenant is governed by and shall be interpreted in accordance with
      the laws of England.

12.2  This covenant may be executed in one or more counterparts, each of which
      when executed and delivered shall be an original but when taken together
      shall constitute one and the same instrument.

                                       32
<PAGE>

13.   DISPUTE RESOLUTION

13.1  The parties shall use their best efforts to negotiate in good faith and
      settle amicably any dispute that may arise out of or relate to this
      covenant (or its construction, validity or termination) (a "DISPUTE"). If
      a Dispute cannot be settled through negotiations by appropriate
      representatives of the Trustee and the Board then either party may give to
      the other a notice in writing (a "DISPUTE NOTICE"). Within seven days of
      the Dispute Notice being given the parties shall refer the Dispute to the
      chairman of the Board, in the case of the Company, and the managing
      director, in the case of the Trustee, who shall meet in order to attempt
      to resolve the dispute. If the Dispute is not settled by agreement in
      writing between the parties within 14 days of the Dispute Notice it shall
      be resolved in accordance with clauses 13.2 and 13.3.

13.2  If a Dispute is not successfully resolved in accordance with clause 13.1,
      such Dispute shall be referred to mediation in accordance with the Centre
      for Dispute Resolution ("CEDR") Model Mediation Procedure. The mediation
      shall be conducted by a single mediator appointed by mutual agreement, or
      (failing mutual agreement within seven days of a notice from either party
      to the other calling upon the other so to agree) by the CEDR/President of
      the London Chamber of Commerce. Both parties agree to co-operate fully
      with such mediator, provide such assistance as is necessary to enable the
      mediator to discharge his duties, and to bear equally between them the
      fees and expenses of the mediator.

13.3  If the Dispute is not settled by agreement in writing between the parties
      within 30 days after the appointment of a mediator, or such other period
      as the parties may agree, it shall be referred to a single arbitrator to
      be agreed between the parties. Failing such agreement within 30 days of
      the request by one party to the other that a matter be referred to
      arbitration in accordance with this clause such reference shall be to an
      arbitrator appointed by the President for the time being of the
      International Chamber of Commerce ("ICC") in London. The arbitration shall
      be conducted in London in the English language in accordance with the
      arbitration rules of the ICC in force at the date of this covenant. The
      decision of such arbitrator shall be final and binding upon the parties.
      Any reference under this clause shall be deemed to be a reference to
      arbitration within the meaning of the Arbitration Act 1996.

                                       33
<PAGE>

13.4  The parties shall keep confidential and not use for any collateral or
      ulterior purpose the subject matter of the arbitration and all
      information, documents and materials produced for, or arising in relation
      to, the arbitration including any award arising out of it except insofar
      as is necessary to implement and enforce any award or otherwise as
      required by law.

THIS COVENANT is entered into as a DEED and is executed and delivered by or on
behalf of the parties on the date set out at the top of page one.

THE COMMON SEAL of                    )
VIATEL HOLDING (BERMUDA) LIMITED      )
was affixed to this Deed              )
in the presence of                    )

__________________________________
Authorised Person

__________________________________
Authorised Person

THE COMMON SEAL of                    )
EB TRUSTEES LIMITED                   )
was affixed to this Deed              )
in the presence of                    )

__________________________________
Authorised Person

__________________________________
Authorised Person

                                       34
<PAGE>

                                     ANNEX A

                            AGREED FORM WAIVER LETTER

I, [               ] of [                       ], hereby waive all and any
rights I may have to participate in an equity compensation plan as set out in
[                                 ] of my [service/employment] agreement
dated [             ] with [Viatel Holding (Bermuda) Limited/VTL (UK) Limited].

Executed and delivered as a deed on ________________ 2005

by: __________________________________

[               ]

Witnessed by:

______________________________________
Signature

______________________________________
Name

______________________________________
______________________________________
______________________________________
Address

______________________________________
Occupation

                                       35exv4w1

 

Exhibit 4.1

EXECUTION VERSION

 

 

PURCHASE AND SALE AGREEMENT

by and among

ANP ERCOT ACQUISITION, LLC

as Buyer

and

TOPAZ POWER GROUP GP, LLC

and

TOPAZ POWER GROUP LP, LLC

as Sellers

 

Dated as of April 18, 2006

 

 

 

 

 

	 	 	 	 	 	 	 
	 
	 	ARTICLE I	 	 	 	 
	 
	 	PURCHASE AND SALE OF THE UNITS	 	 	 	 
	 
	 	 	 	 	 	 
	Section 1.1
	 	Time and Place of Closing	 	 	1	 
	Section 1.2
	 	Purchase and Sale of Units	 	 	2	 
	Section 1.3
	 	Purchase Price Adjustment	 	 	3	 
	Section 1.4
	 	Purchase Price Allocations	 	 	5	 
	Section 1.5
	 	Preliminary Information	 	 	6	 
	Section 1.6
	 	Sellers’ Closing Deliverables	 	 	6	 
	Section 1.7
	 	Buyer’s Closing Deliverables	 	 	7	 
	 
	 	 	 	 	 	 
	 
	 	ARTICLE II	 	 	 	 
	 
	 	REPRESENTATIONS AND WARRANTIES CONCERNING EACH SELLER	 	 	 	 
	 
	 	 	 	 	 	 
	Section 2.1
	 	Organization; Etc	 	 	7	 
	Section 2.2
	 	Authority Relative to this Agreement	 	 	8	 
	Section 2.3
	 	Ownership of Equity Interests	 	 	8	 
	Section 2.4
	 	Consents and Approvals; No Violations	 	 	8	 
	Section 2.5
	 	Brokers; Finders and Fees	 	 	9	 
	 
	 	 	 	 	 	 
	 
	 	ARTICLE III	 	 	 	 
	 
	 	REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY	 	 	 	 
	 
	 	 	 	 	 	 
	Section 3.1
	 	Organization; Etc	 	 	9	 
	Section 3.2
	 	Authority Relative to this Agreement	 	 	10	 
	Section 3.3
	 	Capitalization	 	 	10	 
	Section 3.4
	 	Consents and Approvals; No Violations	 	 	11	 
	Section 3.5
	 	Reports and Financial Statements	 	 	12	 
	Section 3.6
	 	Absence of Undisclosed Liabilities	 	 	12	 
	Section 3.7
	 	Absence of Certain Changes	 	 	12	 
	Section 3.8
	 	Litigation	 	 	13	 
	Section 3.9
	 	Compliance with Law	 	 	13	 
	Section 3.10
	 	Labor and Employment Matters	 	 	13	 
	Section 3.11
	 	Taxes	 	 	14	 
	Section 3.12
	 	Title, Ownership and Related Matters	 	 	15	 
	Section 3.13
	 	Environmental	 	 	16	 
	Section 3.14
	 	Intellectual Property	 	 	18	 
	Section 3.15
	 	Contracts	 	 	19	 

i

 

	 	 	 	 	 	 	 
	Section 3.16
	 	Insurance	 	 	20	 
	Section 3.17
	 	Regulatory Matters	 	 	20	 
	Section 3.18
	 	Affiliate Transactions	 	 	21	 
	Section 3.19
	 	Brokers; Finders and Fees	 	 	21	 
	 
	 	 	 	 	 	 
	 
	 	ARTICLE IV	 	 	 	 
	 
	 	REPRESENTATIONS AND WARRANTIES OF BUYER	 	 	 	 
	 
	 	 	 	 	 	 
	Section 4.1
	 	Organization; Etc	 	 	21	 
	Section 4.2
	 	Authority Relative to this Agreement	 	 	22	 
	Section 4.3
	 	Consents and Approvals; No Violations	 	 	22	 
	Section 4.4
	 	Litigation	 	 	22	 
	Section 4.5
	 	Compliance with Law	 	 	22	 
	Section 4.6
	 	Investment	 	 	23	 
	Section 4.7
	 	Financial Ability	 	 	23	 
	Section 4.8
	 	Brokers; Finders and Fees	 	 	23	 
	 
	 	 	 	 	 	 
	 
	 	ARTICLE V	 	 	 	 
	 
	 	COVENANTS OF THE PARTIES	 	 	 	 
	 
	 	 	 	 	 	 
	Section 5.1
	 	Operating Covenants of the Company	 	 	23	 
	Section 5.2
	 	Access to Information	 	 	25	 
	Section 5.3
	 	Consents; Cooperation	 	 	26	 
	Section 5.4
	 	Reasonable Best Efforts	 	 	28	 
	Section 5.5
	 	Public Announcements	 	 	29	 
	Section 5.6
	 	Employees; Employee Benefits	 	 	29	 
	Section 5.7
	 	Tax Matters	 	 	31	 
	Section 5.8
	 	Escrow Agreement	 	 	33	 
	Section 5.9
	 	Mutual Release	 	 	33	 
	Section 5.10
	 	SES PPA	 	 	33	 
	Section 5.11
	 	Intercompany Arrangements	 	 	33	 
	Section 5.12
	 	Casualty	 	 	34	 
	Section 5.13
	 	Transition Services Agreement	 	 	34	 
	 
	 	 	 	 	 	 
	 
	 	ARTICLE VI	 	 	 	 
	 
	 	CONDITIONS TO CONSUMMATION OF THE ACQUISITION	 	 	 	 
	 
	 	 	 	 	 	 
	Section 6.1
	 	Conditions to Buyer’s and Sellers’ Obligations to Consummate the Acquisition	 	 	34	 
	Section 6.2
	 	Further Conditions to Sellers’ Obligations	 	 	34	 

ii

 

	 	 	 	 	 	 	 
	Section 6.3
	 	Further Conditions to Buyer’s Obligations	 	 	35	 
	 
	 	 	 	 	 	 
	 
	 	ARTICLE VII	 	 	 	 
	 
	 	TERMINATION AND ABANDONMENT	 	 	 	 
	 
	 	 	 	 	 	 
	Section 7.1
	 	Termination	 	 	36	 
	Section 7.2
	 	Procedure for and Effect of Termination	 	 	36	 
	 
	 	 	 	 	 	 
	 
	 	ARTICLE VIII	 	 	 	 
	 
	 	MISCELLANEOUS PROVISIONS	 	 	 	 
	 
	 	 	 	 	 	 
	Section 8.1
	 	Representations and Warranties and Covenants	 	 	37	 
	Section 8.2
	 	Amendment and Modification	 	 	37	 
	Section 8.3
	 	Entire Agreement; Assignment	 	 	37	 
	Section 8.4
	 	Severability	 	 	38	 
	Section 8.5
	 	Notices	 	 	38	 
	Section 8.6
	 	Governing Law	 	 	40	 
	Section 8.7
	 	Descriptive Headings	 	 	40	 
	Section 8.8
	 	Counterparts	 	 	40	 
	Section 8.9
	 	Fees and Expenses	 	 	40	 
	Section 8.10
	 	Interpretation	 	 	41	 
	Section 8.11
	 	Third-Party Beneficiaries	 	 	42	 
	Section 8.12
	 	No Waivers	 	 	42	 
	Section 8.13
	 	Specific Performance	 	 	42	 
	 
	 	 	 	 	 	 
	 	 	EXHIBITS AND SCHEDULES	 	 	 	 
	 
	 	 	 	 	 	 
	Exhibit A
	 	Form of Escrow Agreement	 	 	 	 
	Exhibit B
	 	Form of Amendment to SES PPA	 	 	 	 
	Exhibit C
	 	[Reserved]	 	 	 	 
	Exhibit D-1
	 	[Reserved]	 	 	 	 
	Exhibit D-2
	 	Surviving Intercompany Arrangements	 	 	 	 
	Exhibit E
	 	Buyer’s Parent Guarantee and Lender Commitment	 	 	 	 

iii

 

INDEX OF TERMS

	 	 	 	 	 
	Term	 	Page	 
	Acquisition
	 	 	1	 
	Action
	 	 	13	 
	Adjustment Amount
	 	 	3	 
	Adjustment Statement
	 	 	3	 
	Affiliate
	 	 	41	 
	Agreement
	 	 	1	 
	Allocation
	 	 	5	 
	Approval
	 	 	8	 
	Approvals
	 	 	8	 
	Benefits Maintenance Period
	 	 	29	 
	Buyer
	 	 	1	 
	Buyer Benefit Plans
	 	 	29	 
	Buyer Material Adverse Effect
	 	 	21	 
	Capital Expenditure Account
	 	 	3	 
	Capital Expenditure Account Balance
	 	 	3	 
	Cash Consideration
	 	 	2	 
	Closing
	 	 	1	 
	Closing Date
	 	 	1	 
	Closing Date Capital Expenditure Account Balance
	 	 	3	 
	Closing Date Net Working Capital
	 	 	3	 
	Code
	 	 	5	 
	Company
	 	 	1	 
	Company Affiliate Contracts
	 	 	21	 
	Company Contracts
	 	 	19	 
	Company Insurance Policies
	 	 	20	 
	Company IP
	 	 	41	 
	Company Material Adverse Effect
	 	 	9	 
	Company Securities
	 	 	11	 
	Conclusive Adjustment Amount
	 	 	5	 
	Conclusive Adjustment Statement
	 	 	4	 
	Conclusive Statement
	 	 	4	 
	Confidentiality Agreement
	 	 	26	 
	Consideration
	 	 	2	 
	Contract
	 	 	8	 
	Contracts
	 	 	8	 
	Credit Agreement
	 	 	6	 
	Derivative Product
	 	 	20	 
	Disclosure Letter
	 	 	9	 
	DOJ
	 	 	27	 
	Environmental Claim
	 	 	17	 
	Environmental Law
	 	 	18	 
	Environmental Permits
	 	 	16	 
	ERCOT ISO
	 	 	8	 
	ERISA
	 	 	14	 
	Escrow Account
	 	 	2	 
	Escrow Agent
	 	 	2	 
	Escrow Agreement
	 	 	2	 
	Escrow Amount
	 	 	2	 
	Estimated Closing Date Capital Expenditure Account Balance
	 	 	3	 
	Estimated Net Working Capital
	 	 	3	 
	Final Allocation
	 	 	5	 
	Financial Statements
	 	 	12	 
	FTC
	 	 	27	 
	GAAP
	 	 	11	 
	Governmental Authority
	 	 	9	 
	Hazardous Substance
	 	 	18	 
	HSR Act
	 	 	11	 
	Indebtedness
	 	 	11	 
	Intellectual Property
	 	 	41	 
	Intercompany Arrangement
	 	 	33	 
	Law
	 	 	12	 
	Laws
	 	 	12	 
	Leased Real Property
	 	 	15	 
	Leases
	 	 	15	 
	Liabilities
	 	 	12	 
	Liens
	 	 	10	 
	Modified Net Working Capital
	 	 	2	 
	Neutral Accounting Arbitrator
	 	 	4	 
	Optional Termination Date
	 	 	36	 
	Order
	 	 	11	 
	Other Regulations
	 	 	26	 
	Owned Real Property
	 	 	15	 
	Parties
	 	 	1	 
	Party
	 	 	1	 
	Pay-Off Letters
	 	 	6	 
	Permits
	 	 	13	 
	Permitted Liens
	 	 	16	 
	Person
	 	 	41	 
	Plant
	 	 	1	 
	Preliminary Statement
	 	 	3	 
	PUC
	 	 	12	 
	PURA
	 	 	12	 

iv

 

	 	 	 	 	 
	Term	 	Page	 
	Real Property
	 	 	15	 
	Release
	 	 	18	 
	Released Claims
	 	 	33	 
	Released Parties
	 	 	33	 
	Remedial Action
	 	 	18	 
	Representatives
	 	 	26	 
	Required Approvals
	 	 	11	 
	Resolution Period
	 	 	4	 
	Securities Act
	 	 	23	 
	Seller
	 	 	1	 
	Sellers
	 	 	1	 
	Sellers Benefit Plans
	 	 	14	 
	Sellers Employees
	 	 	14	 
	Sellers’ Statement
	 	 	4	 
	Sempra
	 	 	14	 
	SES PPA
	 	 	33	 
	SES PPA Amendment
	 	 	6	 
	Sharing Percentage
	 	 	2	 
	Statement
	 	 	3	 
	STS
	 	 	14	 
	STS Employees
	 	 	14	 
	Subsidiary
	 	 	41	 
	Surviving Intercompany Arrangement
	 	 	33	 
	Target Modified Net Working Capital
	 	 	3	 
	Tax Return
	 	 	15	 
	Taxes
	 	 	15	 
	Termination Date
	 	 	36	 
	Title Commitment
	 	 	16	 
	Topaz GP
	 	 	1	 
	Topaz LP
	 	 	1	 
	Topaz Power Group
	 	 	13	 
	Topaz Power Partners
	 	 	6	 
	TPG Employees
	 	 	13	 
	TPG Transferred Employee
	 	 	29	 
	Transition Services Agreement
	 	 	34	 
	Units
	 	 	1	 

v

 

PURCHASE AND SALE AGREEMENT

     PURCHASE AND SALE AGREEMENT, dated as of April 18, 2006 (this “Agreement”), by and among ANP
ERCOT ACQUISITION, LLC, a Delaware limited liability company (“Buyer”), TOPAZ POWER GROUP GP, LLC
(“Topaz GP”), a Delaware limited liability company, and TOPAZ POWER GROUP LP, LLC (“Topaz LP”), a
Delaware limited liability company (each of Topaz GP and Topaz LP a “Seller,” and together the
“Sellers”). Buyer and Sellers are hereinafter collectively referred to as the “Parties” and each
individually as a “Party.”

     WHEREAS, as of the date of this Agreement, Sellers own in the aggregate 100% of the issued and
outstanding partnership units (the “Units”) of Coleto Creek Power, LP, a Texas limited partnership
(the “Company”), which partnership units constitute all of the issued and outstanding equity
interests in the Company;

     WHEREAS, the Company owns that certain coal fired power plant located in Goliad County, Texas,
commonly known as the Coleto Creek Generating Facility (the “Plant”);

     WHEREAS, Buyer desires to purchase from Sellers 100% of the Units (the “Acquisition”); and

     WHEREAS, the Board of Directors of Buyer have approved and deem it advisable and in the best
interest of Buyer to consummate the transactions contained in this Agreement;

     NOW, THEREFORE, in consideration of the foregoing and the representations, warranties,
covenants and agreements contained in this Agreement, and intending to be legally bound, the
Parties agree as follows:

ARTICLE I

PURCHASE AND SALE OF THE UNITS

     Section 1.1 Time and Place of Closing. Unless this Agreement shall have been terminated and
the transactions herein contemplated shall have been abandoned pursuant to Section 7.1, and subject
to the satisfaction or waiver of the conditions set forth in Article VI, the closing of the
Acquisition (the “Closing”) will take place at the offices of Cleary Gottlieb Steen & Hamilton LLP,
One Liberty Plaza, New York, New York at 9:00 a.m. (local time) on the fifth business day following
the date on which all of the conditions set forth in Article VI (other than those that by their
nature are intended to be satisfied at the Closing) have been satisfied or waived, or at such other
date, place or time as Sellers and Buyer may agree (the “Closing Date”). The transactions
contemplated by this Agreement shall be deemed to be effective at 12:01 a.m. (local time) on the
Closing Date.

     Section 1.2 Purchase and Sale of Units.

     (a) At the Closing, upon the terms and subject to the conditions of this Agreement, each
Seller hereby agrees to sell to Buyer, and Buyer hereby agrees to purchase from such Seller, all
Units owned by such Seller as of the Closing Date, in each case free and clear of any and all

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Liens
(other than Liens in favor of Buyer), for aggregate consideration from Buyer in respect of the
Units equal to the sum of the following (together, the “Consideration”):

          (i) cash in an amount equal to the Cash Consideration plus

          (ii) the Escrow Amount.

     (b) At the Closing, Buyer shall pay the Consideration as follows:

          (i) cash in an amount equal to $10,000,000 (the “Escrow Amount”), which amount shall be paid
by wire transfer of immediately available funds to the account (the “Escrow Account”) designated by
an escrow agent selected by Sellers and reasonably acceptable to Buyer (the “Escrow Agent”)
pursuant to an escrow agreement substantially in the form of Exhibit A hereto, with such
modifications, if any, as shall be requested by the Escrow Agent and mutually acceptable to Sellers
and Buyer (the “Escrow Agreement”) and which Escrow Amount shall be released to Sellers and/or
Buyer, as the case may be, pursuant to Section 1.3; and

          (ii) each Seller shall receive from Buyer its Sharing Percentage of the Cash Consideration by
wire transfer of immediately available U.S. funds.

     The “Sharing Percentage” of each Seller shall be equal to the “Sharing Percentage” set forth
opposite such Seller’s name on Annex A hereto. All deliveries and payments to be made by
Buyer to Sellers under this Agreement shall be made in accordance with the Sharing Percentages set
forth on Annex A attached hereto, as amended, and Buyer shall not be liable for the
allocation of particular deliveries and payments among Sellers so long as such deliveries and
payments are made in accordance with Annex A.

     (c) For the purposes of this Agreement, the following terms shall be defined as follows:

          (i) The “Cash Consideration” shall mean cash in an amount equal to (i) $1,132,500,000 plus
(ii) the Estimated Modified Net Working Capital minus Target Modified Net Working Capital (which
amount, for the avoidance of doubt, may be a negative number) plus (iii) the positive amount of the
Estimated Closing Date Capital Expenditure Account Balance.

          (ii) “Modified Net Working Capital,” as of a particular date, shall mean the current assets of
the Company specified in Section 1.2 of the Disclosure Letter as of such date less the current
liabilities of the Company specified in Section 1.2 of the Disclosure Letter as of such date, all
as determined pursuant to,
and using, the same accounting principles, methodologies and policies specified in Section 1.2
of the Disclosure Letter for determining Target Modified Net Working Capital and, to the extent not
specified therein, in accordance with GAAP as applied in the preparation of the Financial
Statements; provided, that, in furtherance and not in limitation of Section 1.2 of the
Disclosure Letter in determining Modified Net Working Capital, current maturities of long-term
Indebtedness and related interest and amounts payable under interest rate swaps shall be excluded.

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          (iii) “Target Modified Net Working Capital” shall have the meaning given such term in Section
1.2 of the Disclosure Letter.

          (iv) “Capital Expenditure Account Balance,” as of a particular date, shall mean the amount
available in the capital expenditures reserve account, Account No. 30574195, with Citibank, N.A.
(the “Capital Expenditure Account”), as of such date; provided that, at Closing, (A) the amount in
the Capital Expenditure Account shall not exceed $40,000,000 and (B) all funds in the Capital
Expenditure Account shall be transferred to Buyer.

     Section 1.3 Purchase Price Adjustment.

     (a) Sellers shall, at least five (5) business days prior to the Closing Date, cause to be
prepared and delivered to Buyer a statement (the “Preliminary Statement”), setting forth Sellers’
good faith estimate of each of the Modified Net Working Capital as of the Closing Date (the
“Closing Date Modified Net Working Capital”) and the Capital Expenditure Account Balance as of the
Closing Date (the “Closing Date Capital Expenditure Account Balance”). The estimate of Closing
Date Modified Net Working Capital is referred to herein as the “Estimated Modified Net Working
Capital” and the estimate of the Closing Date Capital Expenditure Account Balance is referred to
herein as the “Estimated Closing Date Capital Expenditure Account Balance.”

     (b) Within forty-five (45) calendar days after the Closing Date, Buyer shall cause to be
prepared and delivered to Sellers a statement (the “Statement”) setting forth Buyer’s calculations
of Closing Date Modified Net Working Capital, the Closing Date Capital Expenditure Account Balance
and the components and calculation of each, which comments and calculations shall be included and
made in accordance with Section 1.2 of the Disclosure Letter and, to the extent not provided for
therein, GAAP (in each case as and to the same extent determined pursuant to Section 1.2(c)(ii)).
At the same time, Buyer shall also cause to be prepared and delivered to Sellers a statement (the
“Adjustment Statement”) setting forth the calculation (whether a positive or negative number) of
(i) the amount of the Closing Date Modified Net Working Capital as shown on the Statement minus the
Estimated Modified Net Working Capital plus (ii) the Closing Date Capital Expenditure Account
Balance minus the Estimated Closing Date Capital Expenditure Account Balance (the sum of such
amounts, whether a positive or negative number, the “Adjustment Amount”). Buyer shall provide
Sellers and their accountants
with access to the relevant books and records of the Company and the Sellers Employees to the
extent required in connection with their review of and any dispute with respect to the Statement
and the Adjustment Statement and shall furnish Sellers with any other information that might be
relevant to the calculation of Closing Date Modified Net Working Capital or the Closing Date
Capital Expenditure Account Balance. If, at any time prior to the final resolution of all disputed
items on the Statement or the Adjustment Statement, additional information shall become known to
Buyer or Sellers that would change the amount of the Closing Date Modified Net Working Capital or
the Closing Date Capital Expenditure Account Balance shown on the Statement or the calculation
thereof, then Buyer shall amend the Statement and Adjustment Statement to reflect such additional
information. Buyer or Sellers shall promptly notify Sellers or Buyer, as applicable, upon becoming
aware of any additional information prior to the end of the Resolution Period.

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     (c) After receipt of the Statement and the Adjustment Statement, Sellers will have thirty (30)
calendar days from receipt to review the Statement and the Adjustment Statement together with the
workpapers used in their preparation. Unless Sellers deliver to Buyer written notice setting forth
in reasonable detail the specific items disputed by Sellers and a written statement setting forth
Sellers’ calculation of each line item shown on the Statement so disputed and the amount in dispute
(the “Sellers’ Statement”) on or prior to the thirtieth (30th) day after receipt of the Statement
and the Adjustment Statement, Sellers will be deemed to have accepted and agreed to the Statement
and the Adjustment Statement and such agreement will be final, binding and conclusive. Any items
on the Statement or Adjustment Statement as to which Sellers have not given notice of their
objection and provided an alternative calculation on Sellers’ Statement will be deemed to have been
agreed upon by the Parties, subject to the penultimate sentence of Section 1.3(b). If Sellers so
notify Buyer of their objections to any of the Statement or the Adjustment Statement and provide
Buyer with Sellers’ Statement in a timely manner, Buyer and Sellers will, within thirty (30)
calendar days following such notice (the “Resolution Period”), attempt to resolve their
differences. Any resolution by Buyer and Sellers during the Resolution Period as to any disputed
amounts will be final, binding and conclusive. If the amount claimed by Buyer on the Adjustment
Statement to be owed by Sellers is less than the Escrow Amount, then, promptly after delivery of
the Adjustment Statement, any amount on deposit in the Escrow Account that is in excess of the
amount claimed by Buyer to be owed by Sellers under this Section shall be distributed from the
Escrow Account to Sellers in accordance with the Escrow Agreement, and Buyer agrees to reasonably
cooperate with Sellers in any necessary joint instruction to the Escrow Agent. Money released from
the Escrow Account to Sellers shall be distributed to Sellers in accordance with the Sharing
Percentages set forth on Annex A.

     If Buyer and Sellers do not resolve all disputed items by the end of the Resolution Period,
then all items remaining in dispute will be submitted within ten (10) days after the expiration of
the Resolution Period to a national independent accounting firm mutually acceptable to Buyer and
Sellers (the “Neutral Accounting Arbitrator”); it being understood that no member of the Neutral
Accounting Arbitrator’s engagement team shall have an existing professional relationship with Buyer
or any of its Affiliates. The Neutral Accounting Arbitrator shall act as an arbitrator to
determine only those items in dispute. All fees and expenses relating to the work, if any, to be
performed by the Neutral Accounting Arbitrator will be allocated between Buyer, on the one hand,
and Sellers, on the other hand, in inverse
proportion as they shall prevail on the amounts of such disputed items so submitted (as
finally determined by the Neutral Accounting Arbitrator). The Neutral Accounting Arbitrator will
deliver to Buyer and Sellers a written determination (such determination to include a work sheet
setting forth all material calculations used in arriving at such determination and to be based
solely on information provided to the Neutral Accounting Arbitrator by Sellers and Buyer) of the
disputed items within thirty (30) days of receipt of the disputed items (or as soon as practicable
thereafter), which determination will be final, binding and conclusive. The final, binding and
conclusive Statement and Adjustment Statement, which either are agreed upon by Buyer and Sellers or
are delivered by the Neutral Accounting Arbitrator in accordance with this Section 1.3, will be the
“Conclusive Statement” and the “Conclusive Adjustment Statement,” respectively. In the event that
either Buyer or Sellers fails to submit its statement regarding any items remaining in dispute
within the time determined by the Neutral Accounting Arbitrator, then the Neutral Accounting
Arbitrator shall

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render a decision based solely on the evidence timely submitted to the Neutral
Accounting Arbitrator by Buyer and/or Sellers.

     (d) If the Adjustment Amount as shown on the Conclusive Adjustment Statement (the “Conclusive
Adjustment Amount”) is a negative number, then the Cash Consideration will be reduced by the amount
of the Conclusive Adjustment Amount, but not in excess of the Escrow Amount, and Buyer shall be
entitled to payment of such amount from the Escrow Account by wire transfer of immediately
available funds to an account or accounts designated by the Party entitled to receive such funds
(and Sellers agree to cooperate reasonably in facilitating such payment, including by executing and
delivering an appropriate joint instruction to the Escrow Agent). If the Conclusive Adjustment
Amount is a positive number, then the Cash Consideration will be increased by the amount of the
Conclusive Adjustment Amount, but not in excess of the Escrow Amount, and Buyer shall pay to
Sellers cash equal to such amount, to be paid to an account or accounts designated in writing by
Sellers prior to the date when such payment is due. All payments to be made pursuant to this
Section 1.3(d) will be made on the fifth business day following the date on which Buyer and Sellers
agree to, or the Neutral Accounting Arbitrator delivers, the Conclusive Statement and the
Conclusive Adjustment Statement and, in the case of payment to Buyer, instruct the Escrow Agent by
joint written instruction accordingly. If the Conclusive Adjustment Amount is a positive number,
or is a negative amount that is less than the amount remaining on deposit in the Escrow Account,
then, promptly after determination of the Conclusive Adjustment Amount, any amount remaining on
deposit in the Escrow Account that is in excess of the lesser of the Conclusive Adjustment Amount
and the Escrow Amount shall be distributed from the Escrow Account to Sellers in accordance with
the Escrow Agreement, and Buyer agrees to reasonably cooperate with Sellers in any necessary joint
instruction to the Escrow Agent. Money released from the Escrow Account to Sellers shall be
distributed to Sellers in accordance with the Sharing Percentages set forth on Annex A.

     (e) Buyer acknowledges and agrees that its sole and exclusive remedy for any amount due to it
pursuant to this Section 1.3 shall be its right to payment from the Escrow Account in an amount not
to exceed the Escrow Amount. Sellers acknowledge and agree that their sole and exclusive remedy
for any amount due to them pursuant to this Section 1.3 shall be the right to payment from Buyer in
an amount not to exceed the Escrow Amount.

     Section 1.4 Purchase Price Allocations. Sellers and Buyer agree that the Consideration shall
be allocated for federal income tax purposes in accordance with Section 1060 of the Internal
Revenue Code of 1986, as amended (the “Code”). Buyer shall, within sixty (60) days after the
Conclusive Adjustment Amount is determined, prepare and deliver to Sellers for their review a
schedule allocating the Consideration (and any other items that are required for federal income tax
purposes to be treated as part of the purchase price of the Units) among the purchased assets (such
schedule, the “Allocation”). Sellers shall review such Allocation and provide any objections to
Buyer within thirty (30) days after the receipt thereof. In the event Sellers do not object to
Purchaser’s Allocation, such Allocation shall be final (the “Final Allocation”) and Buyer and
Sellers shall report such Final Allocation for Tax purposes and file Tax Returns (including Form
8594 under Section 1060 of the Code) in a manner consistent with such mutually agreed Final
Allocation. If Sellers raise any objection to the Allocation, the Parties will negotiate in good
faith to resolve such objection(s). If the Parties are unable to agree on the Allocation within
sixty (60) days after Sellers raise such objections, then Sellers and

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Buyer shall not be bound by
the Allocation and each Party shall allocate the Purchase Price to the purchased assets as such
Party determines is proper.

     Section 1.5 Preliminary Information. At least five (5) business days prior to the Closing
Date, Sellers shall deliver to Buyer instructions designating the account or accounts to which the
Cash Consideration shall be deposited by federal funds wire transfer of immediately available funds
on the Closing Date.

     Section 1.6 Sellers’ Closing Deliverables. At the Closing, Sellers shall deliver to Buyer:

     (a) all certificates representing the Units, together with duly executed unit powers of
Sellers, as applicable, transferring title of the Units, free and clear of any Liens (other than
Liens in favor of Buyer), to Buyer;

     (b) the Escrow Agreement, duly executed by Sellers;

     (c) an amendment to the Master Power Purchase and Sale Agreement, dated June 28, 2004, between
Sempra Energy Solutions and Coleto Creek WLE, LP, in the form of Exhibit B (the “SES PPA
Amendment”), duly executed by Sempra Energy Solutions;

     (d) the officer’s certificate required by Section 6.2(c);

     (e) written resignations (or removals), effective as of the Closing, of the officers and
managers of the Company identified by Buyer no less than five (5) business days prior to the
Closing;

     (f) a duly executed and acknowledged certificate, in form and in substance reasonably
acceptable to Buyer and in accordance with the Code and the Treasury Regulations, certifying the
non-foreign status as provided under Treasury Regulation Section 1.1445-2(b)(2) of Topaz Power
Partners, LLC (“Topaz Power Partners”), a Delaware limited liability company and sole member of
each of Sellers;

     (g) duly executed pay-off letters (including appropriate documents and instruments for the
release or termination of all Liens securing Indebtedness of the Company) (the “Pay-Off Letters”)
acknowledging repayment in full of all Indebtedness of the Company, including but not limited to
Indebtedness outstanding pursuant to the Amended and Restated Credit Agreement (as amended and
restated from time to time, the “Credit Agreement”), dated as of July 30, 2004, among the Company,
the Lenders (as defined in the Credit Agreement), the Revolving Issuing Bank (as defined in the
Credit Agreement) and the Term Issuing Bank (as defined in the Credit Agreement) in the form
customarily provided by such Lenders; and

     (h) in each case (a) to the extent owned by the Company and in the possession of the Company
or its Affiliates (b) not subject to attorney-client privilege to the extent delivery to Buyer
would reasonably be expected to cause such privilege to be waived and (c) not primarily related to
Persons retained by the Sellers or their respective Affiliates (other than the Company), any and
all books and records of the Company including for the avoidance of doubt documents necessary to
permit Buyer to determine periods of service for vesting and benefits purposes and

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payments of
benefits deductibles during 2006, all corporate, limited liability company or partnership books and
records, documents, drawings, existing as built drawings, reports, operating data (including
historical data in electronic form), employment data and demographic data relating to employees,
operating safety and maintenance manuals, preventive and predictive maintenance records, inspection
reports, calibration and test reports, non-destructive examination reports, engineering design
plans, blueprints, specifications and procedures and similar items, located at the Plant or in the
possession and control of Sellers or any of their respective Affiliates and relating to the Plant
or otherwise relating to the Company or its business.

     Section 1.7 Buyer’s Closing Deliverables. At the Closing, Buyer shall deliver to Sellers:

     (a) the Cash Consideration, to be paid by Buyer to Sellers in accordance with the instructions
pursuant to Section 1.2;

     (b) the SES PPA Amendment, acknowledged by Buyers;

     (c) the Escrow Agreement, duly executed by Buyer; and

     (d) the officer’s certificate required pursuant to Section 6.3(c).

     At the Closing, Buyer shall further deliver the Escrow Amount into the Escrow Account in
accordance with Section 1.2(b)(i) and the Escrow Agreement.

ARTICLE II

REPRESENTATIONS AND WARRANTIES CONCERNING EACH SELLER

     Each Seller, severally and jointly, represents and warrants to Buyer as of the date hereof and
as of the Closing Date (except to the extent that such representations and warranties speak as of
an earlier date, in which case such representations and warranties are made only as of such date),
as follows:

     Section 2.1 Organization; Etc. Such Seller, (a) is duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization, (b) has all requisite limited
liability company power and authority to execute and deliver this Agreement and all other
agreements and instruments executed in connection herewith or delivered pursuant hereto, to perform
its obligations hereunder and to consummate the transactions contemplated by this Agreement and all
other agreements and instruments executed in connection herewith or delivered pursuant hereto and
(c) is duly qualified or licensed to do business, and is in good standing in each jurisdiction in
which the nature of its business or the ownership, operation or leasing of its properties makes
such qualification or licensing necessary, except where the failure to be so qualified or licensed
would not reasonably be expected to, individually or in the aggregate, prevent or materially impair
or delay the ability of such Seller to perform its obligations hereunder.

     Section 2.2 Authority Relative to this Agreement. The execution, delivery and performance of
this Agreement and all other agreements and instruments executed in connection

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herewith or
delivered pursuant hereto by each Seller, and the consummation of the transactions contemplated by
this Agreement and all other agreements and instruments executed in connection herewith or
delivered pursuant hereto have been duly and validly authorized by all requisite limited liability
company action on the part of each Seller and no other limited liability company actions or
proceedings on the part of such Seller are necessary to authorize the execution, delivery and
performance by such Seller of this Agreement and all other agreements and instruments executed in
connection herewith or delivered pursuant hereto by such Seller or for such Seller to consummate
the transactions so contemplated. This Agreement and all other agreements and instruments executed
in connection herewith or delivered pursuant hereto have been, or will be, duly and validly
executed and delivered by such Seller and, with respect to this Agreement and any other such
agreement, assuming it has been duly authorized, executed and delivered by any other party,
constitutes, or will constitute when executed, a valid and binding agreement of such Seller,
enforceable against such Seller in accordance with its terms, except that (a) enforcement may be
subject to any bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other
laws, now or hereafter in effect, relating to or limiting creditors’ rights generally, and (b)
enforcement of this Agreement, including, among other things, the remedy of specific performance
and injunctive and other forms of equitable relief, may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.

     Section 2.3 Ownership of Equity Interests. Such Seller owns beneficially and of record the
Units set forth opposite such Seller’s name on Section 2.3 of the Disclosure Letter, which Units
constitute all of the issued and outstanding equity interests in the Company. At the Closing Date
and prior to the Closing, all of the outstanding Units will be owned beneficially and of record by
a Seller.

     Section 2.4 Consents and Approvals; No Violations. Except for the Required Approvals (as
defined in Section 3.4), none of the execution, delivery and performance of this Agreement and any
other agreements and instruments executed in connection herewith or delivered pursuant hereto by
such Seller, nor the consummation by such Seller of the transactions contemplated by this Agreement
or any other agreement or instrument executed in connection herewith or delivered pursuant hereto,
will (a) conflict with, violate or result in any
breach of any provision of the certificate of formation, limited liability company agreement,
bylaws or similar documents, as applicable, of such Seller, (b) result in a violation or breach of,
or constitute (with or without due notice or lapse of time or both) a default (or give rise to any
right of termination, amendment, cancellation or acceleration or any right or obligation to
purchase or sell securities or assets) under, or require any consent under, any written contract,
agreement, note, bond, mortgage, indenture or lease (collectively, “Contracts” and individually, a
“Contract”) to which such Seller is a party or by which it or any of its businesses, properties or
material assets are bound, (c) violate any Order, Law or Permit that is currently in effect
applicable to such Seller or its business, properties or assets, or (d) require of any Seller any
permit, license, authorization, certification, consent, approval or concession from, action by,
filing with or notification to (collectively, “Approvals” and, individually, an “Approval”), any
foreign, Federal, state, or local government or regulator or any court, arbitrator, administrative
agency, regional transmission organization, the Electric Reliability Council of Texas independent
system operator (the “ERCOT ISO”), or commission or other governmental, quasi-governmental, taxing
or regulatory (including a stock exchange or other self-regulatory body)

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authority, official or
agency (including a public utility commission, public services commission or similar regulatory
body), domestic, foreign or supranational (a “Governmental Authority”), except in the case of
clauses (b), (c) and (d) of this Section 2.4, those which would not reasonably be expected to,
individually or in the aggregate, (i) prevent or materially impair or delay the ability of such
Seller or Buyer to perform its obligations hereunder, or (ii) have a Company Material Adverse
Effect.

     Section 2.5 Brokers; Finders and Fees. Except as described in Section 2.5 of the disclosure
letter delivered by Sellers to Buyer concurrently with the execution hereof (the “Disclosure
Letter”), neither such Seller nor its Affiliates has employed, engaged or entered into a Contract
with any investment banker, broker, finder, other intermediary or any other Person or incurred any
liability for any investment banking, financial advisory or brokerage fees, commissions, finders’
fees or any other fee in connection with this Agreement or the transactions contemplated by this
Agreement.

ARTICLE III

REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY

     Each Seller, severally and jointly, represents and warrants to Buyer as of the date hereof and
as of the Closing Date (except to the extent that such representations and warranties speak as of
an earlier date, in which case such representations and warranties are made only as of such date),
as follows:

     Section 3.1 Organization; Etc. The Company (a) is duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization, (b) has all requisite partnership
power and authority to own, lease and operate all of its properties and assets and to carry on its
business substantially as it is now being conducted, and (c) is duly qualified or licensed to do
business, and is in good standing in each jurisdiction in which the nature of its business or the
ownership, operation or leasing of its properties makes such qualification or
licensing necessary, except where the failure to be so qualified or licensed would not
reasonably be expected to, individually or in the aggregate, have a Company Material Adverse
Effect.

     As used in this Agreement, the term “Company Material Adverse Effect” means any change,
development, event, effect, condition or occurrence that would reasonably be expected to be
materially adverse to the assets, properties, or condition (financial or otherwise) of the Company
taken as a whole; provided, however, that any adverse change (or changes taken together) or effect
attributable to any of the following, in each case shall not constitute a Company Material Adverse
Effect: (a) any adoption, implementation, promulgation, repeal, modification, reinterpretation or
proposal of any rule, regulation, ordinance, Order, protocol or any other Law of or by any
Governmental Authority (including, for the avoidance of doubt, the ERCOT ISO), (b) changes or
developments in international, national, regional, state or local wholesale or retail markets for
power or fuel, including, without limitation, changes in commodity prices, related products, or
availability or costs of transportation, (c) changes or developments in national, regional, state
or local wholesale or retail power prices, (d) system-wide changes or developments in national,
regional or state electric transmission or distribution systems, (e) the announcement, pendency or
consummation of the transactions contemplated by

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this Agreement (including any decrease in customer
demand, any reduction in revenues, any disruption in supplier, partner or similar relationships, or
any loss of employees) and (f) changes or developments in financial or securities markets or the
economy in general. Furthermore, for the purposes of this Agreement, any determination as to
whether any Laws, changes and/or developments have a Company Material Adverse Effect shall be made
only after taking into account (i) all effective insurance coverage and effective indemnifications
with respect to such Laws, changes and developments and (ii) the extent to which any such Laws,
changes and developments are cured (including by the payment of money) before the earlier of the
Closing or the termination of this Agreement.

     Section 3.2 Authority Relative to this Agreement. The execution, delivery and performance of
this Agreement and all other agreements and instruments executed in connection herewith or
delivered pursuant hereto by the Company and the consummation of the transactions contemplated by
this Agreement and all other agreements and instruments executed in connection herewith or
delivered pursuant hereto have been duly and validly authorized by all requisite partnership action
on the part of the Company and no other actions or proceedings on the part of the Company are
necessary to authorize the execution, delivery and performance of this Agreement and all other
agreements and instruments executed in connection herewith or delivered pursuant hereto by the
Company. Other than approvals received on or prior to the date hereof, no vote of the holders of
Units is necessary to approve this Agreement or to consummate the transactions contemplated hereby.
This Agreement and all other agreements and instruments executed in connection herewith or
delivered pursuant hereto have been, or will be, duly and validly executed and delivered by the
Company and, with respect to this Agreement and any other such agreement, assuming it has been duly
authorized, executed and delivered by any other party, constitutes, or will constitute when
executed, a valid and binding agreement of the Company, enforceable against the Company in
accordance with its terms, except that (a) enforcement may be subject to any bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer or other laws, now or hereafter in
effect, relating to or limiting creditors’ rights generally, and (b) enforcement of this Agreement,
including, among other things, the remedy of specific performance and injunctive and other forms of
equitable relief, may be
subject to equitable defenses and to the discretion of the court before which any proceeding
therefor may be brought.

     Section 3.3 Capitalization.

     (a) As of the date hereof, the outstanding equity interests of the Company consist of 1,000
Units. Section 3.3(a)(i) of the Disclosure Letter sets forth the name, jurisdiction of
organization and capitalization of the Company. All outstanding Units are validly issued, fully
paid and nonassessable, and owned by a Seller free of preemptive (or similar) rights and free and
clear of any security interests, liens, claims, pledges, limitations in voting, dividend or
transfer rights, charges or other similar encumbrances (“Liens”), except for Liens pursuant to the
Credit Agreement (which shall be released on the Closing Date). Except as set forth in Section
3.3(a)(i) of the Disclosure Letter and the first sentence of this Section 3.3(a), there are not (A)
any capital stock or other equity interests or voting securities, in the Company issued or
outstanding, (B) any securities convertible into or exchangeable or exercisable for shares of any
capital stock or equity interests or voting securities in the Company, (C) any subscriptions,
options, warrants, calls, rights, convertible securities or other Contracts or commitments of any
character obligating the

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Company to issue, transfer or sell any of its capital stock or other
equity interests or voting securities, or (D) any equity equivalents, interests in the ownership or
earnings or similar rights, or any agreements, arrangements or understandings granting any Person
any rights in the Company similar to capital stock or other equity interests or voting securities
(the items in clauses (A), (B), (C) or (D), collectively, “Company Securities”). Except as set
forth in Section 3.3(a)(ii) of the Disclosure Letter, there are no (1) outstanding obligations of
the Company to repurchase, redeem or otherwise acquire any Company Securities or (2) outstanding
obligations of the Company to provide funds to or make any investment (in the form of a loan,
capital contribution or otherwise) in the Company or any other Person, including as a result of the
transactions contemplated by this Agreement.

     (b) The Company has no direct or indirect equity interest in any Person.

     (c) Section 3.3(c)(i) of the Disclosure Letter sets forth a true and complete list of each
Contract in effect on the date of this Agreement pursuant to which any Indebtedness of the Company
in excess of $250,000 is outstanding or may be incurred. No Contract pursuant to which any
Indebtedness of the Company is outstanding or may be incurred provides for the right to vote (or is
convertible into, or exchangeable for, securities having the right to vote) on any matters on which
the equityholders of the Company may vote. “Indebtedness” means (A) indebtedness, liabilities or
obligations for or related to borrowed money or for or related to the deferred purchase price of
property or services (other than current trade liabilities incurred in the ordinary course of
business and payable in accordance with customary practices), including indebtedness evidenced by a
note, bond, debenture or similar instrument, (B) obligations required to be classified and
accounted for as a liability (other than current trade liabilities incurred in the ordinary course
of business and payable in accordance with customary practices) on a balance sheet under United
States generally accepted accounting principles (“GAAP”), (C) obligations in respect of outstanding
letters of credit, acceptances and similar obligations created for the account of such Person, (D)
obligations under interest rate cap agreements, interest rate swap agreements, foreign currency
exchange
agreements and other similar agreements (but for clarification, in all events excluding
commodity swaps, caps and similar agreements) and (E) guarantees of any of the foregoing of another
Person.

     Section 3.4 Consents and Approvals; No Violations. Except for applicable requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), or as set forth
in Section 3.4 of the Disclosure Letter (collectively, the “Required Approvals”), none of the
execution, delivery and performance of this Agreement by Sellers, nor the consummation by Sellers
of the transactions contemplated by this Agreement and any other agreements and instruments
executed in connection herewith or delivered pursuant hereto, will (a) conflict with, violate or
result in any breach of any provision of the certificate of formation, limited partnership
agreement, regulations, bylaws or similar documents, as applicable, of the Company, (b) result in a
violation or breach of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, amendment, cancellation or acceleration or any
right or obligation to purchase or sell securities or assets) under, or require any consent or
result in a material loss of a material benefit to the Company under, any Contract to which the
Company is a party or by which the Company or its businesses, properties or assets are bound, (c)
violate any order, judgment, writ, injunction, decree, settlement, stipulation or award of a
Governmental Authority (each an “Order”) or statute, rule or regulation of a

11

 

Governmental Authority
(collectively, “Laws”, and individually, a “Law”) or Permit applicable to the Company or any of its
businesses, properties or assets, or (d) require the Company to obtain any Approvals from or by any
Governmental Authority, except in the case of clauses (b), (c) and (d) of this Section 3.4 for
those which would not reasonably be expected to, individually or in the aggregate, have a Company
Material Adverse Effect, or which become applicable solely as a result of the business or
activities in which Buyer is engaged.

     Section 3.5 Reports and Financial Statements.

     (a) The Company has timely filed with the Public Utility Commission of Texas (the “PUC”) and
any other Governmental Authority with jurisdiction all material forms, reports, schedules,
registrations, declarations and other filings required to be filed by it under all applicable Laws,
including the Texas Public Utility Regulatory Act, and the respective rules and regulations
thereunder (“PURA”), all of which, as amended if applicable, complied in all material respects with
all applicable requirements of the appropriate act and the rules and regulations promulgated
thereunder. Each of the (i) audited financial statements as of and for the six-month period ended
December 31, 2004 and (ii) audited financial statements as of and for the twelve-month period ended
December 31, 2005 (including in each case the notes related thereto) of the Company set forth in
Section 3.5 of the Disclosure Letter (together, the “Financial Statements”) was prepared from, and
is in accordance with, the books and records of the Company, which books and records have been
maintained, and which Financial Statements were prepared, in accordance with GAAP applied on a
consistent basis throughout the periods involved (except as may be indicated therein or in the
notes thereto) and fairly presented in all material respects the financial position of the Company
as of the dates thereof and the results of their operations, cash flows and changes in financial
position for the periods reported.

     Section 3.6 Absence of Undisclosed Liabilities. Except (a) for liabilities and obligations
incurred in the ordinary course of business and consistent with past practice since December 31,
2005, or (b) as otherwise disclosed in the Financial Statements, or in Section 3.6 of the
Disclosure Letter, the Company has not incurred any liabilities, debts or obligations of any nature
(whether direct, indirect, accrued, asserted, unasserted, contingent, known or unknown, determined
or determinable, matured or unmatured or otherwise) (“Liabilities”) in excess of $500,000 that,
individually or in the aggregate, would be required to be reflected or reserved against in the
balance sheet of the Company prepared in accordance with GAAP as used in preparing the December 31,
2005 balance sheet. Except as set forth in Section 3.6 of the Disclosure Letter, the Company does
not have any Liabilities required to be reflected or reserved against in the balance sheet of the
Company prepared in accordance with GAAP as used in preparing the December 31, 2005 balance sheet
that would reasonably be expected to, individually or in the aggregate, have a Company Material
Adverse Effect.

     Section 3.7 Absence of Certain Changes. Except as set forth in Section 3.7 of the Disclosure
Letter, since December 31, 2005 and until the date of this Agreement, the Company has conducted its
business only in the ordinary course and in a manner consistent with past practice. Except as set
forth in Section 3.7 of the Disclosure Letter, since December 31, 2005 there has not been any state
of facts, change, development, event, effect, condition or occurrence that has or would reasonably
be expected to, individually or in the aggregate, have a Company Material Adverse Effect. Since
December 31, 2005, except as (i) specifically contemplated by

12

 

this Agreement or (ii) set forth in
Section 3.7 of the Disclosure Letter, there has not occurred any action, development, event or
occurrence or failure to act that, if it had occurred after the date of this Agreement, would have
required the consent of Buyer under Section 5.1.

     Section 3.8 Litigation. Except as set forth in Section 3.8 of the Disclosure Letter, there is
no litigation, suit, claim, action, administrative, arbitral or other proceeding, inquiry, audit,
hearing petition, grievance, complaint or governmental or regulatory investigation (each an
“Action”) pending or, to the knowledge of Sellers, threatened against the Company, nor are there
any outstanding Orders that affect or bind the Company or its businesses, properties or assets that
would reasonably be expected to, individually or in the aggregate, have a Company Material Adverse
Effect. There are no Actions pending or, to the knowledge of Sellers, threatened by the Company
against any of Sellers.

     Section 3.9 Compliance with Law. Except as set forth in Section 3.9 of the Disclosure Letter:

     (a) The Company is, and since December 31, 2005 has been, in compliance with all applicable
Laws and the Company has not received any notice (including through any Action), and there has been
no Action filed, commenced or, to the knowledge of Sellers, threatened against the Company,
alleging any violation of Law, except for any noncompliance or violation that would not reasonably
be expected to, individually or in the aggregate, have a Company Material Adverse Effect.

     (b) Except as would not reasonably be expected to, individually or in the aggregate, have a
Company Material Adverse Effect, (1) the Company holds all Approvals, authorizations, certificates,
licenses, consents and permits of Governmental Authorities (“Permits”) necessary for the Company to
own, lease and operate its properties and assets as currently owned, leased or operated and to
carry on business as currently conducted, and (2) all such Permits are in full force and effect.
Except as would not reasonably be expected to, individually or in the aggregate, have a Company
Material Adverse Effect, (1) during the period in which Sellers have owned the Plant, there has
occurred no breach of or default under (with or without notice or lapse of time or both) any such
Permit, and the Company has not received any notice (including through any Action) of any such
breach or default, and (2) there has been no Action filed, commenced or threatened against it,
alleging any such breach or default or otherwise seeking to revoke, terminate, suspend or modify
any Permit or impose any fine, penalty or other sanctions for violation of any Laws relating to any
Permit.

     Section 3.10 Labor and Employment Matters.

     (a) Section 3.10(a) of the Disclosure Letter sets forth, as of the date hereof, a true,
accurate and complete list of all employees (including individuals on vacation, short-term
disability or similar leave) of Topaz Power Group, LLC (“Topaz Power Group”), a Delaware limited
liability company, who are employed as part of the operating staff at the Plant (the “Sellers
Employees”), which such Section 3.10(a) of the Disclosure Letter shall be amended as of the Closing
Date to include such employees so employed immediately prior to the Closing Date. Such Section
3.10(a) of the Disclosure Letter shall also include a description of each

13

 

Sellers Employee’s
current base salary, target bonus for the 2006 fiscal year (if any), position and date of hire.

     (b) Section 3.10(b) of the Disclosure Letter sets forth a list of those employees employed by
Sempra Texas Services, LP (“STS”), a Texas Limited Partnership, who support the business of the
Company as of the date of this Agreement (the “STS Employees” ). Section 3.10(b) of the Disclosure
Letter shall also include a description of each STS Employee’s current base salary, target bonus
for the 2006 fiscal year (if any), position and date of hire.

     (c) None of the Sellers Employees are covered by any collective bargaining or union contracts.
Except as set forth in Section 3.10(c) of the Disclosure Letter and except for such matters which
would not reasonably be expected, individually or in the aggregate, to have a Company Material
Adverse Effect, Topaz Power Group, with respect to the Sellers Employees, are in compliance with
all applicable Laws respecting labor and labor practices, employment and employment practices,
terms and conditions of employment and wages and hours. To the knowledge of Sellers, no
organizational efforts are presently being made or threatened by or on behalf of any labor union
with respect to the Sellers Employees.

     (d) Section 3.10(d) of the Disclosure Letter sets forth a true, accurate and complete list of
all material written “employee benefit plans” (within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”)), including multi-employer plans
within the meaning of Section 3(37) of ERISA, and all stock purchase, stock option, employment,
change-in-control, collective bargaining, incentive, employee loan, deferred compensation, pension,
profit-sharing, retirement, bonus, retention bonus, severance and other employee benefit or fringe
benefit plans, agreements, programs, policies or other arrangements, whether or not subject to
ERISA, which are maintained by, or
with respect to which contributions are made by or on behalf of, Sempra Energy (“Sempra”), a
California corporation, Topaz Power Group, Sellers, the Company or their respective Affiliates and
in which the Sellers Employees participate (the “Sellers Benefit Plans”).

     (e) Within the past 90 days, none of the Sellers nor the Company has engaged in any plant
closing, workforce reduction, or other action related to any Sellers Employee that has resulted in
liability under or has required issuance of notice pursuant to the Worker Adjustment and Retraining
Notification Act of 1988 (collectively, the “WARN Act”).

     Section 3.11 Taxes. Except as set forth in Section 3.11 of the Disclosure Letter:

     (a) Sellers and the Company have filed all material Tax Returns that are required to be filed
by each of them with respect to any Tax relating to the Company or the business or properties
thereof, and Sellers have paid all material Taxes that have become due as indicated thereon, except
where such Tax is being contested in good faith by appropriate proceedings and for which adequate
reserves have been maintained in accordance with GAAP. All Tax Returns relating to the Company are
true and complete in all material respects.

     (b) (i) There is no material action, suit, proceeding, audit, written claim or assessment
pending or, to the knowledge of Sellers, proposed with respect to Taxes of the Company or with
respect to any Tax Return of the Company and (ii) there are no material Liens for Taxes upon the

14

 

assets of or interests in the Company, except for Liens for Taxes not yet due and payable or Liens
for Taxes being contested in good faith through appropriate proceedings and for which adequate
reserves have been maintained in accordance with GAAP.

     (c) The Company is treated as a disregarded entity for federal income tax purposes and a
limited partnership for state and local income tax purposes, and has not made an election to be
treated as an association for federal income tax purposes.

     (d) Except as set forth in Section 3.11 of the Disclosure Letter, no waiver of or agreement to
extend any statute of limitations in respect of any Tax of the Company or the business or
properties thereof has been granted.

     (e) The Company is not a party to or bound by, and does not have any obligation under, any Tax
allocation, sharing, indemnity or similar agreement or arrangement.

     (f) For purposes of this Agreement, “Taxes” means all taxes, assessments, charges, duties,
fees, levies and other governmental charges, including income, franchise, capital stock, real
property, personal property, tangible, withholding, employment, payroll, social security, social
contribution, unemployment compensation, disability, transfer, sales, use, excise, gross receipts,
value-added and all other taxes of any kind, and any charges, interest, additions to tax, or
penalties imposed by any Governmental Authority, and “Tax Return” shall mean any return,
declaration, report, claim for refund or information return or statement relating to Taxes,
including any schedule or attachment thereto, and including any amendment thereof.

     Section 3.12 Title, Ownership and Related Matters. The Company has good title to, or rights
by license, lease or other agreement to use, all real and material personal properties and assets
(or rights thereto) (other than cash, cash equivalents and securities and except as contemplated in
this Agreement) necessary to permit the Company to conduct its business as currently conducted,
including those items set forth in Section 3.12 of the Disclosure Letter. To the knowledge of
Sellers, each item of material personal property owned by the Company is owned free and clear of
all Liens, other than Permitted Liens. Without limiting the generality of the foregoing:

     (a) The Title Commitment lists and identifies all material real property owned by the Company
(such real property, together with all the buildings, improvements, structures and fixtures now or
subsequently located thereon, collectively, the “Owned Real Property”). Section 3.12(a)(ii) of the
Disclosure Letter lists all material agreements other than easements or rights of way (together
with any amendments, modifications or supplements thereto, the “Leases”) pursuant to which the
Company leases, subleases, licenses or otherwise occupies (whether as tenant, subtenant or
licensee) any real property or interest in real property that is material to the business of the
Company taken as a whole (collectively, the “Leased Real Property,” together with the Owned Real
Property, the “Real Property”). With respect to each parcel of the Real Property, except as set
forth in Section 3.12(a)(iii) of the Disclosure Letter or except as would not reasonably be
expected to, individually or in the aggregate, have a Company Material Adverse Effect:

15

 

          (i) the Company has good and indefeasible fee simple title to the Owned Real Property, free
and clear of all Liens other than Permitted Liens;

          (ii) there are no pending or, to the knowledge of Sellers, threatened condemnation,
expropriation or taking proceedings against the Real Property; and

          (iii) there are no outstanding options or rights of first refusal to purchase or lease the
Real Property, or any portion thereof or interest therein.

     (b) Section 3.12(b) of the Disclosure Letter sets forth a true and complete list of all
material real property sold, transferred or disposed of since the effective date of the Title
Commitment (December 22, 2005).

     (c) For purposes of this Agreement, “Permitted Liens” means (i) Liens for current property
taxes and similar governmental charges and assessments which are not yet due and payable or the
validity of which are being contested in good faith by appropriate proceedings and reserved for in
accordance with GAAP, (ii) all exceptions set forth in Schedule B to the commitment for title
insurance with an effective date of December 22, 2005 (the “Title Commitment”) issued by First
American Title Insurance Company, which has been made available by Sellers to Buyer, (iii) all
exceptions, restrictions, easements, charges, rights-of-way and monetary and non-monetary Liens
which are set forth in any permit, (iv) inchoate mechanics’ materialmens’, laborers’ carriers’
workers’, repairers’ and other similar Liens and the rights of customers, suppliers, contractors
and subcontractors in each case arising or incurred in the ordinary course of business, (v)
purchase
money security interests in respect of personal property arising or incurred in the ordinary
course of business to the extent reflected or reserved against in the Company’s most recent balance
sheet included in the Financial Statements, (vi) zoning, entitlement, conservation restrictions and
other land use and environmental regulations of any Governmental Authority, (vii) matters shown on
the survey which has been delivered, (viii) restrictions and regulations imposed by any
Governmental Authority or any local, stated, regional, national or international reliability
council, including the ERCOT ISO, (ix) Liens created by or resulting from the acts or omissions of
Buyer, (x) the Required Approvals, and (xi) such other encumbrances to, imperfections in or
failures of title that, individually or in the aggregate, would not reasonably be expected to
materially interfere with the conduct of business of the Company taken as a whole.

     Section 3.13 Environmental. Except as set forth in Section 3.13 of the Disclosure Letter, or
as would not reasonably be expected to, individually or in the aggregate, have a Company Material
Adverse Effect:

     (a) To the knowledge of Sellers, the Company is in compliance with all applicable
Environmental Laws, and has not received any written communication from any Governmental Authority
that alleges that the Company is not or has not been in compliance with applicable Environmental
Laws.

     (b) To the knowledge of Sellers, the Company has obtained and possesses all Permits required
pursuant to any applicable Environmental Law (collectively, the “Environmental Permits”) necessary
for the operation of its facilities or the conduct of its business as currently

16

 

conducted, and all
such Environmental Permits are in good standing or, where applicable, a renewal application has
been timely filed and is pending approval by any Governmental Authority, and the Company is in
compliance with all terms and conditions of the Environmental Permits.

     (c) There are no Environmental Claims (i) pending or, to the knowledge of Sellers, threatened
against the Company or (ii) pending or, to the knowledge of Sellers, threatened against any real or
personal property or operations that the Company owns, leases or uses, in whole or in part,
including any off-site facility used by the Company for the treatment, storage and disposal of any
Hazardous Substance.

     (d) Schedule 3.13(d) lists the amount of each type of all Emission Allowances currently held
by the Plant or the Company under currently applicable Environmental Laws for use in the current
calendar year or future calendar years (the “Available Emission Allowances”). Except as set forth
in Schedule 3.13(d), no such Available Emission Allowances have been sold, exchanged or
transferred.

     (e) To the knowledge of Sellers, there have been no Releases of any Hazardous Substances and
there have been no threatened Releases of any Hazardous Substances that have formed or would
reasonably be expected to form the basis of (i) any Environmental Claim against the Company or
against any Person whose liability for such claim the Company has or may have retained or assumed,
either by operation of Law or by Contract, or (ii) any current requirement on the part of the
Company to undertake Remedial Action now or in the future.

     Notwithstanding anything to the contrary in this Agreement, no provisions of Article III other
than this Section 3.13 address or shall be deemed to address Environmental Law, Hazardous
Substances, Environmental Claims or other environmental matters.

     For purposes of this Agreement:

     “Emissions Allowance” means tradable emissions credits, allowances or other authorizations to
emit specified units of pollutants or Hazardous Substances from the Plant, which units are
established by the Governmental Authority with jurisdiction over the Plant under (i) any air
pollution control and emission reduction program designed to mitigate interstate or intrastate
transport of air pollutants, (ii) any program designed to mitigate impairment of surface waters,
watersheds, or groundwater, or (iii) any pollution reduction program with a similar purpose, in
each case regardless of whether the Governmental Authority establishing such authorizations
designates such authorizations by a name other than “allowances.”

     “Environmental Claim” means any and all Actions, demands, demand letters, directives, Liens or
notices of noncompliance or violation by any Person (including any Governmental Authority) alleging
potential liability (including potential responsibility for or liability for enforcement costs,
investigatory costs, cleanup costs, governmental response costs, removal costs, remedial costs,
natural-resources damages, property damages, personal injuries, fines or penalties) arising out of,
based on or resulting from (A) the presence, or Release or threatened Release into the environment,
of any Hazardous Substances at any location, whether or not owned, operated, leased or managed by
the Company; (B) circumstances forming the basis

17

 

of any violation, or alleged violation, of any
Environmental Law; or (C) any and all Actions by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief resulting from the presence or
Release of any Hazardous Substances;

     “Environmental Law” means all Laws relating to pollution, the environment (including ambient
air, surface water, groundwater, land surface or subsurface strata) or protection of human health
as it relates to the environment, including Laws relating to Releases or threatened Releases of any
Hazardous Substance, or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of any Hazardous Substance including the
Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. Section 9601 et
seq.), the Hazardous Materials Transportation Act (49 U.S.C. Section 1801 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), the Clean Water Act (33 U.S.C.
Section 1251 et seq.), the Clean Air Act (33 U.S.C. Section 7401 et seq.), the Toxic Substances
Control Act (15 U.S.C. Section 7401 et seq.), the Federal Insecticide, Fungicide, and Rodenticide
Act (7 U.S.C. Section 136 et seq.) and the regulations promulgated pursuant thereto, and any such
applicable state or local statutes, and the regulations promulgated pursuant thereto, as such Laws
have been and may be amended or supplemented to the date of this Agreement;

     “Hazardous Substance” means any substance listed, defined or classified as hazardous, toxic or
radioactive pursuant to any applicable Environmental Law, including petroleum and any derivative or
by-product thereof, and any other substance
regulated pursuant to, or the presence or exposure to which may form the basis for liability
under, any applicable Environmental Law;

     “Release” means any spilling, emitting, leaking, pumping, pouring, emptying, injecting,
escaping, dumping, disposing, discharging, or leaching into the environment, or into or out of any
property owned, operated or leased by the applicable party; and

     “Remedial Action” means all actions, including any capital expenditures, required by a
Governmental Authority or required under any applicable Environmental Law to (a) clean up, remove,
treat, or in any other way ameliorate or address any Hazardous Substance in the environment; (b)
prevent the Release or threat of Release, or minimize the further Release of any Hazardous
Substance so it does not endanger or threaten to endanger the public health or welfare of the
indoor or outdoor environment; (c) perform pre-remedial studies and investigations or post-remedial
monitoring and care pertaining or relating to a Release; or (d) bring the applicable party into
compliance with any applicable Environmental Law.

     Section 3.14 Intellectual Property. Except as set forth in Section 3.14 of the Disclosure
Letter, or as would not reasonably be expected to, individually or in the aggregate, have a Company
Material Adverse Effect: (i) the Company owns or has the valid right to use all the Intellectual
Property necessary or desirable to conduct its business as currently conducted and consistent with
past practice free and clear of all Liens; (ii) the Company IP is valid, enforceable and unexpired,
has not been abandoned, and does not infringe, impair, misappropriate, dilute, make unauthorized
use of, or otherwise violate the Intellectual Property of any third party; (iii) no Action or Order
is outstanding or pending, or to the knowledge of Sellers, threatened that seeks to cancel, limit
or challenge the ownership, use, value, validity or enforceability of any Company IP, and to the
knowledge of Sellers, there is no valid basis for

18

 

same; (iv) the Company has taken all necessary
steps (including executing non-disclosure and intellectual property assignment agreements and
filing for statutory protections) to protect, preserve, police, maintain and safeguard the value,
validity and their ownership of the Company IP, including any material confidential Company IP; and
(v) the Company has executed all appropriate agreements with current and past employees,
contractors and agents to assign to the Company all of their right, title and interest in any
Company IP.

     Section 3.15 Contracts. Section 3.15 of the Disclosure Letter contains a true and complete
list as of the date hereof of the following Contracts to which the Company is a party or by which
any Company properties are bound or affected as of the date of this Agreement:

     (a) Contracts containing covenants restricting the payment of dividends or limiting the
freedom in any material respect of the Company to engage in any line of business or compete with
any Person or operate at any location;

     (b) Joint venture agreements and limited liability company agreements, partnership agreements
or similar agreements with third parties;

     (c) Contracts (other than Derivative Products) involving expenditures (capital or otherwise),
liabilities or revenues to the Company which are reasonably expected to be in excess of $1,000,000
per annum or $5,000,000 in the aggregate;

     (d) Contracts (other than Derivative Products) with terms of one year or longer, unless
expenditures, liabilities or revenues to the Company are not reasonably expected to be in excess of
$1,000,000 per annum;

     (e) Derivative Products involving expenditures, liabilities, exposures or revenues to the
Company which are reasonably expected to be in excess of $1,000,000 in the aggregate, including any
verbal confirmations of such Derivative Products not yet subject to a written confirmation,
including identification of any such counterparty granted a second priority Lien in some or all of
the Company’s assets;

     (f) Each lease of personal property (i) requiring lease payments equal to or exceeding
$100,000 per annum or (ii) the loss of which would reasonably be expected to, individually or in
the aggregate with other such losses, have a Company Material Adverse Effect;

     (g) Contracts for the purchase or sale of coal and/or Contracts for the transportation of coal
for which delivery is required on or after the date hereof;

     (h) Contracts for the purchase, sale and lease of railcars; and

     (i) Contracts otherwise material to the Company.

     True and complete copies of the written Contracts required to be identified in Sections
3.3(c), 3.15, 3.16 and 3.18 of the Disclosure Letter (all such Contracts, whether now or hereafter
existing, collectively, the “Company Contracts”) (and true and complete written summaries of any
such oral Contracts) have been made available to Buyer, except as set forth in Section 3.15 of the
Disclosure Letter. Section 3.15 of the Disclosure Letter includes notations identifying

19

 

Derivative
Products under which the counterparty has a mark-to-market exposure to the Company of $10 million
or more as of the date hereof.

     Except as would not reasonably be expected, individually or in the aggregate, to have a
Company Material Adverse Effect, the Company is not and, to the knowledge of Sellers, no other
party is in default under, or in breach or violation of, any Company Contract and, to the knowledge
of Sellers, no event has occurred which would result in the right of termination under, or result
in the creation of a Lien on any of the properties or assets of the Company (in each case, with or
without notice or lapse of time or both) in connection with, any Company Contract, and each Company
Contract is valid, binding and enforceable against the applicable Company in accordance with its
terms and is in full force and effect.

     For purposes of this Agreement, “Derivative Product” means (i) any swap, cap, floor, collar,
futures contract, forward contract, option and any other derivative financial instrument or
Contract, based on any commodity, security, instrument, asset, rate or index of any kind or nature
whatsoever, whether tangible or intangible, including electricity (including capacity and ancillary
services products related thereto), natural gas, crude oil, coal and other commodities, emissions
allowances, renewable energy credits, currencies,
interest rates and indices and (ii) forward contracts for delivery of electricity (including
capacity and ancillary services products related thereto), natural gas, crude oil, petcoke,
lignite, coal and other commodities and emissions and renewable energy credits.

     Section 3.16 Insurance. Section 3.16 of the Disclosure Letter contains a true and complete
list of the material insurance policies and surety bonds of or for the benefit of the Company or
its assets, businesses, operations, employees, officers or directors (the “Company Insurance
Policies”). Each of the Company Insurance Policies is valid, enforceable, existing and binding,
and the premiums due thereon have been timely paid. There are no outstanding unpaid claims under
any of the Company Insurance Policies with respect to the Company, except in the ordinary course of
business consistent with past practice. Since September 30, 2005, the Company has not received
notice of cancellation, termination or non-renewal of any Company Insurance Policy or been denied
insurance coverage. The Company Insurance Policies are sufficient for compliance with applicable
Law and all Contracts to which the Company is a party or by which it or any of its assets are
bound, and are in such amounts, against such risks and losses, and on such terms and conditions as
are consistent with industry practice in the business of the Company. Buyer acknowledges and
agrees that, with respect to the Company, none of the Company Insurance Policies will remain in
effect after the Closing Date.

     Section 3.17 Regulatory Matters. The Company is subject to regulation (i) under Texas utility
Law as a “power generation company” (as such term is defined under PURA), and (ii) under the ERCOT
protocols as a “resource entity” (as such term is defined in the ERCOT protocols). Except as set
forth in the immediately preceding sentence, the Company is not and has not been subject to
regulation as a public utility, public utility holding company or public service company (or
similar designation) by any Governmental Authority. The Company is not and has not been engaged in
the sale of electricity in interstate commerce. The Company is an “exempt wholesale generator”
within the meaning of the Public Utility Holding Company Act of 2005.

20

 

     Section 3.18 Affiliate Transactions.

     (a) Section 3.18(a) of the Disclosure Letter sets forth a list of all Contracts or
transactions between the Company, on the one hand, and any Affiliate, officer, manager or director
of the Company or any Affiliate of any such officer, manager or director, on the other hand (all
such Contracts and transactions, “Company Affiliate Contracts”).

     (b) Except as set forth in Section 3.18(b) of the Disclosure Letter, each Company Affiliate
Contract listed in Section 3.18(a) of the Disclosure Letter was entered into in the ordinary course
of business and on terms no less favorable than would have been reached on an arms-length basis,
except those of a type available to Sellers Employees generally.

     Section 3.19 Brokers; Finders and Fees. Except for fees to the entities described in Section
3.19 of the Disclosure Letter, which fees will be paid by Sellers or their Affiliates, the Company
and its respective controlled Affiliates have not employed, engaged or entered into a Contract with
any investment banker, broker, finder, other intermediary or any other Person or
incurred any liability for any investment banking, financial advisory or brokerage fees,
commissions, finders’ fees or any other fee in connection with this Agreement or the transactions
contemplated by this Agreement.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF BUYER

     Buyer hereby represents and warrants to Sellers as follows:

     Section 4.1 Organization; Etc. Buyer (a) is duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, (b) has all requisite corporate power
and authority to own, lease and operate all of its properties and assets and to carry on its
business substantially as it is now being conducted, and to execute and deliver this Agreement and
all other agreements and instruments executed in connection herewith or delivered pursuant hereto,
to perform its obligations hereunder and to consummate the transactions contemplated by this
Agreement and all other agreements and instruments executed in connection herewith or delivered
pursuant hereto and (c) is duly qualified or licensed to do business, and is in good standing in
each jurisdiction in which the nature of its business or the ownership, operation or leasing of its
properties makes such qualification or licensing necessary, except where the failure to be so
qualified or licensed would not reasonably be expected to, individually or in the aggregate, have a
Buyer Material Adverse Effect. As used in this Agreement, the term “Buyer Material Adverse Effect”
means any state of facts, change, development, event, effect, condition or occurrence materially
adverse to the business, assets, properties, liabilities or condition (financial or otherwise) or
results of operations of the Buyer and its Subsidiaries taken as a whole or that, directly or
indirectly, prevents or materially impairs or delays the ability of Buyer to perform its
obligations hereunder.

     Section 4.2 Authority Relative to this Agreement. The execution, delivery and performance of
this Agreement and all other agreements and instruments executed in connection herewith or
delivered pursuant hereto, by Buyer and the consummation of the transactions

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contemplated by this
Agreement and all other agreements and instruments executed in connection herewith or delivered
pursuant hereto have been duly and validly authorized by all requisite corporate and stockholder
action on the part of Buyer and no other corporate actions or proceedings on the part of Buyer are
necessary to authorize the execution, delivery and performance of this Agreement and all other
agreements and instruments executed in connection herewith or delivered pursuant hereto by Buyer or
to consummate the transactions so contemplated. This Agreement and all other agreements and
instruments executed in connection herewith or delivered pursuant hereto have been, or will be,
duly and validly executed and delivered by Buyer and, with respect to this Agreement and any other
such agreement, assuming it has been duly authorized, executed and delivered by any other party
(other than an Affiliate of Buyer), constitutes, or will constitute when executed, a valid and
binding agreement of Buyer, enforceable against Buyer in accordance with its terms, except that (a)
enforcement may be subject to any bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or other laws, now or hereafter in effect, relating to or limiting creditors’ rights
generally, and (b) enforcement of this Agreement, including, among other things, the remedy of
specific
performance and injunctive and other forms of equitable relief, may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor may be brought.

     Section 4.3 Consents and Approvals; No Violations. Except for the applicable requirements of
the HSR Act or as set forth in Section 4.3 of the Disclosure Letter, none of the execution,
delivery and performance of this Agreement by Buyer, nor the consummation by Buyer of the
transactions contemplated by this Agreement or any other agreements and instruments executed in
connection herewith or delivered pursuant hereto, will (a) conflict with, violate or result in any
breach of any provision of the certificate of formation, certificate of incorporation, regulations,
bylaws or similar documents, as applicable, of Buyer, (b) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or give rise to any
right of termination, amendment, cancellation or acceleration or any right or obligation to
purchase or sell securities or assets) under, or require any consent or result in a material loss
of a material benefit to Buyer under, any contract to which Buyer is a party or by which any of its
businesses, properties or assets are bound, (c) violate any Law or Permit applicable to Buyer or
its business, properties or assets, or (d) require any Approval from or by any Governmental
Authority, except in the case of clauses (b), (c) and (d) of this Section 4.3 for those which would
not reasonably be expected to, individually or in the aggregate, have a Buyer Material Adverse
Effect.

     Section 4.4 Litigation. Except as set forth in Section 4.4 of the Disclosure Letter, or
disclosed in the Buyer Reports filed and publicly available prior to the date of this Agreement,
there is no Action pending or, to the knowledge of Buyer, threatened against Buyer or any of its
Subsidiaries by or before any Governmental Authority, nor are there any outstanding Orders that
affect or bind any of them or any of their respective businesses, properties or assets which would
reasonably be expected to, individually or in the aggregate, have a Buyer Material Adverse Effect.

     Section 4.5 Compliance with Law.

     (a) Each of Buyer and its Subsidiaries is, and since December 31, 2005, has been, in
compliance with all applicable Laws and has not received any notice (including through any

22

 

Action),
and there has been no Action filed, commenced or, to the knowledge of Buyer, threatened against
Buyer or any of its Subsidiaries, alleging any violation of Law, except for any noncompliance or
violation that would not reasonably be expected to, individually or in the aggregate, have a Buyer
Material Adverse Effect.

     (b) Except as would not reasonably be expected to, individually or in the aggregate, have a
Buyer Material Adverse Effect, (1) Buyer and its Subsidiaries hold all Permits necessary for Buyer
and its Subsidiaries to own, lease and operate their properties and assets and to carry on their
businesses as currently conducted, and (2) all such Permits are in full force and effect. Except as
would not reasonably be expected to, individually or in the aggregate, have a Buyer Material
Adverse Effect, (1) there has occurred no breach of or default under (with or without notice or
lapse of time or both) any such Permit, and none of Buyer nor any of its Subsidiaries has received
any notice (including through any Action) of any such breach or default, and (2) to the knowledge
of Buyer, there has been no Action filed, commenced or threatened against it, alleging any such
breach or default or otherwise seeking to revoke, terminate, suspend or modify
any Permit or impose any fine, penalty or other sanctions for violation of any Laws relating
to any Permit.

     Section 4.6 Investment. Buyer is purchasing the Units for investment for its own account, and
not with a view to, or for the offer or sale in connection with, any distribution thereof. Buyer
acknowledges that the Units have not been registered under the Securities Act of 1933, as amended
(the “Securities Act”), or any state securities Laws and that the Units may not be transferred or
sold except pursuant to the registration provisions of the Securities Act and any applicable state
securities Laws or pursuant to an applicable exemption therefrom.

     Section 4.7 Financial Ability. Buyer has, and at the Closing will have, the cash resources
necessary to consummate the transactions contemplated by this Agreement and all other transactions
necessary for such consummation, as evidenced by (i) the agreement by International Power plc to
guarantee the performance and payment of all of Buyer’s obligations hereunder as set forth in the
Guarantee Agreement attached as Exhibit E hereto and (ii) the Second Amended and Restated
Commitment Letter, dated April 17, 2006, of Credit Suisse and Goldman Sachs Credit Partners L.P.,
which is attached hereto as Exhibit E.

     Section 4.8 Brokers; Finders and Fees. No broker, finder, investment banker or other Person
whose fees or expenses would be payable by Sellers or the Company may be entitled to any brokerage,
finder’s or other fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of Buyer.

ARTICLE V

COVENANTS OF THE PARTIES

     Section 5.1 Operating Covenants of the Company. During the period from the date of this
Agreement to the Closing, unless otherwise expressly contemplated by this Agreement, as set forth
in Section 5.1 of the Disclosure Letter or required by applicable Law or unless Buyer gives its
prior written consent, Sellers shall cause the Company to, (1) conduct its businesses only in, and
not take any action except in, the ordinary course of business, in a manner consistent

23

 

with past
practice and in compliance with applicable Laws (including by making payments due and owing under
the Engineering, Procurement and Construction Contract, dated March 10, 2006, between Alstom Power
Inc. and the Company for construction and installation of a baghouse), (2) preserve substantially
intact its business organization, to preserve its assets and properties in good repair and
condition and to preserve its present relationships with Governmental Authorities, customers,
suppliers and other Persons with which it has business relations and use reasonable best efforts to
keep available the services of the present officers and key Sellers Employees and (3) in the
ordinary course of business make those capital expenditures contemplated in Section 5.1–A of the
Disclosure Letter, to the extent commercially reasonable, and any amounts due and owing in respect
thereof shall be paid as and when due and owing. In furtherance and not in limitation of the
foregoing, during the period from the date of this Agreement to the Closing, Sellers agree that the
Company shall not directly or indirectly do, or propose, authorize or commit to do, any of the
following, and with respect to Section 5.1(g), Sellers shall not directly or indirectly do any of
the following, in each case unless otherwise
expressly contemplated by this Agreement, as set forth in Section 5.1 of the Disclosure Letter
or without the prior written consent of Buyer, which consent shall not be unreasonably withheld or
delayed:

     (a) amend or otherwise change the Company’s certificate of limited partnership or bylaws (or
similar organizational documents);

     (b) except as required under a Contract in force as of the date of this Agreement, and the
disposition of “Scheduled Assets” as set forth in Section 5.1 of the Disclosure Letter, issue,
deliver, sell, lease, sell and leaseback, pledge, license, transfer, mortgage, encumber, dispose of
or otherwise subject to any Lien (i) the Company Securities (including, for the avoidance of doubt,
the Units) or (ii) any property or assets, whether tangible or intangible, of the Company, other
than assets or services sold, leased, pledged, licensed, transferred, disposed of or encumbered in
the ordinary course of business and in a manner consistent with past practice;

     (c) declare, set aside, make or pay any dividend or other distribution by the Company, payable
in cash, stock or other equity interests, property or otherwise, other than distributions intended
to cover Taxes related to the operations of the Company for any period prior to Closing and cash
distributions by the Company not in excess of the net proceeds from the disposition of “Scheduled
Assets”;

     (d) reclassify, combine, split, subdivide or redeem, purchase or otherwise acquire, directly
or indirectly, any of the Company Securities;

     (e) incur any Indebtedness or issue any securities in respect of Indebtedness or assume,
guarantee or endorse, or otherwise as an accommodation become responsible for, the obligations or
Indebtedness of any Person, in excess of $1,000,000 in the aggregate, other than revolving credit
borrowings and reborrowings and letter of credit issuances in a manner consistent with past
practice under the Credit Agreement;

     (f) (i) amend in any material respect, terminate, cancel or renew any Company Contract or
agreement recorded against the Real Property, or enter into any Contract that would be a Company
Contract if it had been in effect on the date of this Agreement, provided that, for

24

 

the avoidance
of doubt, to the extent any such Contract is entered into after the date of this Agreement in
accordance with this Agreement, such Contract shall be deemed to be a Company Contract for purposes
of this Agreement, (ii) acquire (including by merger, consolidation or acquisition of stock or
assets) any assets (other than in the ordinary course of business), business or any corporation,
partnership, limited liability company, association or business organization or division thereof
(other than acquisitions prior to the Closing having an aggregate consideration of not more than
$1,000,000) other than fuel, supplies, maintenance materials and other inventory items in the
ordinary course of business consistent with past practice, or (iii) authorize or make any capital
expenditures, except such expenditures made prior to the Closing Date (x) in an amount not in
excess of $1,000,000 individually or $5,000,000 in the aggregate and emergency or (y) ordinary
course capital expenditures in accordance with clause (3) of Section 5.1 of this Agreement;

     (g) except to the extent required under applicable Law or the terms of any Sellers Benefit
Plan existing as of the date of this Agreement, materially increase or otherwise materially amend
the compensation or fringe benefits of any Sellers Employee (except for increases in salary or
hourly wage rates, in the ordinary course of business consistent with past practice);

     (h) pay, discharge or satisfy any material claims, liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction when due or otherwise in the ordinary course of business and consistent with past
practice of liabilities reflected or reserved against in the balance sheet of the Company as of
December 31, 2005 or incurred in the ordinary course of business and consistent with past practice
after December 31, 2005;

     (i) make any loans, advances or capital contributions (including any “keep well” or other
Contract to maintain any financial statement condition of another Person) to, or investments in,
any other Person; or

     (j) fail to maintain in full force and effect insurance policies covering the Company and its
properties, assets and business in a form and amount consistent with the Company’s current
insurance program, including the Company Insurance Policies (except in the ordinary course of
business to the extent any such policies expire in accordance with their term and they are replaced
with policies consistent with good practice for independent power companies, subject to insurance
market conditions).

     For purposes of clarification, the Company shall be entitled to, and nothing in this Agreement
shall restrict the Company’s right to, declare, make and pay prior to the Closing Date, Quarterly
Tax Distributions and cash distributions of the proceeds from the disposition of “Scheduled
Assets.”

     Section 5.2 Access to Information.

     (a) From the date of this Agreement to the Closing, Sellers will, and will cause their
Subsidiaries and their Subsidiaries’ respective officers, directors, employees, accountants,
auditors, counsel, financial advisors and other agents and representatives (collectively,

25

 

“Representatives”) to (i) give to Buyer and its Representatives reasonable access during normal
business hours to the officers, Sellers Employees, agents, properties, offices, plants and other
facilities and to the books, personnel, Contracts and records of the Company, (ii) permit Buyer and
its Representatives to make such copies and inspections thereof as the other may reasonably
request, and (iii) furnish Buyer and its Representatives with such financial, trading, marketing
and operating data and other information concerning the business, properties, Contracts, assets,
liabilities, personnel and other aspects of the Company, as Buyer and its Representatives may from
time to time reasonably request, provided, however, that any access to properties of the Company
shall be conducted at Buyer’s expense, at a reasonable time, under the reasonable supervision of
the Company’s personnel and in such a manner as to not interfere unreasonably with the operation of
the businesses of the Company; provided, further, that the Company shall not be
required to provide access to any information (i) that is subject to attorney-client privilege to
the extent doing so would reasonably be expected to cause
such privilege to be waived or (ii) that is subject to contractual prohibition against
disclosure to the extent doing so would violate such prohibition. Notwithstanding the foregoing,
Buyer shall not have the right to conduct testing or sampling of water, soil or other media, other
intrusive environmental testing or sampling, without the prior written consent of Sellers.

     (b) All such information and access shall be subject to the terms and conditions of the
confidentiality letter agreement dated December 22, 2005 (the “Confidentiality Agreement”) between
Topaz Power Partners and American National Power, Inc., until the Closing Date.

     Section 5.3 Consents; Cooperation.

     (a) Sellers and Buyer shall cooperate, and use reasonable best efforts, to take, or cause to
be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other
Party in doing, all things necessary, proper or advisable to consummate and make effective the
transactions contemplated hereby as promptly as practicable, including, but not limited to making
all filings (including filing with the PUC) and obtaining all Approvals and third party consents
necessary to consummate the transactions contemplated by this Agreement; provided, however, that,
with respect to the foregoing, (i) such efforts shall not require Sellers or Buyer or any of their
respective Subsidiaries to make any payment to obtain any such Approval or third-party consent,
other than nominal transfer fees or filing fees and/or the costs and expenses of third parties
pursuant to the terms of any Contract, (ii) except as required by Law, the Company shall not be
permitted to consent to any action or to make or offer to make any substantive commitment or
undertaking or incur any liability or obligation with respect to the Company without the consent of
Buyer, which shall not be unreasonably withheld and (iii) without limiting the generality of the
foregoing, the actions of Sellers and Buyer with respect to filings, approvals and other matters
pursuant to the HSR Act and any local, state, federal (other than the HSR Act) or foreign antitrust
statute, antitrust law, antitrust regulation or antitrust rule applicable to Sellers, the Company
or Buyer (“Other Regulations”) shall also be governed by subsections (b), (c), (d) and (e) of this
Section 5.3. Without limiting the generality of the foregoing and except as required to consummate
the transaction contemplated hereby, Buyer will not, and agrees to cause its Subsidiaries not to,
take any action, including incurring any indebtedness, issuing any capital stock or acquiring
(including by merger, consolidation or acquisition of stock of assets) or disposing of any assets
or securities, in each case that would reasonably be expected to have an adverse effect on the
receipt or timing of receipt of any Required Approval.

26

 

     (b) Sellers and Buyer shall file with (i) the United States Federal Trade Commission (the
“FTC”) and the United States Department of Justice (the “DOJ”), the notification and report form
required for the transactions contemplated by this Agreement and any supplemental information
requested in connection with such notification and report form pursuant to the HSR Act, and (ii)
any other applicable Governmental Authority, all filings, reports, information and documentation
required for the consummation of the transactions contemplated by this Agreement pursuant to the
Other Regulations. Sellers and Buyer shall furnish to each other’s counsel such necessary
information and reasonable assistance as the other Party may reasonably request in connection with
its preparation of any filing or submission that is necessary under the HSR Act and Other
Regulations. Sellers and Buyer shall
consult with each other as to the appropriate time of making such filings and submissions and
shall use reasonable best efforts to make such filings and submissions at the agreed upon time.

     (c) Sellers and Buyer shall keep each other apprised of the status of any communications with,
and any inquiries or requests for additional information from, the FTC and the DOJ and other
governmental or regulatory entities in connection with the transactions contemplated hereby and
shall comply promptly by responding to any such inquiry or request.

     (d) Sellers and Buyer shall use reasonable best efforts to vigorously defend, mitigate and
rescind the effect of any Action materially and adversely affecting this Agreement or the ability
of the parties to consummate the transactions contemplated by this Agreement, including promptly
appealing any adverse Order.

     (e) Sellers and Buyer shall take any and all commercially reasonable steps necessary to avoid
or eliminate each and every impediment under the HSR Act and any Other Regulations that may be
asserted by any Governmental Authority with respect to the transactions contemplated by this
Agreement so as to enable the Closing to occur as soon as reasonably possible; provided, however,
that Buyer shall not be required to take, or refrain from taking, any action pursuant to this
Section 5.3 to the extent that such action or inaction would reasonably be expected to result in a
material adverse effect on Buyer or its Affiliates.

     (f) With respect to any agreements for which any required Approval or third-party consent is
not obtained prior to the Closing Date, as applicable, Sellers and Buyer will each use reasonable
best efforts to obtain any such consent or approval after such date until such consent or approval
has been obtained.

     (g) Sellers shall keep Buyer reasonably apprised of the status of matters relating to the
completion of the transactions contemplated hereby and shall promptly furnish Buyer with copies of
all notices or other communications received by Sellers or by the Company or its or their
Representatives from any third party and/or any Governmental Authorities with respect to the
transactions contemplated hereby. Sellers shall promptly furnish to Buyer such necessary
information and reasonable assistance as Buyer may request in connection with the foregoing and
shall promptly provide counsel for Buyer with copies of all filings made by the Company, and all
correspondence between the Company (and its Representatives) with any Governmental Authority and
any other information supplied by the Company (and its Representatives) to a Governmental Authority
in connection herewith and the transactions contemplated hereby. Sellers shall, subject to
applicable Law, permit counsel for Buyer reasonable opportunity to

27

 

review in advance, and consider
in good faith the views of Buyer in connection with, any proposed written communication by Sellers
or the Company to any Governmental Authority in connection with the transactions contemplated
hereby. Sellers agree not to participate, or to permit the Company to participate, in any
substantive meeting or discussion, either in person or by telephone, with any Governmental
Authority in connection herewith and the transactions contemplated hereby unless it consults with
Buyer in advance and, to the extent not prohibited by such Governmental Authority, gives Buyer and
its counsel the opportunity to attend and participate.

     (h) Buyer shall keep Sellers reasonably apprised of the status of matters relating to the
completion of the transactions contemplated hereby and shall promptly furnish Sellers with copies
of all notices or other communications received by Buyer or its Representatives from any third
party and/or any Governmental Authorities with respect to the transactions contemplated hereby.
Buyer shall promptly furnish to Sellers such necessary information and reasonable assistance as
Sellers may request in connection with the foregoing and shall promptly provide counsel for Sellers
with copies of all filings made by Buyer, and all correspondence between Buyer (and its
Representatives) with any Governmental Authority and any other information supplied by Buyer (and
its Representatives) to a Governmental Authority in connection herewith and the transactions
contemplated hereby. Buyer shall, subject to applicable Law, permit counsel for Sellers reasonable
opportunity to review in advance, and consider in good faith the views of Sellers in connection
with, any proposed written communication by Buyer to any Governmental Authority. Buyer agrees not
to participate in any substantive meeting or discussion, either in person or by telephone, with any
Governmental Authority in connection herewith and the transactions contemplated hereby unless it
consults with Sellers in advance and, to the extent not prohibited by such Governmental Authority,
gives Sellers and their respective counsel the opportunity to attend and participate.

     Section 5.4 Reasonable Best Efforts. Sellers and Buyer shall cooperate, and use reasonable
best efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable to cause the conditions to the Closing set forth in Article VI to be
satisfied and to consummate the transactions contemplated by this Agreement. Without limiting the
foregoing, after the Closing, each of the Parties, at the reasonable request of the other shall
execute and deliver, or cause to be executed and delivered, such assignments, deeds, bills of sale
and other instruments of transfer as any Party reasonably may request as necessary, proper or
advisable in order to effect or further evidence the Acquisition and the other transactions
contemplated thereby, and Buyer shall assist Sellers in connection with any third party claims
brought against Sellers or their respective Affiliates by providing Sellers and their respective
Affiliates and Representatives reasonable access during normal business hours to the officers,
Sellers Employees, agents, properties, offices, plants and other facilities and to the books,
personnel, Contracts and records of the Company; provided, however, that any access to properties
of the Company pursuant to the foregoing sentence shall be conducted at Sellers’ expense, at a
reasonable time, under the reasonable supervision of Buyer’s personnel and in such a manner as to
not interfere unreasonably with the operation of the businesses of the Company.

     Section 5.5 Public Announcements. Prior to the Closing, except as otherwise agreed to by the
Parties, no Party shall issue any report, statement or press release or otherwise make any public
statements with respect to this Agreement and the transactions contemplated by

28

 

this Agreement,
except as described in the following sentence and in the reasonable judgment of a Party that it may
be required by Law (including in connection with regulatory proceedings) or in connection with its
obligations as a publicly-held, exchange-listed or Nasdaq-quoted company, to do so, in which case
the Parties will use their reasonable best efforts to reach mutual agreement as to the language of
any such report, statement or press release. Upon the execution of this Agreement and upon the
Closing, the Parties shall mutually agree upon the form of, and shall issue, a joint press release
with respect to this Agreement and the transactions contemplated by this Agreement.

     Section 5.6 Employees; Employee Benefits.

     (a) Buyer agrees to make an offer of employment to each Sellers Employee on or before the
Closing Date. Each such offer of employment shall (i) be effective as of the Closing Date, (ii)
include a rate of base pay no less than the rate of base pay payable to each Sellers Employee, as
set forth on Section 3.10(a) of the Disclosure Letter, and (iii) have a principal place of work
that is no greater than fifty (50) miles from such Sellers Employee’s principal place of work
immediately prior to the Closing Date. Each Sellers Employee who accepts such offer of employment
shall be hereinafter referred to as a “Transferred Employee.” Unless otherwise agreed between
Buyer and a Transferred Employee, offers of employment shall be on an at-will basis.

     (b) For the one-year period commencing on the Closing Date (the “Benefits Maintenance
Period”), the Buyer shall (i) provide each Transferred Employee with at least the same rate of base
pay and same bonus opportunities to which each such Transferred Employee is entitled immediately
prior to the Closing Date as set forth on Section 3.10(a) and Section 3.10(b) of the Disclosure
Letter, as applicable, and (ii) provide the Transferred Employees with employee benefits
(including, for the avoidance of doubt, retirement, retiree medical, welfare and fringe benefits)
that are, in the aggregate, at least equal in value to the benefits provided to the Transferred
Employees under the Sellers Benefit Plans immediately prior to the Closing Date. Any employee
benefit plans, programs or policies of Buyer or its Affiliates or Subsidiaries in which Transferred
Employees become eligible to participate after the Closing Date shall be referred to hereinafter
as, the “Buyer Benefit Plans.” Neither Buyer nor any Buyer Benefit Plan shall receive assets from
the Sellers Benefit Plans or any other benefit plan maintained by Sempra, Topaz Power Group, STS,
Sellers or their respective Affiliates. In addition, Sempra, Topaz Power Group, STS, Sellers or
their respective Affiliates, successors or assigns, as applicable, shall retain any liabilities or
obligations relating to Sellers Employees under any Sellers Benefit Plan or any other benefit plan
maintained by Sempra, Topaz Power Group, STS, Sellers or their respective Affiliates that have
accrued prior to the Closing Date.

     (c) To the extent that service is relevant for any purpose, including eligibility to
participate, vesting credit, eligibility to commence benefits, benefit accrual, early retirement
subsidies, and severance benefits, under a Buyer Benefit Plan, Buyer shall credit, effective as of
the Closing Date and under the applicable Buyer Benefit Plans, each Transferred Employee with such
Transferred Employee’s service with, or recognized by, Sempra, Topaz Power Group, STS, Sellers, the
Company or their respective Affiliates (including their predecessors) prior to or on the Closing
Date, to the same extent as if such service were with Buyer; provided, however, that

29

 

such service
shall not be required to be recognized to the extent that such recognition would result in a
duplication of benefits.

     (d) Buyer shall provide at least the same amount and type of severance benefit as that
described in Section 5.6(d) of the Disclosure Letter to any Transferred Employee who, during the
Benefits Maintenance Period, (i) is terminated without cause or (ii) elects to terminate his or her
employment with Buyer or its Subsidiaries within seven (7) days after Buyer notifies such
Transferred Employee of Buyer’s intent to (1) reduce such Transferred Employee’s rate of base pay
or bonus opportunity or (2) assign such Transferred Employee to a principal place of work
that is greater than fifty (50) miles from such Transferred Employee’s principal place of work
immediately prior to the Closing Date. In addition, Buyer agrees to indemnify Sempra, Topaz Power
Group, STS, Sellers and their Affiliates for any severance pay, termination pay or similar pay to
which a Sellers Employee may become entitled in the event (i) Buyer fails to make an offer of
employment to such Sellers Employee (excluding, for purposes of this Section 5.6(d)(i) only, any
STS Employee) or (ii) any offer of employment by Buyer to such Sellers Employee fails to comply
with the terms and conditions of Section 5.6(a) of this Agreement.

     (e) With respect to any Buyer Benefit Plans, except to the extent otherwise required by
applicable law, Buyer shall (i) waive, or cause the waiver of, all pre-existing conditions,
exclusions and waiting periods with respect to participation and coverage requirements applicable
to the Transferred Employees and their eligible dependents, and (ii) for purposes of satisfying any
deductible or out-of-pocket requirements, provide each Transferred Employee and their eligible
dependents with credit for any co-payments and deductibles paid prior to the date hereof under the
analogous Sellers Benefit Plan. Sellers will furnish Buyer with such information concerning the
amount of such co-pays and deductibles as may be reasonably necessary to enable Buyer to comply
with the provisions of this Section 5.6(e)

     (f) In accordance with the elections made pursuant to Section 401(a)(31) of the Code by
Transferred Employees and to the extent permissible under any applicable Law, Sellers shall
facilitate the transfer of assets held in the respective accounts of such Transferred Employees
from the Sempra Energy Retirement Savings Plan to a defined contribution benefit plan or plans
designated by Buyer. Buyer agrees to cause such Buyer defined contribution plan or plans to accept
intact rollovers of cash and loans associated with such Transferred Employee accounts and Buyer
will cooperate with Sellers to enable such rollovers to occur before any such loans become
defaulted.

     (g) Buyer agrees to provide any required notice under the WARN Act and to otherwise comply
with the WARN Act or any similar law with respect to any “plant closing” or “mass layoff” (as
defined in the WARN Act) affecting Sellers Employees and occurring on or after the Closing Date.

     (h) After the date of this Agreement and prior to the Closing Date, Buyer shall have the right
to meet with Sellers Employees, as a group and not on an individual one-on-one basis, from time to
time to discuss post-Closing employment matters; provided, however, that Buyer shall notify Sellers
at least two (2) business days prior to the date on which a meeting is proposed to be held, and
Sellers shall have the right to have one or more Representatives of Sellers or their Affiliates
(except any Sellers Employees) attend such meeting. If any materials are to be

30

 

provided or used
during a meeting, Buyer shall provide copies of such materials to Sellers at least two (2) business
days prior to such meeting, and the use or provision of such materials during the meeting will be
subject to Sellers’ reasonable consent.

     (i) After the date of this Agreement and prior to the Closing Date, Buyer shall have the
right, with the consent of Sellers, to meet with those STS Employees who Buyer determines in good
faith are reasonably necessary for its operation of the business of the Company, to discuss
potential employment with Buyer from and after the Closing Date; provided, however, that Buyer
shall notify Sellers of the STS Employees with which Buyer would like to meet at
least five (5) business days prior to the date on which a meeting is proposed to be held and
Sellers shall have the right to have one or more Representatives of Sellers or their Affiliates
attend such meeting. If any materials are to be provided or used during a meeting, Buyer shall
provide copies of such materials to Sellers at least two (2) business days prior to such meeting
and the use or provision of such materials during the meeting will be subject to Sellers’ consent
(not to be unreasonably withheld or delayed). Notwithstanding anything herein to the contrary, the
parties acknowledge and agree that nothing in this Section 5.6(i) shall obligate the Buyer to make
any offer of employment to any STS Employee or obligate Sellers to make any STS Employee available
to Buyer for employment. In addition, in the event Buyer does make an offer of employment to an
STS Employee, Buyer agrees to treat such STS Employee as a Seller Employee (and to the extent such
STS Employee accepts such offer, a Transferred Employee) for purposes of the provisions of this
Section 5.6 (including, without limitation, the offer of employment conditions set forth in Section
5.6(a), but excluding Section 5.6(h)). Furthermore, with respect to any STS Employee who is not
offered employment by Buyer prior to the Closing Date, (i) Sellers and their Affiliates will retain
liability for any severance pay, termination pay or similar pay to which any such STS Employee may
become entitled and (ii) Buyer will not, and will not cause its Affiliates to, directly or
indirectly, for the six (6) month period from the Closing Date, for Buyer’s or such Affiliate’s
account or for the account of any Person, solicit or induce, or assist a third party in soliciting
or inducing, any such STS Employee, to leave or cease their employment relationship with Sellers,
STS or their respective affiliates, for any reason whatsoever, or hire or otherwise engage, or
assist a third party in hiring or otherwise engaging, any such STS Employee.

     Section 5.7 Tax Matters.

     (a) Sellers shall prepare and file, or cause to be prepared and filed, any Tax Returns of the
Company for any taxable period ending on or before the Closing. Buyer shall prepare and file, or
cause to be prepared and filed, all Tax Returns of the Company for any taxable period ending after
the Closing Date (for purposes of the Texas Franchise Tax the terms “taxable period” or “period”
that appear in this Section 5.7 shall mean the “privilege period” as that term is used in
administering the Texas Franchise Tax), including all Tax Returns that relate to periods beginning
before and ending after the Closing Date (“Straddle Returns”). All Straddle Returns shall be
prepared on a basis consistent with existing procedures and practices of the Company for filing
such Tax Returns. Buyer shall not, or allow the Company to, amend a Tax Return (or extend the
statute of limitations for assessment or collection of any Taxes with respect to a Tax Return) that
relates to any period (portion thereof) ending on or before the Closing Date without the prior
written permission of Seller (which will not be unreasonably withheld). Seller shall have the right
to review Straddle Returns and shall be entitled to fully participate in that

31

 

portion of any
proceedings or audits relating to Taxes with respect to which Sellers may incur Tax liability.
Buyer agrees to cooperate with Sellers, and Sellers agree to cooperate with Buyer, to provide any
information requested by Sellers or Buyer, as the case may be, in order to prepare such returns.

     (b) Sellers shall be liable for, and shall indemnify and hold Buyer harmless from, any taxes
imposed on the Company with respect to any period ending on or before the Closing Date, which shall
include Sellers’ pro-rata portions of any Straddle Period Taxes, as determined under Section 5.7(c)
or taxes based upon real or personal property as determined under Section 5.7(d).
Buyer’s shall be liable for, and shall indemnify and hold Sellers harmless from, any Taxes
imposed on the Company with respect to any period beginning after the Closing Date, which shall
include Buyer’s pro-rata portions of any Straddle Period Taxes, as determined under Section 5.7(c)
or taxes based upon real or personal property as determined under Section 5.7(d).

     (c) In the case of any taxable period beginning before and ending after the Closing Date (the
“Straddle Period”), the Party liable for the payment of and indemnification for Taxes related to
such period and the amount of Tax allocated to such Party shall be determined on a per diem basis.

     (d) All real or personal property Taxes assessed on an annual basis shall be prorated between
Sellers and Buyer as of the Closing Date based on the assumption that an equal amount of Taxes
applies to each day of the year, regardless of how any installment payments are billed or made,
except that Buyer will bear all supplemental or other state and local real and personal property
Taxes which arise out of a change in ownership of the Companies. Sellers shall cause the Company
to pay their portion of such real and personal property Taxes to the Buyer on or prior to the
Closing, and except as provided in the next sentence, shall have no further liability or obligation
with respect to such Taxes. If the amount of all real and personal property Taxes due for the 2006
year (commencing January 1, 2006) has not been assessed by the taxing authorities as of the Closing
Date, then the amount of real and personal property Taxes as prorated between Sellers and Buyer for
the 2006 tax will be estimated on the basis of the 2005 tax year’s real and personal taxes and such
amount will be subject to a true-up adjustment after the Closing Date based upon the actual amount
of Taxes assessed.

     (e) After the Closing Date in the case of any audit, examination, or other proceeding with
respect to Taxes (“Tax Proceeding”) for which Sellers are or may be liable hereunder, Buyer shall
inform Sellers within thirty (30) days of the receipt of any notice of such proceeding and shall
keep Sellers informed of the progress of such proceedings. Seller shall be entitled to fully
participate in any proceeding. Buyer shall not agree to any adjustments which affect taxable
periods for which Sellers are liable for payment of Tax without first receiving the consent of
Sellers, which consent shall not be unreasonably withheld.

     (f) All excise, sales, use, transfer (including real property transfer or gains), stamp,
documentary, filing, recordation and other similar taxes, together with any interest, additions or
penalties with respect thereto and any interest in respect of such additions or penalties,
resulting directly from the Acquisition (the “Transfer Taxes”), shall be paid by Buyer.

32

 

     Section 5.8 Escrow Agreement. On or prior to the Closing Date, Buyer and Sellers will execute
and deliver, and will use reasonable best efforts to cause the Escrow Agent to execute and deliver,
the Escrow Agreement.

     Section 5.9 Mutual Release. Effective as of the Closing, Sellers, on the one hand, and Buyer
on the other hand, hereby unconditionally and irrevocably and forever releases and discharges the
other, its respective Affiliates, successors and assigns, and any present or former directors,
managers, officers, employees or agents of the other (collectively, the respective “Released
Parties”), of and from, and hereby unconditionally and irrevocably waives, any and all claims,
debts, losses, expenses, proceedings, covenants,
liabilities, suits, judgments, damages, actions and causes of action, obligations, accounts,
and liabilities of any kind or character whatsoever, known or unknown, suspected or unsuspected, in
contract, direct or indirect, at law or in equity (collectively, the respective “Released Claims”)
that such Party ever had, now has or ever may have or claim to have against any Released Party, for
or by reason of any matter, circumstance, event, action, inaction, omission, cause or thing
whatsoever arising prior to the Closing and to the extent based upon the applicable Sellers’
capacity as a holder of Units, including without limitation any Released Claims arising under
Environmental Law, and regardless of whether the released claims are the result of the sole, gross,
active passive concurrent or comparative negligence, strict liability or other fault or violation
of any law of or by and Released Party; provided, however, that this release does not extend to
Released Claims to enforce the terms or any breach of this Agreement or any of the provisions set
forth herein. Following the Closing, Buyer shall cause the Company to release Sellers to the same
extent Sellers have been released by Buyer in accordance with this Section 5.9.

     Section 5.10 SES PPA. Simultaneously with and effective as of the Closing, Buyer shall (or
shall cause the Company to) deliver Security (as defined in the Master Power Purchase and Sale
Agreement, dated as of June 28, 2004, by and between the Company and Sempra Energy Solutions (as
amended pursuant to the SES PPA Amendment, the “SES PPA”)) in the amount of Party A’s Security
Amount (as defined in the SES PPA) in accordance with the SES PPA.

     Section 5.11 Intercompany Arrangements. Sellers shall cause all Intercompany Arrangements,
excluding any Surviving Intercompany Arrangements, to be terminated concurrently with the Closing.
For purposes of this Agreement, (a) “Intercompany Arrangement” means any contract, agreement or
arrangement in respect of any intercompany transaction between the Company, on the one hand, and
either Seller or any of its Affiliates, on the other hand, whether or not such transaction relates
to any contribution to capital, loan, the provision of goods or services, tax sharing arrangements,
payment arrangements, intercompany advances, charges or balances or the like and (b) “Surviving
Intercompany Arrangement” means any Intercompany Arrangements listed in Exhibit D-2. For
the avoidance of doubt, no such termination of an Intercompany Agreement pursuant to this Section
5.11 (including with respect to termination of the Amended and Restated Asset Management Agreement
(Topaz) dated as of July 1, 2004, by and between Coleto Creek Power, LP and Sempra Texas Services,
LP.) shall in any way modify, release or otherwise extinguish any rights or obligations explicitly
surviving the termination of such Intercompany Agreement pursuant to the terms thereof.

33

 

     Section 5.12 Casualty. Sellers will (a) on or prior to Closing, promptly file or cause to be
filed, in the ordinary course of business and in accordance with its customary practices and
procedures, all insurance claims relating to any damage to or destruction of all or any portion of
the Plant occurring prior to the Closing, and (b) pay or cause to be paid to the Company, all
proceeds of insurance claims (other than claims for business interruption insurance and amounts
paid or accrued in respect of Liabilities reflected on or contemplated by the financial statements
of the Company) filed on or prior to the Closing, not otherwise payable to the Company and relating
to damage or destruction of all or a portion of the plant occurring prior to the Closing.

     Section 5.13 Transition Services Agreement. Sellers agree to provide the services described
in Section 5.13 of the Disclosure Letter, subject to terms and conditions to be mutually agreed by
the Sellers and Buyer. The Parties shall use commercially reasonable efforts to enter into a
Transition Services Agreement within thirty (30) Business Days of the date hereof, which Transition
Services Agreement shall become effective on the Closing Date. “Transition Services Agreement”
means that certain agreement, dated not later than the Closing Date, between Seller and Purchaser
for the provision by Seller of the services described in Section 5.13 of the Disclosure Letter.

ARTICLE VI

CONDITIONS TO CONSUMMATION OF THE ACQUISITION

     Section 6.1 Conditions to Buyer’s and Sellers’ Obligations to Consummate the Acquisition. The
respective obligations of Buyer and Sellers to consummate the Acquisition are subject to the
satisfaction on or prior to the Closing Date of each of the following conditions:

     (a) No Law or Order shall exist or shall have been enacted, entered, promulgated or enforced
by any Governmental Authority which prohibits or makes illegal consummation of the Acquisition or
any of the other transactions related thereto.

     (b) Any waiting period applicable to the Acquisition under the HSR Act shall have expired or
been terminated.

     (c) All consents or approvals under Section 39.158 of Chapter 39 of the Texas Utilities Code
required to be given or made by the Public Utility Commission of Texas in order to consummate the
Acquisition shall have been obtained.

     Section 6.2 Further Conditions to Sellers’ Obligations. The obligations of Sellers to
consummate the Acquisition are further subject to satisfaction or, if permitted by applicable Law,
waiver by each applicable Seller, on or prior to the Closing Date of each of the following
conditions:

     (a) Representations and Warranties. Each of the representations and warranties of
Buyer set forth in Article IV of this Agreement shall be true and correct as of the date of this
Agreement and on and as of the Closing Date as though such representations and warranties were made
on and as of such date, except for representations and warranties which speak as of an earlier date
or period which shall be true and correct as of such date or period; provided, however, that for
purposes of this clause, such representations and warranties shall be deemed to

34

 

be true and correct
unless the failure or failures of all such representations and warranties to be so true and
correct, without giving effect to any qualification as to materiality or Buyer Material Adverse
Effect set forth in such representations or warranties, would reasonably be expected, in the
aggregate, to have a Buyer Material Adverse Effect.

     (b) Performance Obligations of Buyer. Buyer shall have performed in all material
respects all obligations required to be performed by it under this Agreement at or prior to the
Closing.

     (c) Officer’s Certificate. Sellers shall have received a certificate, dated the
Closing Date, signed on behalf of Buyer by either the Chief Executive Officer or Chief Financial
Officer of Buyer certifying as to the matters described in Sections 6.2(a) and 6.2(b).

     Section 6.3 Further Conditions to Buyer’s Obligations. The obligation of Buyer to consummate
the Acquisition shall be further subject to the satisfaction or, if permitted by applicable Law,
waiver by Buyer, on or prior to the Closing Date, of each of the following conditions:

     (a) Representations and Warranties of Sellers. Each of the representations and
warranties of Sellers (i) set forth in Article II (other than Section 2.3) and Article III of this
Agreement shall be true and correct as of the date of this Agreement and as of the Closing Date as
though such representations and warranties were made on and as of such date, except for
representations and warranties that speak as of an earlier date or period which shall be true and
correct as of such date or period; provided, however, that for purposes of this clause, such
representations and warranties shall be deemed to be true and correct unless the failure or
failures of all such representations and warranties to be so true and correct, without giving
effect to any qualification as to materiality or Company Material Adverse Effect set forth in such
representations or warranties, would reasonably be expected, in the aggregate, to have a Company
Material Adverse Effect and (ii) set forth in Section 2.3 shall be true and correct as of the date
of this Agreement and as of the Closing Date as though made on and as of the Closing Date, except
for representations and warranties which speak as of an earlier date or period which shall be true
and correct as of such date or period.

     (b) Performance Obligations. Each of Sellers and the Company shall have performed in
all material respects all obligations required to be performed by them under this Agreement at or
prior to the Closing Date.

     (c) Officer’s Certificate. Buyer shall have received a certificate, dated the Closing
Date, signed on behalf of Sellers by either the Chief Executive Officer or Chief Legal Officer of
each Seller, certifying as to the matters described in Section 6.3(a) and 6.3(b).

     (d) No Material Adverse Effect. Since the date hereof, there shall not have occurred
any state of facts, change, development, event, effect, condition or occurrence that, individually
or in the aggregate, has or would reasonably be expected to have a Company Material Adverse Effect.

     (e) Payment of Outstanding Amounts Under the Credit Agreement. At or prior to the
Closing, the Company shall have received and delivered to Buyer the Pay-Off Letters.

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ARTICLE VII

TERMINATION AND ABANDONMENT

     Section 7.1 Termination. This Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time prior to the Closing Date, as follows (the date of any such
termination, the “Termination Date”):

     (a) by mutual written consent of Sellers and Buyer;

     (b) by Sellers or Buyer if the Closing shall not have been consummated on or before September
25, 2006 (the “Optional Termination Date”); provided, however, that the right to terminate this
Agreement pursuant to this Section 7.1(b) shall not be available to Sellers, if their failure to
perform, or Buyer, if its failure to perform, its obligations under this Agreement has been the
cause of, or resulted in, the failure of the Acquisition to have been consummated on or before the
Termination Date;

     (c) by Sellers, on the one hand, or Buyer, on the other hand, if there shall have been a
material breach of any of the covenants or agreements or any of the representations or warranties
set forth in this Agreement on the part of Buyer, in the case of termination by Sellers, or any of
Sellers, in the case of a termination by Buyer, which breach, individually or together with all
other such breaches, would constitute, if occurring or continuing on the Closing Date, the failure
of any of the conditions set forth in Section 6.2 or 6.3, as the case may be, and which is not
cured within thirty (30) days following written notice to the Party committing such breach or by
its nature or timing cannot be cured prior to the Closing Date;

     (d) by Sellers or Buyer if (i) a Governmental Authority shall have issued an Order or taken
any other action permanently restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement and such Order shall have become final and non-appealable or (ii) a
Governmental Authority of competent jurisdiction shall have denied or otherwise failed to grant a
Required Approval and such failure or denial shall have become final and non-appealable, as a
result of which the conditions set forth in Section 6.1 shall become incapable of being satisfied;
or

     (e) by Buyer, if there shall have been a Company Material Adverse Effect which is not cured
within thirty (30) days following written notice thereof by Buyer to Sellers.

     Section 7.2 Procedure for and Effect of Termination. In the event of termination of this
Agreement and abandonment of the transactions contemplated by this Agreement by either Party as
provided under Section 7.1 of this Agreement, written notice thereof shall be given by a Party so
terminating to the other Party and this Agreement shall forthwith become void and have no effect,
and the transactions contemplated by this Agreement shall be abandoned without further action by
Sellers or Buyer, without any liability or obligation on the part of Sellers or Buyer, other than
the provisions of Section 5.2(b), this Section 7.2, and Article VIII. If this Agreement is
terminated under Section 7.1:

     (a) each Party shall redeliver all documents, work papers and other materials of the other
parties relating to the transactions contemplated by this Agreement which have not been

36

 

consummated as of the date of termination, whether obtained before or after the execution of
this Agreement, to the Party furnishing the same, and all confidential information received by any
Party hereto with respect to the other Party shall be treated in accordance with the
Confidentiality Agreement and Section 5.2(b);

     (b) all filings, applications and other submissions made pursuant hereto shall, to the extent
practicable, be withdrawn from the agency or other Person to which made, to the extent the
applicable transaction has not been consummated; and

     (c) there shall be no liability or obligation under this Agreement on the part of Sellers or
Buyer or any of their respective Representatives, and no breach of any representation, warranty,
covenant or agreement contained herein shall give rise to any right on the part of Buyer or
Sellers, after the consummation of the purchase and sale of the Units contemplated by this
Agreement, to rescind this Agreement or any of the transactions contemplated hereby; except that
nothing contained in this Section 7.2 shall relieve any Party from liability for its willful or
intentional breach of representations, warranties, covenants or agreements set forth in this
Agreement; and except that the obligations provided for in Section 5.2(b), this Section 7.2 and
Article VIII shall survive any such termination.

ARTICLE VIII

MISCELLANEOUS PROVISIONS

     Section 8.1 Representations and Warranties and Covenants. All representations and warranties
in Articles II, III and IV of this Agreement or in any instrument delivered pursuant to this
Agreement shall not survive and shall terminate at the Closing Date or, subject to Section 7.2(c),
upon termination of this Agreement pursuant to Article VII, as the case may be, and each party
hereby waives its right to bring any claim in respect thereof following such Closing Date or
termination of this Agreement, as the case may be; provided, however, that the
representations and warranties in Sections 2.2, 2.3, 3.2 and 3.3(a) shall survive for a period of
one (1) year following the Closing Date. Each covenant contained in Article V of this Agreement
that is required to be performed in whole or in part following the Closing shall survive the
Closing Date or termination of this Agreement, as the case may be, until the expiration of the
applicable statute of limitations therefor.

     Section 8.2 Amendment and Modification. This Agreement may be amended, modified or
supplemented at any time by the Parties to this Agreement, under an instrument in writing signed by
all Parties.

     Section 8.3 Entire Agreement; Assignment. This Agreement (including the Disclosure Letter,
which constitutes a part of this Agreement), Annexes and Exhibits hereto, the Letter Agreement,
dated as of the date hereof, by and between Buyer and Carlyle/Riverstone Energy Partners II, L.P.
and the Confidentiality Agreement (a) constitute the entire agreement between the parties
concerning the subject matter of this Agreement and supersede other prior agreements and
understandings, both written and oral, between the parties concerning the subject matter of this
Agreement, and (b) shall not be assigned, by operation of Law or otherwise, by a Party, without the
prior written consent of the other parties, and any such assignment without

37

 

such prior written consent shall be null and void provided that (i) Buyer may assign
in whole or in part its rights and interests and delegate its obligations hereunder to one or more
wholly-owned, direct or indirect subsidiaries of Buyer upon written notice to Sellers, (ii) Buyer
(or any permitted assignee) may pledge its rights and interests hereunder pursuant to security
documentation granted in favor of any Person or Persons (or any agent acting on behalf of such
Person or Persons) providing financing to Buyer (or any permitted assignee) in connection with the
transactions contemplated by this Agreement and (iii) Buyer (or any permitted assignee) may assign
its rights and interests hereunder to any Person in connection with any foreclosure or other
exercise of remedies by any Person in respect of the security documentation and financing described
in the foregoing clause (ii); and provided, further that no such assignment or pledge by
Buyer shall relieve Buyer of its obligations hereunder.

     Section 8.4 Severability. The invalidity or unenforceability of any term or provision of this
Agreement in any situation or jurisdiction shall not affect the validity or enforceability of the
other terms or provisions of this Agreement or the validity or enforceability of the offending term
or provision in any other situation or in any other jurisdiction and the remaining terms and
provisions shall remain in full force and effect, unless doing so would result in an interpretation
of this Agreement which is manifestly unjust.

     Section 8.5 Notices. Unless otherwise provided in this Agreement, all notices and other
communications under this Agreement shall be in writing and may be given by any of the following
methods: (a) personal delivery; (b) facsimile transmission; (c) registered or certified mail,
postage prepaid, return receipt requested; or (d) overnight delivery service. Such notices and
communications shall be sent to the appropriate Party at its address or facsimile number given
below or at such other address or facsimile number for such Party as shall be specified by notice
given under this Agreement (and shall be deemed given upon receipt by such Party or upon actual
delivery to the appropriate address, or, in case of a facsimile transmission, upon transmission by
the sender and issuance by the transmitting machine of a confirmation slip that the number of pages
constituting the notice have been transmitted without error; in the case of notices sent by
facsimile transmission, the sender shall contemporaneously mail a copy of the notice to the
addressee at the address provided for above; provided, however, that such mailing shall in no way
alter the time at which the facsimile notice is deemed received):

	 	(a)	 	if to any Seller, to
	 
	 	 	 	Topaz Power Partners, LLC

c/o Sempra Energy Partners, LLC

101 Ash Street

San Diego, California 92101

Attention: Mark Allman

Telephone: 619-696-4694

Facsimile: 619-696-4000
	 
	 	 	 	with copies to
	 
	 	 	 	Sempra Global

101 Ash Street

San Diego, California 92101

38

 

	 	 	 	Attention: Kevin Sagara

Telephone: 619-696-4345

Facsimile: 619-696-4310
	 
	 	 	 	and
	 
	 	 	 	Carlyle/Riverstone Energy Partners II, L.P.

712 Fifth Avenue

New York, New York 10019

Attention: Michael Hoffman

Telephone: 212-993-0091

Facsimile: 212-993-0077
	 
	 	 	 	and
	 
	 	 	 	Cleary Gottlieb Steen & Hamilton LLP

Suite 4300

1 Liberty Plaza

New York, New York, 10006

Attention: Richard J. Cooper, Esq.

Telephone: (212) 225-2276

Facsimile: (212) 225-3999
	 
	 	(b)	 	if to Buyer, to
	 
	 	 	 	ANP ERCOT Acquisition, LLC

62 Forest Street

Suite 102

Marlborough, MA 01752

Attention: General Counsel

Telephone: (508) 382-9300

Facsimile: (508) 382-9431
	 
	 	 	 	with a copy to
	 
	 	 	 	American National Power, Inc.

62 Forest Street

Suite 102

Marlborough, MA 01752

Attention: Vice President-Business Development

Telephone: (508) 382-9300

Facsimile: (508) 382-9400
	 
	 	 	 	and
	 
	 	 	 	Jones Day

222 East 41st Street

39

 

	 	 	 	New York, NY 10017-6702

Attention: William F. Henze II, Esq.

Telephone: (212) 326-3603

Facsimile: (212) 755-7306

     Section 8.6 Governing Law. This Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York. All Actions arising out of or relating to this Agreement
shall be heard and determined in any state or federal court sitting in the City of New York, and
the parties hereby irrevocably submit to the exclusive jurisdiction of such courts in any such
Action and irrevocably waive the defense of an inconvenient forum to the maintenance of any such
Action. Each Party irrevocably consents to the service of any and all process in any such Action
by the mailing of copies of such process to such Party at its address specified in Section 8.5.
The parties agree that a final judgment in any such Action shall be conclusive and may be enforced
in other jurisdictions by suit on the judgment or in any other manner provided by Law. Nothing in
this Section 8.6 shall affect the right of any Party to serve legal process in any other manner
permitted by Law. The consents to jurisdiction set forth in this Section 8.6 shall not constitute
general consents to service of process in the State of New York and shall have no effect for any
purpose except as provided in this Section 8.6 and shall not be deemed to confer rights on any
Person other than the parties. EACH PARTY HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER
BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY.

     Section 8.7 Descriptive Headings. The table of contents and descriptive headings used in this
Agreement are inserted for convenience of reference only and shall in no way be construed to
define, limit, describe, explain, modify, amplify, or add to the interpretation, construction or
meaning of any provision of, or scope or intent of, this Agreement nor in any way affect this
Agreement.

     Section 8.8 Counterparts. This Agreement may be executed in counterparts, each of which shall
be deemed an original, but any of which together shall constitute one and the same instrument.

     Section 8.9 Fees and Expenses. Whether or not this Agreement and the transactions
contemplated by this Agreement are consummated, and except as otherwise expressly set forth in this
Agreement, all costs and expenses (including legal and financial advisory fees and expenses)
incurred in connection with, or in anticipation of, this Agreement and the transactions
contemplated by this Agreement shall be paid by the Party incurring such expenses. Each of
Sellers, on the one hand, and Buyer, on the other hand, shall indemnify and hold harmless the other
Party from and against any and all claims or liabilities for financial advisory and finders’ fees
incurred by reason of any action taken by such Party or otherwise arising out of the transactions
contemplated by this Agreement by any Person claiming to have been engaged by such Party.

40

 

     Section 8.10 Interpretation.

     (a) The phrase “to the knowledge of” any Person or any similar phrase shall mean such facts
and other information which as of the date of determination are actually known to any executive
officer of such Person, after due inquiry; it being understood that those Persons listed in Section
8.10 of the Disclosure Letter shall be deemed to have knowledge. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed as if drafted
jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring
any Party by virtue of the authorship of any provisions of this Agreement. When a reference is
made in this Agreement to Sections, Exhibits, the Disclosure Letter or an Annex, such reference
shall be to Sections, Exhibits, the Disclosure Letter or an Annex of this Agreement, respectively,
unless otherwise indicated. Whenever the words “include”, “includes” or “including” are used in
this Agreement, they shall be deemed to be followed by the words “without limitation”. The words
“hereof”, “herein” and “hereunder” and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular provision of this Agreement. The term
“or” is not exclusive. The definitions contained in this Agreement are applicable to the singular
as well as the plural forms of such terms. References to a Person are also to its permitted
successors and assigns. Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms.

     (b) For purposes of this Agreement, the term: (i) “Affiliate” means, unless otherwise
indicated, any Person that directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with the Person specified; (ii) “Company IP” means all
material Intellectual Property owned, held or used by the Company, including all material patent,
copyright, trademark and service mark registrations and applications and domain names issued to,
assigned to and filed by the Company; (iii) “Intellectual Property” means all U.S. intellectual
property, including: (a) patents, inventions, discoveries, processes, designs, techniques,
developments, technology, and related improvements and know-how, whether or not patented or
patentable; (b) copyrights and works of authorship in any media, including computer hardware,
software, firmware, applications, files, systems, networks, databases and compilations,
documentation and related textual works, graphics, advertising, marketing and promotional
materials, photographs, artwork, drawings, articles, textual works, and Internet site content; (c)
trademarks, service marks, trade names, brand names, corporate names, domain names, logos trade
dress and other source indicators and the goodwill of any business symbolized thereby; and (d)
trade secrets, drawings, blueprints and all non-public, confidential or proprietary information,
documents, materials, analyses, reach and lists; (iv) “Person” means any individual, corporation,
partnership, limited liability company, firm, joint venture, association, joint-stock company,
trust, unincorporated organization, representative office, branch, Governmental Authority or other
similar entity such determination; and (v) “Subsidiary” means, with respect to any Person, any
other Person of which such Person (either alone or through or together with any other Subsidiary)
owns, directly or indirectly, 50% or more of the outstanding equity securities or securities
carrying 50% or more of the voting power in the election of the board of directors or other
governing body of such Person.

     (c) The inclusion of any matter in any Section of the Disclosure Letter in connection with any
representation, warranty, covenant or agreement that is qualified as to materiality is not
an admission by the Party making such disclosure that such matter is material or would (or

41

 

would be reasonably expected to) impair the ability of such Party to consummate the transactions
contemplated by this Agreement. Matters disclosed in one Section or subsection of the Disclosure
Letter are deemed to be disclosed with respect to each Section or subsection of the Disclosure
Letter.

     Section 8.11 Third-Party Beneficiaries. Except for the provisions of Section 5.9, this
Agreement is solely for the benefit of Sellers and their respective successors and permitted
assigns, with respect to the obligations of Buyer under this Agreement, and for the benefit of
Buyer, and its successors and permitted assigns, with respect to the obligations of Sellers, under
this Agreement. Notwithstanding anything contained in this Agreement to the contrary, nothing in
this Agreement, expressed or implied, is intended to confer on any Person other than the parties or
their respective successors and assigns any rights, remedies, obligations or liabilities under or
by reason of this Agreement.

     Section 8.12 No Waivers. Except as otherwise expressly provided in this Agreement, no failure
to exercise, delay in exercising, or single or partial exercise of any right, power or remedy by
any Party, and no course of dealing between the parties, shall constitute a waiver of any such
right, power or remedy. No waiver by a Party of any default, misrepresentation, or breach of
warranty or covenant under this Agreement, whether intentional or not, shall be deemed to extend to
any prior or subsequent default, misrepresentation, or breach of warranty or covenant under this
Agreement or affect in any way any rights arising by virtue of any prior or subsequent such
occurrence. No waiver shall be valid unless in writing and signed by the Party against whom such
waiver is sought to be enforced.

     Section 8.13 Specific Performance. The parties to this Agreement agree that if any of the
provisions of this Agreement were not performed in accordance with their specific terms or were
otherwise breached, irreparable damage would occur, no adequate remedy at law would exist and
damages would be difficult to determine, and that the parties shall be entitled to specific
performance of the terms of this Agreement and immediate injunctive relief, without the necessity
of proving the inadequacy of money damages as a remedy, in addition to any other remedy at law or
in equity.

42

 

     IN WITNESS WHEREOF, each of the undersigned has caused this Agreement to be duly signed as of
the date first above written.

	 	 	 	 	 
	 	 	SELLERS:
	 
	 	 	 	 
	 	 	TOPAZ POWER GROUP GP, LLC
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	Name:
	 

	 	 	 	Title:
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	Name:
	 

	 	 	 	Title:
	 
	 	 	 	 
	 	 	TOPAZ POWER GROUP LP, LLC
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	Name:
	 

	 	 	 	Title:
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	Name:
	 

	 	 	 	Title:
	 
	 	 	 	 
	 	 	BUYER:
	 
	 	 	 	 
	 	 	ANP ERCOT ACQUISITION, LLC
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	Name:
	 

	 	 	 	Title:

43

 

EXHIBIT D-2

Surviving Intercompany Arrangements

	1.	 	Master Power Purchase and Sale Agreement, dated June 28, 2004, between Sempra Energy
Solutions and Coleto Creek WLE, LP, as amended by the SES PPA Amendment as of the Closing
Date.

	2.	 	Electricity Sales and Purchase Agreement dated as of July, 2004 between Sempra Energy
Services and Coleto Creek WLE, LP.

1

 

Buyer’s Parent Guarantee and Lender Commitment

1

 

Continuation
of Exhibit 4.1

EXECUTION VERSION

DISCLOSURE LETTER

PURCHASE AND SALE AGREEMENT

by and among

ANP ERCOT ACQUISITION, LLC

as Buyer

and

TOPAZ POWER GROUP GP, LLC

and

TOPAZ POWER GROUP LP, LLC

as Sellers

 

Dated as of April 18, 2006

 

 

DISCLOSURE LETTER

INTRODUCTION

     This Disclosure Letter to the Purchase and Sale Agreement, dated as of April 18, 2006, by and
among ANP ERCOT ACQUISITION, LLC, a Delaware limited liability company, TOPAZ POWER GROUP GP, LLC,
a Delaware limited liability company, and TOPAZ POWER GROUP LP, LLC, a Delaware limited liability
company (the “Agreement”), is set forth on the following pages. All capitalized terms used and not
otherwise defined in this Disclosure Letter shall have the meanings ascribed to such terms in the
Agreement.

     To the extent that any representation or warranty contained in the Agreement is limited or
qualified by the materiality of the matters that are the subject of such representation or
warranty, the inclusion of any matter in this Disclosure Letter shall not constitute a
determination by Sellers that such matter is material. Nor in such cases where a representation or
warranty is given or other information is provided shall the disclosure of any matter in this
Disclosure Letter imply that any other, undisclosed matter having a greater value or other
significance is material.

     The inclusion in this Disclosure Letter of any matter or document shall not imply any
representation, warranty or undertaking not expressly given in the Agreement, nor shall such
disclosure be taken as extending the scope of any such representation or warranty. Nothing in this
Disclosure Letter constitutes an admission of any liability or obligation of Sellers to any third
party or an admission against Sellers’ interests.

     All references in this Disclosure Letter to section numbers are to sections of the Agreement,
unless otherwise stated.

     The fact that any item of information is disclosed in any section of this Disclosure Letter
shall not be construed to mean that such disclosure is required by the Agreement, including without
limitation in order to render any representation or warranty true or correct.

     The inclusion in any section of this Disclosure Letter of any matter or document shall
constitute its inclusion in all sections of this Disclosure Letter to which such matter or document
is relevant, to the extent the relevance is reasonably apparent.

     The headings and descriptions in this Disclosure Letter of any representations, warranties or
covenants expressly given in the Agreement are for descriptive purposes and convenience of
reference only and shall be deemed not to affect such representations, warranties or covenants or
to limit the exceptions made hereby or the provisions hereof.

     The date of each section of this Disclosure Letter is the date set forth above, unless
specified otherwise.

1

 

Section 1.2 of Disclosure Letter

Net Working Capital

Target Modified Net Working Capital

	 	 	 	 	 
	Current Assets
	 	$	(000	)
	Cash and cash equivalents1
	 	 	7,900	 
	Accounts receivable, net
	 	 	11,900	 
	Accounts receivable – affiliates, net2
	 	 	4,900	 
	Materials and operating supplies
	 	 	3,700	 
	Fuel stock
	 	 	9,400	 
	Prepayments3
	 	 	1,000	 
	Total Current Assets
	 	 	38,800	 
	 
	 	 	 	 
	Current Liabilities
	 	 	 	 
	Accounts payable – trade
	 	 	7,100	 
	Property tax liability
	 	 	3,200	 
	Current liabilities – other
	 	 	0	 
	Total Current Liabilities
	 	 	10,300	 
	 
	 	 	 	 
	 
	 	 	 	 
	Target Modified Net Working Capital
	 	 	28,500	 
	 
	 	 	 	 

Certain accounting principles, methodologies and policies:

See notes to the audited financial statements of the Company for the period ended December 31, 2005
included in Section 3.5 of the Disclosure Letter for applicable accounting principles,
methodologies and policies; provided, that such principles, methodologies and policies
shall be modified as set forth in the footnotes to the table above.4

 

			
	1	 	“Cash and cash equivalents” shall exclude the Capital Expenditure Account
Balance.
	 
	2	 	“Accounts receivable – affiliates, net” shall exclude amounts payable to Topaz
Power Group, LLC and Sempra Texas Services, LP.
	 
	3	 	“Prepayments” shall exclude prepayments of insurance premiums.
	 
	4	 	Any cash that is restricted by the terms of the Credit Agreement from use in the
day to day operating of the Company (and that is or is required to be categorized as “Restricted
Cash” in the Financial Statements), but is available to satisfy certain of its obligations, may be
distributed by the Company prior to or simultaneously with the Closing.

2

 

Section 2.3 of Disclosure Letter

Ownership of Equity Interests

	 	 	 
	Seller	 	Number of Units Owned
	Topaz Power Group GP, LLC
	 	1
	 
	 	 
	Topaz Power Group LP, LLC
	 	999

3

 

Section 2.5 of Disclosure Letter

Brokers; Finders and Fees

	•	 	Engagement Letter by and between Topaz Power Partners, LLC and Goldman, Sachs & Co., dated
as of November 30, 2005.

4

 

Section 3.3(a)(i) of Disclosure Letter

Capitalization – Liens

	 	 	 	 	 	 	 
	 	 	 	 	Jurisdiction 	 	 
	Name of Entity	 	Form of Entity	 	of Formation	 	Capitalization*
	Coleto
Creek Power, LP

	 	Limited Partnership
	 	Texas
	 	General Partner Interest: 1 Unit

Limited Partner Interest: 999 Units

 

			
	*	 	Topaz Power Group GP, LLC is the general partner of the Company and Topaz Power Group LP, LLC is
the limited partner of the Company.

	•	 	The Credit Agreement.

5

 

Section 3.3(a)(ii) of Disclosure Letter

Capitalization – Company Securities

None.

6

 

Section 3.3(c)(i) of Disclosure Letter

Capitalization – Contracts

	1.	 	The Credit Agreement (including any Derivative Product issued thereunder).
	 
	2.	 	Master Power Purchase and Sale Agreement, dated June 22, 2004, between J. Aron and Company
and Coleto Creek WLE, LP, as amended on December 6, 2004, for the purchase and sale of
electrical energy.
	 
	3.	 	Master Power Purchase and Sale Agreement, dated May 27, 2004, between Morgan Stanley Capital
Group Inc. and Coleto Creek WLE, LP, for the purchase and sale of electrical energy.

7

 

Section 3.4 of Disclosure Letter

Consents and Approvals; No Violations

	1.	 	Clearance from the Federal Trade Commission and/or the Department of Justice under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR Act”) or the expiration or earlier
termination of the applicable waiting period under the HSR Act.

	2.	 	Approval from the Public Utility Commission of Texas under Section 39.158 of Chapter 39 of
the Texas Utilities Code of the Acquisition.

8

 

Section 3.5 of Disclosure Letter

Reports and Financial Statements

	•	 	Audited financial statements for the six month period ended 12/31/04, the year ended
12/31/05 and unaudited financial statements for the three month period ended 3/31/06 (to be
attached when available).

9

 

Section 3.6 of Disclosure Letter

Absence of Undisclosed Liabilities

	•	 	Pursuant to the Engineering, Procurement and Construction Contract, dated March 10, 2006,
between Alstom Power Inc. and Coleto Creek Power, LP, for construction and installation of bag
house, the Company is required to make certain payments when due and owing as set forth in
such Contract.

10

 

Section 3.7 of Disclosure Letter

Absence of Certain Changes

	•	 	A routine plant maintenance outage is scheduled for April 22 – 30. The major activity for
this outage is to clean the precipitators.

11

 

Section 3.8 of Disclosure Letter

Litigation – Sellers

	1.	 	See Sempra Energy Form 10-K filing with the Securities and Exchange Commission dated
February 23, 2006, “ITEM 3. LEGAL PROCEEDINGS.”

	2.	 	Paradigm Services, LP v. Coleto Creek Power, LP, Cause No. 857002, In the County Civil
Court at Law No. 3, Harris County, Texas.

12

 

Section 3.9 of Disclosure Letter

Compliance with Laws – Sellers

	•	 	Safety Audit Report dated September 2005.

13

 

Section 3.10(a) of Disclosure Letter

Labor and Employment Matters – Sellers Employees

(HR related data provided to Buyer under separate cover)

14

 

Section 3.10(b) of Disclosure Letter

Labor and Employment Matters – STS Employees

(HR related data provided to Buyer under separate cover)

15

 

Section 3.10(c) of Disclosure Letter

Labor and Employment Matters – Compliance With All Applicable Laws

No exceptions.

16

 

Section 3.10(d) of Disclosure Letter

Labor and Employment Matters – Sellers Benefit Plans

Sellers’ Employees are covered by the following Sellers Benefit Plans (all maintained and held by
Sempra Energy, with the exception of the final two items, which are maintained by Topaz Power
Group):

	 	•	 	Sempra Energy Deferred Compensation Plan
	 
	 	•	 	Sempra Energy Retirement Savings Plan
	 
	 	•	 	Sempra Energy Medical Plan
	 
	 	•	 	Sempra Energy Dental Plan
	 
	 	•	 	Sempra Energy Vision Plan
	 
	 	•	 	Sempra Energy Basic Life Insurance Plan
	 
	 	•	 	Sempra Energy Long-Term Care Plan
	 
	 	•	 	Sempra Energy Employee Assistance Plan
	 
	 	•	 	Sempra Energy Health Care Flexible Spending
	 
	 	•	 	Sempra Energy Dependent Care Flexible Spending Plan
	 
	 	•	 	Sempra Energy Supplemental Life Insurance Plan
	 
	 	•	 	Sempra Energy Basic Accidental Death & Dismemberment Plan
	 
	 	•	 	Sempra Energy Supplemental Accidental Death & Dismemberment Plan
	 
	 	•	 	Sempra Energy Business Travel Accident Insurance Plan
	 
	 	•	 	Sempra Energy Short-Term Disability Plan
	 
	 	•	 	Sempra Energy Long-Term Disability Plan
	 
	 	•	 	Sempra Energy Education Assistance Plan
	 
	 	•	 	Sempra Energy Postretirement Health & Welfare Plan
	 
	 	•	 	Severance Program
	 
	 	•	 	Coleto Creek Power Station Bonus Plan
	 
	 	•	 	Topaz Scholarship Program

17

 

Section 3.11 of Disclosure Letter

Taxes

No exceptions.

18

 

Section 3.12 of Disclosure Letter

Title, Ownership and Related Matters: Material Personal Property

	1.	 	Rail Car Sets
	 
	2.	 	Spare GSU Transformer
	 
	3.	 	Critical Spare Motors

	 	•	 	Condensate Pump Motor
	 
	 	•	 	Primary Air Fan Motor
	 
	 	•	 	Forced Draft Fan Motor
	 
	 	•	 	“E” Conveyor Motor
	 
	 	•	 	“A” Conveyor Motor
	 
	 	•	 	“D” Conveyor Motor (also spare for “B” Conveyor Motor)
	 
	 	•	 	Air Heater Drive Motor
	 
	 	•	 	Coal Car Dumper Drive Motor
	 
	 	•	 	Stock Coal Feeder Motor and Gear Box
	 
	 	•	 	Bottom Ash Crusher Motor and Gear Box
	 
	 	•	 	Vibrator Motor for the Car Dumper Feeder
	 
	 	•	 	Turbine Seal Oil Pump Motor

	4.	 	Other Critical Spares

	 	•	 	Turbine Driven Boiler Feed Pump Element
	 
	 	•	 	MPT Transformer (rated at 532 MVA)
	 
	 	•	 	Motor Driven Boiler Feed Pump Element

	5.	 	Other Coal Handling Equipment

	 	•	 	1999 Caterpillar 854G Dozer
	 
	 	•	 	1979 Case 380 Dozer
	 
	 	•	 	1984 Caterpillar D8 Dozer

19

 

Section 3.12(a)(ii) of Disclosure Letter

Title, Ownership and Related Matters – Leased Real Property

None.

20

 

Section 3.12(a)(iii) of Disclosure Letter

Title, Ownership and Related Matters – Exceptions to Title

	•	 	Right of first refusal contained in Section 6.5 of the Operating
Agreement, dated as of December 16, 1976, between Guadalupe-Blanco
River Authority and Central Power and Light Company.

	•	 	Liens pursuant to the Credit Agreement (which Liens will be
terminated prior to or simultaneous with the Closing).

21

 

Section 3.12(b) of Disclosure Letter

Title, Ownership and Related Matters – Material Real Property Sold, Transferred or Disposed of since December 22, 2005

	•	 	236 square feet of land was sold for $500 to the Texas Department of Transportation for
highway expansion.

22

 

Section 3.13 of Disclosure Letter

Environmental

	1.	 	Phase I Environmental Site Assessment prepared by Arcadis G&M, Inc. and dated February 2006.
	 
	2.	 	Environmental Audit Disclosure Letter dated June 10, 2005 as updated August 11, 2005 and
September 9, 2005.
	 
	3.	 	Environmental Audit Report prepared by the WCM Group, Inc. and dated September 2005.
	 
	4.	 	Letters dated February 3, 2006 and March 29, 2006 from EPA Region VI Re: Expedited Settlement
Agreement (ESA) for Risk Management Plan Inspection Findings, Alleged Violations and Proposed
Penalty, Docket No. 06-2006-3551.
	 
	5.	 	From time to time, Coleto Creek has exceeded the emission limitations in its air permits (NSR
Permit No. 3687 and Federal Operation Permit 0-00025), particularly with regard to opacity
during periods of startup, shutdown and load changes. For examples, please see:

	 	o	 	Gaseous and Opacity Excess Emission and Monitoring System Performance
Summary Report (40 CFR 60.7(d)) for Opacity, SO2, and NOx for First Quarter 2004.
	 
	 	o	 	Gaseous and Opacity Excess Emission and Monitoring System Performance
Summary Report (40 CFR 60.7(d)) for Opacity, SO2, and NOx for Second Quarter 2004.
	 
	 	o	 	Gaseous and Opacity Excess Emission and Monitoring System Performance
Summary Report (40 CFR 60.7(d)) for Opacity, SO2, and NOx for Third Quarter 2004.
	 
	 	o	 	Gaseous and Opacity Excess Emission and Monitoring System Performance
Summary Report (40 CFR 60.7(d)) for Opacity, SO2, and NOx for Fourth Quarter 2004.
	 
	 	o	 	Gaseous and Opacity Excess Emission and Monitoring System Performance
Summary Report (40 CFR 60.7(d)) for Opacity, SO2, and NOx for First Quarter 2005.
	 
	 	o	 	Gaseous and Opacity Excess Emission and Monitoring System Performance
Summary Report (40 CFR 60.7(d)) for Opacity, SO2, and NOx for Second Quarter 2005.

23

 

	 	o	 	Gaseous and Opacity Excess Emission and Monitoring System Performance
Summary Report (40 CFR 60.7(d)) for Opacity, SO2, and NOx for Third Quarter 2005.
	 
	 	o	 	Gaseous and Opacity Excess Emission and Monitoring System Performance
Summary Report (40 CFR 60.7(d)) for Opacity, SO2, and NOx for Fourth Quarter 2005.

24

 

Section 3.13(d) of Disclosure Letter

SO2 Emission Allowances

	 	 	 	 	 	 	 	 	 	 	 
	 	 	Account/Plant	 	 	 	Total	 	 	 	 
	Account ID	 	Name	 	Year	 	Allowances	 	State	 	Representative
	006178000001
	 	Coleto Creek
	 	2000
	 	20
	 	TX
	 	Mike Fields
	006178000001
	 	Coleto Creek
	 	2001
	 	117
	 	TX
	 	Mike Fields
	006178000001
	 	Coleto Creek
	 	2002
	 	117
	 	TX
	 	Mike Fields
	006178000001
	 	Coleto Creek
	 	2003
	 	117
	 	TX
	 	Mike Fields
	006178000001
	 	Coleto Creek
	 	2004
	 	1762
	 	TX
	 	Mike Fields
	006178000001
	 	Coleto Creek
	 	2005
	 	14721
	 	TX
	 	Mike Fields
	006178000001
	 	Coleto Creek
	 	2006
	 	14721
	 	TX
	 	Mike Fields
	006178000001
	 	Coleto Creek
	 	2007
	 	14721
	 	TX
	 	Mike Fields
	006178000001
	 	Coleto Creek
	 	2008
	 	14721
	 	TX
	 	Mike Fields
	006178000001
	 	Coleto Creek
	 	2009
	 	14721
	 	TX
	 	Mike Fields
	006178000001
	 	Coleto Creek
	 	2010
	 	13807
	 	TX
	 	Mike Fields
	006178000001
	 	Coleto Creek
	 	2011
	 	13807
	 	TX
	 	Mike Fields
	006178000001
	 	Coleto Creek
	 	2012
	 	13807
	 	TX
	 	Mike Fields
	006178000001
	 	Coleto Creek
	 	2013
	 	13807
	 	TX
	 	Mike Fields
	006178000001
	 	Coleto Creek
	 	2014
	 	13807
	 	TX
	 	Mike Fields
	006178000001
	 	Coleto Creek
	 	2015
	 	13807
	 	TX
	 	Mike Fields
	006178000001
	 	Coleto Creek
	 	2016
	 	13807
	 	TX
	 	Mike Fields
	006178000001
	 	Coleto Creek
	 	2017
	 	13807
	 	TX
	 	Mike Fields
	006178000001
	 	Coleto Creek
	 	2018
	 	13807
	 	TX
	 	Mike Fields
	006178000001
	 	Coleto Creek
	 	2019
	 	13807
	 	TX
	 	Mike Fields
	006178000001
	 	Coleto Creek
	 	2020
	 	13807
	 	TX
	 	Mike Fields
	006178000001
	 	Coleto Creek
	 	2021
	 	13807
	 	TX
	 	Mike Fields
	006178000001
	 	Coleto Creek
	 	2022
	 	13807
	 	TX
	 	Mike Fields
	006178000001
	 	Coleto Creek
	 	2023
	 	13807
	 	TX
	 	Mike Fields
	006178000001
	 	Coleto Creek
	 	2024
	 	13807
	 	TX
	 	Mike Fields
	006178000001
	 	Coleto Creek
	 	2025
	 	13807
	 	TX
	 	Mike Fields
	006178000001
	 	Coleto Creek
	 	2026
	 	13807
	 	TX
	 	Mike Fields
	006178000001
	 	Coleto Creek
	 	2027
	 	13807
	 	TX
	 	Mike Fields
	006178000001
	 	Coleto Creek
	 	2028
	 	13807
	 	TX
	 	Mike Fields
	006178000001
	 	Coleto Creek
	 	2029
	 	13807
	 	TX
	 	Mike Fields
	006178000001
	 	Coleto Creek
	 	2030
	 	13807
	 	TX
	 	Mike Fields
	006178000001
	 	Coleto Creek
	 	2031
	 	13807
	 	TX
	 	Mike Fields
	006178000001
	 	Coleto Creek
	 	2032
	 	13807
	 	TX
	 	Mike Fields
	006178000001
	 	Coleto Creek
	 	2033
	 	13807
	 	TX
	 	Mike Fields
	006178000001
	 	Coleto Creek
	 	2034
	 	13807
	 	TX
	 	Mike Fields
	006178000001
	 	Coleto Creek
	 	2035
	 	13807
	 	TX
	 	Mike Fields

25

 

Section 3.14 of Disclosure Letter

Intellectual Property

	 	 	 	 	 
	Software	 	License	 	Transferable
	 
	Windows XP

	 	Sempra Corporate
	 	No
	Office XP

	 	Sempra Corporate
	 	No
	Office 2003

	 	Sempra Corporate
	 	No
	MS Project

	 	Sempra Corporate
	 	No
	Visio

	 	Sempra Corporate
	 	No
	Citrix server

	 	Sempra Corporate
	 	No
	Great Plains

	 	Sempra Corporate
	 	No
	MS Exchange server

	 	Sempra Corporate
	 	No
	eRoom

	 	Sempra Corporate
	 	No
	MicroGADs

	 	Topaz Power Group
	 	No
	Allegro

	 	Sempra Corporate
	 	No
	PI System

	 	AEP
	 	TBD
	Trend Micro

	 	Sempra Corporate
	 	No
	Altiris

	 	Sempra Corporate
	 	No
	Veritas BackupExec 10.0

	 	Sempra Corporate
	 	No
	HP OpenView

	 	Sempra Corporate
	 	No
	MS Server 2003 Enterprise Edition

	 	Sempra Corporate
	 	No
	Cisco VPN

	 	Sempra Corporate
	 	No
	Sprint Dial Up Solution

	 	Sempra Corporate
	 	No

Note: There is a maintenance contract in place with server (HP) and network (Cisco) equipment
hardware manufacturer that provides support in case of a hardware failure. The contract covers all
Sempra global servers, routers and switches, including the ones at Coleto.

26

 

Section 3.15 of Disclosure Letter

Contracts

	1.	 	Agreement for Technical Services, dated November 11, 2005, between Jeans Waterproofing, Inc.
and Coleto Creek Power, LP, for waterproofing services.
	 
	2.	 	Agreement for Technical Services, dated October 5, 2005, between Alimakhek, Inc. and Coleto
Creek Power, LP, for elevator repair.
	 
	3.	 	Agreement for Technical Services, dated September 27, 2005, between Basic Industries of South
Texas, Ltd. and Coleto Creek Power, LP, for general power plant repair services.
	 
	4.	 	Agreement for Technical Services, dated September 27, 2005, between Conveyor Aggregate
Products Corp. and Coleto Creek Power, LP, for conveyor belting services.
	 
	5.	 	Agreement for Technical Services, dated September 6, 2005, between Holt Texas, Ltd. and
Coleto Creek Power, LP, for mobile equipment maintenance and repair.
	 
	6.	 	Ash Management, Marketing and Disposal Agreement, dated July 1, 2005, between Boral Material
Technologies, Inc. and Coleto Creek Power, LP, for disposal of fly ash.
	 
	7.	 	Agreement for Technical Services, dated June 2, 2005, between A-1 Shiner Fire & Safety, Inc.
and Coleto Creek Power, LP, for fire equipment maintenance.
	 
	8.	 	Agreement for Technical Services, dated April 5, 2005, between ABB Inc. and Coleto Creek
Power, LP, for site services for power generation systems.
	 
	9.	 	Agreement for Technical Services, dated December 14, 2005, between B&B Metal Buildings, Inc.
and Coleto Creek Power, LP, for building repair and construction.
	 
	10.	 	Agreement for Technical Services, dated May 18, 2005, between Better Gardens and Landscape
Co. and Coleto Creek Power, LP, for landscaping services.
	 
	11.	 	Ash Management Agreement, dated July 1, 2003, between Coleto Coal Combustion Products Company
and AEP Texas Central Company, for bottom ash disposal.
	 
	12.	 	Agreement for Technical Services, dated August 26, 2005, between Clean Harbors Environmental
Services, Inc. and Coleto Creek Power, LP, for environmental services.
	 
	13.	 	Agreement for Technical Services, dated March 15, 2005, between Clyde Bergemann, Inc. and
Coleto Creek Power, LP, for power boiler services.
	 
	14.	 	Agreement for Technical Services, dated June 14, 2004, between GE Energy Management Services,
Inc. and Sempra Energy, Task Number 01, for testing of emissions monitoring system.

27

 

	15.	 	Agreement for Technical Services, dated August 17, 2005, between Harryman Oilfield Service
and Coleto Creek Power, LP, for general civil work.
	 
	16.	 	Agreement for Technical Services, dated April 29, 2005, between Lankford Company, Inc. and
Coleto Creek Power, LP, for painting services.
	 
	17.	 	Agreement for Technical Services, dated August 22, 2005, between Mikon Corporation and Coleto
Creek Power, LP, for coal stockpile inventory.
	 
	18.	 	Agreement for Technical Services, dated April 7, 2005, between On-Site Machining Services and
Coleto Creek Power, LP, for field machining and repair of plant components.
	 
	19.	 	Agreement for Technical Services, dated March 17, 2005, between Paradigm Services, LP and
Coleto Creek Power, LP, for valve and actuator repair services.
	 
	20.	 	Agreement for Technical Services, dated December 27, 2005, between PBS&J and Topaz Power
Group, LLC, various task authorizations for safety training and efficiency study.
	 
	21.	 	Agreement for Technical Services, dated November 29, 2005, between Peerless Equipment, Ltd.
and Coleto Creek Power, LP, for water well maintenance and restoration.
	 
	22.	 	Agreement for Technical Services, dated March 28, 2005, between Progressive Water Treatment,
Inc. and Coleto Creek Power, LP, for water treatment equipment repair services.
	 
	23.	 	Agreement for Technical Services, dated August 19, 2005, between R.B. Watkins, Inc. and
Coleto Creek Power, LP, for transformer repair services.
	 
	24.	 	Rail Car Maintenance Agreement, dated February 1, 2005, between CMC Steel Fabricators, Inc.
d/b/a Safety Railway Service, LP and Coleto Creek Power, LP, for rail car maintenance.
	 
	25.	 	Agreement for Technical Services, dated December 12, 2005, between Seaflex, Inc. and Coleto
Creek Power, LP, for fall arrest systems.
	 
	26.	 	Agreement for Technical Services, dated August 23, 2005, between Team Industrial Services,
Inc. and Coleto Creek Power, LP, for power plant repair services.
	 
	27.	 	Agreement for Technical Services, dated August 3, 2005, between Testronics and Coleto Creek
Power, LP, for meter and relay testing.
	 
	28.	 	Agreement for Technical Services, dated March 24, 2005, between Thielsch Engineering, Inc.
and Coleto Creek Power, LP, for power plant inspection and repair services.

28

 

	29.	 	Agreement for Technical Services, dated March 24, 2005, between Underwater Construction
Corporation and Coleto Creek Power, LP, for underwater diving and repair services.
	 
	30.	 	Agreement for Technical Services, dated July 13, 2005, between United Science Testing, Inc.
and Coleto Creek Power, LP, for CEMS Flow Characterization and Testing.
	 
	31.	 	Agreement for Technical Services, dated August 2, 2005, between Whitehead Construction, Inc.
and Coleto Creek Power, LP, for precipitator maintenance services.
	 
	32.	 	Agreement for Technical Services, dated June 13, 2005, between Washington Group International
and Coleto Creek Power, LP, for engineering studies.
	 
	33.	 	Engineering, Procurement and Construction Contract, dated March 10, 2006, between Alstom
Power Inc. and Coleto Creek Power, LP, for construction and installation of bag house.
	 
	34.	 	Agreement for Technical Services, dated February 20, 2006, between All-Temps Temporary
Services and Coleto Creek Power, LP, for temporary employees.
	 
	35.	 	Agreement for Technical Services, dated February 1, 2006, between Thyssenkrupp Elevator Corp.
and Coleto Creek Power, LP, for elevator inspection and repair services.
	 
	36.	 	Agreement for Technical Services, dated February 17, 2006, between H & S Constructors, Inc.
and Coleto Creek Power, LP, for power plant maintenance and general construction services.
	 
	37.	 	Agreement for Technical Services, dated February 17, 2006, between Dresser Direct and Coleto
Creek Power, LP, for safety valve repair services.
	 
	38.	 	Agreement for Technical Services, dated March 2, 2006, between Madison International Services
Team, Ltd. and Coleto Creek Power, LP, for general plant maintenance and repair.
	 
	39.	 	Master Coal Purchase and Sale Agreement, dated August 13, 2004, between Kennecott Coal Sales
Company and Coleto Creek WLE, LP, for purchase of coal.
	 
	40.	 	Letter Agreement for Assignment of Master Coal Purchase and Sale Agreement, dated January 31,
2005, between Kennecott Coal Sales Company, Kennecott Energy and Coal Company and Coleto Creek
WLE, LP.
	 
	41.	 	Confirmation Letter, dated January 4, 2005, between Kennecott Energy and Coal Company and
Coleto Creek Power, LP.
	 
	42.	 	Confirmation Letter, dated September 9, 2005, between Kennecott Energy and Coal Company and
Coleto Creek Power, LP.

29

 

	43.	 	Master Coal Purchase and Sale Agreement, dated September 3, 2004, between Coalsales, LLC and
Coleto Creek WLE, LP, for purchase of coal.
	 
	44.	 	Confirmation Letter, dated August 25, 2004, between Coalsales, LLC and Coleto Creek WLE, LP.
	 
	45.	 	Confirmation Letter, dated June 16, 2005, between Coalsales, LLC and Coleto Creek Power, LP.
	 
	46.	 	Confirmation Letter, dated July 15, 2005, between Coalsales, LLC and Coleto Creek Power, LP.
	 
	47.	 	Master Power Purchase and Sale Agreement, dated June 28, 2004, between Sempra Energy
Solutions and Coleto Creek WLE, LP, as amended as of the date hereof, for the purchase and
sale of electrical energy.
	 
	48.	 	Master Power Purchase and Sale Agreement, dated June 22, 2004, between J. Aron and Company
and Coleto Creek WLE, LP, as amended on December 6, 2004, for the purchase and sale of
electrical energy.
	 
	49.	 	Master Power Purchase and Sale Agreement, dated May 27, 2004, between Morgan Stanley Capital
Group Inc. and Coleto Creek WLE, LP, for the purchase and sale of electrical energy.
	 
	50.	 	Water Sales and Supply Contract, dated September 1, 1975, between GBRA and Coleto Creek
Power, LP’s predecessor in interest, Central Power and Light Company, as amended May 14, 1999.
	 
	51.	 	Amendment to Water Sales and Supply Contract, dated May 14, 1999, between GBRA and Coleto
Creek Power, LP’s predecessor in interest, Central Power and Light Company.
	 
	52.	 	Operating Agreement, dated December 16, 1976, between GBRA and Coleto Creek Power, LP’s
predecessor in interest, Central Power and Light Company.
	 
	53.	 	Track Lease Agreement, dated November 1, 2000, between Union Pacific Railroad Company and
Coleto Creek Power, LP’s predecessor in interest, Central Power and Light Company.
	 
	54.	 	Farm Lease, dated March 1, 2001, between Upland Cattle Company and Coleto Creek Power, LP’s
predecessor in interest, Central Power and Light Company, as amended March 1, 2004, and as
further amended March 1, 2005.
	 
	55.	 	Lease Agreement, dated May 16, 2003, between Hunter Industries, Ltd. and Coleto Creek Power,
LP’s predecessor in interest, AEP Texas Central Company (f/k/a Central Power and Light
Company), as amended May 18, 2005.

30

 

	56.	 	Paid Up Oil and Gas Lease, dated November 19, 2004, between Armstrong Oil & Gas, L.L.C. and
Coleto Creek WLE, LP.
	 
	57.	 	Oil, Gas and Mineral Lease, dated August 23, 2005, between Cody Texas, L.P. and Coleto Creek
Power, LP.
	 
	58.	 	Oil, Gas and Mineral Lease, dated January 20, 2006, between BP Productions, Inc. and Coleto
Creek Power, LP.
	 
	59.	 	Oil, Gas and Mineral Lease, dated January 16, 2006, between Patterson Petroleum LP and Coleto
Creek Power, LP.
	 
	60.	 	Railroad Transportation Contract, dated April 29, 2003, between Union Pacific Railroad
Company and Coleto Creek Power, LP’s predecessor in interest, AEP Texas Central Company.
	 
	61.	 	Master Net Railcar Lease, dated December 14, 2005, between Babcock & Brown Rail Funding LLC
and Coleto Creek Power, LP.
	 
	62.	 	Environmental Consulting Services Agreement, dated November 30, 2004, between WCM Group, Inc.
and Topaz Power Group, LLC, various task authorizations for environmental consulting services.
	 
	63.	 	ERCOT Generation Interconnection Agreement, dated July 1, 2004, between AEP Texas Central
Company and Coleto Creek WLE, LP.
	 
	64.	 	Easement, License and Site Access Agreement, dated as of July 1, 2004, between AEP Texas
Central Company and Coleto Creek WLE, LP.
	 
	65.	 	Agreement for Technical Services, dated March 22, 2006, between Lone Star Railroad
Contractors, Inc. and Coleto Creek Power, LP, for railroad track maintenance and repair.
	 
	66.	 	Agreement for Technical Services, dated March 29, 2006, between Schindler-Moody Inspection
Services and Coleto Creek Power, LP, for boiler inspection services.

31

 

Section 3.16 of Disclosure Letter

Insurance

Sempra Energy Corporate Insurance Programs available for the Coleto Creek Power Station (and as
noted, other Topaz Power Group facilities), including insurer(s), major limits, policy numbers and
periods. All such insurance is provided on a corporate-wide basis.

Applicable to Coleto Creek Only

Property Insurance: Primary Property Policy Term Annual (April 8th to April 8th), Policy
Nos. AN0501090, AN0501091, AN0501092, AN0501093, & AN0501094 for 2005-2006 policy term; Excess
Property Policy Term Annual (January 1st to December 31st), Policy No. 200-2001, for 2006 policy
term.

Covers all risks of direct physical damage including the perils of flood, earthquake and machinery
breakdown. Damaged property will be valued at full replacement cost. The limit of liability is
$260 million each occurrence with a per loss deductible of $1 million. Terrorism caused losses are
covered above a $10 million deductible. Coverage is shared with other Sempra subsidiaries with
only flood and earthquake in the first $10 million subject to annual aggregate limits. Loss payee
status required by a loan agreement can be added by endorsement to this insurance. Coverage for
primary property policies are placed with Lloyd’s of London syndicates (A.M. Best’s rated “A, XV”),
Aspen Insurance UK Ltd (UK; A.M. Best’s rated “A, XI”), Great Lakes Reinsurance (UK; A.M. Best’s
rated “A+, XV”), Arch Insurance Company (Europe) Ltd (UK; A.M. Best’s rated “A-, VII”), Energy
Insurance Mutual (“EIM”; Barbados; A.M. Best’s rated “A, IX”), and Newmarket Underwriters Insurance
Company (U.S.; A.M. Best’s rated “A+, XIV”); for excess property with OIL Ltd. (Bermuda; Mutual
insurer).

Business interruption insurance can be added to the existing corporate property insurance program.
Coverage includes profits and continuing expenses written for a value equal to the values reported
by the insured. Claims are settled on an actual loss sustained basis. That is, proof of actual
loss is required at the time the loss occurs. A deductible of 45 days would apply to this coverage.

Applicable to Coleto Creek and Other Topaz Power Group Facilities

Excess Liability Insurance: Policy Term Annual (June 26th to June 26th), Policy No.
X0022A1A05 for 2005-2006 policy term.

Covers third party legal liability for bodily injury, property damage or personal injury. Includes
coverage for excess auto liability, excess employers’ liability and operational pollution
liability. The limit of liability is $35 million with a $1 million per occurrence deductible.
Liability arising from terrorism is not excluded. Coverage is shared with other Sempra
subsidiaries. There is no annual aggregate limit for general or auto liability. Additional
insured status required in a written contract is automatically recognized by this policy. Sempra
maintains additional excess liability insurance above this coverage with annual aggregate limits.
Coverage placed with AEGIS (A.M Best’s rated “A, XI”).

32

 

Automobile Insurance (U.S.): Policy Term Annual (June 26th to June 26th), Policy No.
AS1-621-004541-195 for 2005-2006 policy term.

Primary auto liability in the amount of $1 million, and comprehensive and collision coverage for
vehicles with reported vehicle value greater than $10,000. Covers all owned, non-owned and hired
vehicles. Reporting of new and changed autos to Sempra Energy Risk Management is required. Auto
I.D. cards required by state law are issued by Sempra Energy Risk Management. Coverage placed with
Liberty Mutual (A.M Best’s rated “A, XV”).

Workers Compensation Insurance: Policy Term Annual (June 26th to June 26th), Policy No.
WA7-62D-004541-175 for 2005-2006 policy term.

Covers statutory benefits payable under the Workers’ Compensation laws of Texas. This policy is
shared with other Sempra Energy subsidiaries. There are no aggregate limits of liability in
Workers Compensation coverage. Terrorism is not excluded. Coverage placed with Liberty Mutual
(A.M. Best’s rated “A, XV”).

Crime Insurance: Policy Term Annual (October 1st to October 1st), Policy Nos. AK00500550
(primary layer) & AK0500551 (excess layer) for 2005-2006 policy term.

Covers losses sustained by Sempra and its subsidiary or covered companies arising from dishonesty
by employees that involves loss of money or other property. The limit of liability is $40 million
with a $1 million per loss deductible. This insurance is shared with other Sempra subsidiaries.
There is no annual aggregate limit of liability. Coverage placed with Lloyds’s syndicates (A.M.
Best’s rated “A-, XV”).

Employment Practices Liability Insurance: Policy Term Annual (June 26th to June 26th),
Policy Nos. X0022A1A05 & 501666-05GL for 2005-2006 policy term.

Covers liability arising from employment related claims including discrimination, wrongful
termination, failure to promote, harassment, retaliation and hostile work environment. The limit
of liability is $35 million with a $1 million deductible. This insurance is shared with other
Sempra subsidiaries. The policy has an $85 million aggregate limit of liability for all losses.
Coverage placed with AEGIS (A.M Best’s rated “A, XI”).

Fiduciary Liability Insurance: Policy Term Annual (June 26th to June 26th), Policy No.
F0022A1A05 for 2005-2006 policy term.

Provides coverage for liability arising from wrongful acts committed by fiduciaries of employee
benefit programs. The limit of liability is $25 million with a $1 million deductible ($10 million
for securities related claims). This insurance is shared with other Sempra subsidiaries and the
policy has an annual aggregate limit of $25 million for all losses. Coverage placed with AEGIS
(A.M Best’s rated “A, XI”).

33

 

Section 3.18(a) of Disclosure Letter

Affiliate Transactions – Company Affiliate Contracts

	1.	 	Electricity Sales and Purchase Agreement dated as of July 1, 2004 between Sempra Energy
Solutions and Coleto Creek WLE, LP.

	2.	 	Master Power Purchase and Sale Agreement, dated June 28, 2004, between Sempra Energy
Solutions and Coleto Creek WLE, LP, as amended as of the date hereof, for the purchase and
sale of electrical energy.

On the Closing Date under the Agreement, Sellers will cause the termination of the following:

	3.	 	Energy Services Agreement dated as of January 1, 2006, between Coleto Creek WLE, LP and
Sempra Energy Solutions.

	4.	 	Asset Management Agreement (Topaz) dated as of July 1, 2004, by and between Coleto Creek
Power, LP and Sempra Texas Services, LP.

	5.	 	Employee Secondment Agreement dated as July 1, 2004 by and between Topaz Power Group, LLC and
Coleto Creek Power, LP.

	6.	 	General Services Agreement dated July 1, 2004 between Topaz Power Group, LLC and Coleto Creek
Power, LP.

	7.	 	Qualified Scheduling Entity Services Agreement dated as of February 9, 2005 between Sempra
Texas Services and Coleto Creek Power, LP, Barney M. Davis, LP, Eagle Pass WLE, LP, Lon C.
Hill, LP, Nueces Bay WLE, LP and Victoria WLE, LP (to be terminated solely with respect to the
Company).

34

 

Section 3.18(b) of Disclosure Letter

Affiliate Transactions – Exceptions

None.

35

 

Section 3.19 of Disclosure Letter

Brokers; Finders and Fees

	•	 	Engagement Letter by and between Topaz Power Partners, LLC and Goldman, Sachs & Co., dated
as of November 30, 2005.

36

 

Section 4.3 of Disclosure Letter

Consents and Approvals; No Violations

	1.	 	Clearance from the Federal Trade Commission and/or the Department of Justice under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR Act”) or the expiration or earlier
termination of the applicable waiting period under the HSR Act.

	2.	 	Approval from the Public Utility Commission of Texas under Section 39.158 of Chapter 39 of
the Texas Utilities Code of the Stock Purchase.

37

 

Section 4.4 of Disclosure Letter

Litigation – Buyer

None.

38

 

Section 5.1 of Disclosure Letter

Operating Covenants of the Company

	1.	 	Any cash that is restricted by the terms of the Credit Agreement from use in the day to day
operating of the Company (and that is categorized as “Restricted Cash” on the Company’s
balance sheet), but is available to satisfy certain of its obligations, may be distributed by
the Company prior to or simultaneously with the Closing.

	2.	 	At or prior to the Closing, the Company amounts payable to Topaz Power Group, LLC will be
cancelled and amounts payable to Sempra Texas Services, LP will be paid in cash.

	3.	 	Prior to or simultaneously with the Closing, each letter of credit supporting the Company’s
obligations pursuant to the following agreements shall be terminated: (i) each of the Master
Power Purchase and Sale Agreement dated as of May 27, 2004 between the Borrower and Morgan
Stanley Capital Group Inc., and the related Transaction Confirmation of even date therewith
and the guarantee of Morgan Stanley in respect thereof and (ii) each of the Master Power
Purchase Agreement dated as of June 22, 2004 between the Borrower and J. Aron & Company, and
the related Transaction Confirmation of even date therewith and the guarantee of The Goldman
Sachs Group, Inc. in respect thereof.

	4.	 	Specified Affiliate Contracts indicated on Schedule 3.18(a) to be terminated at Closing.
	 
	5.	 	A routine plant maintenance outage is scheduled for April 22 – 30. The major activity for
this outage is to clean the precipitators.

39

 

Section 5.1-A of Disclosure Letter

Capital Expenditures Contemplated

	1.	 	$37,800,000 for Baghouse Project (total project estimated at $55.8 million for 2006 and
2007).
	 
	2.	 	$70,000 for Pulverizer Pre-heating System.
	 
	3.	 	$70,000 for High Pressure Sluice Pump.
	 
	4.	 	$80,000 for Low Pressure Sluice Pump.
	 
	5.	 	$80,000 for Conveyor Belts.

40

 

Section 5.6(d)

Employees; Employee Benefits – Minimum Severance Benefits

	1.	 	One week of base pay for each year of service;
	 
	2.	 	One week of base pay per each $10,000 of base pay;
	 
	3.	 	Outplacement assistance; and
	 
	4.	 	Employee’s choice of either (a) the company paid COBRA continuation coverage for four (4)
months of medical, dental and vision benefits, or (b) a $2,000 lump sum payment.

41

 

Section 5.13

Transition Services Agreement

	I.	 	Parties:

	 	 	 	Buyer and Sempra Texas Services

	II.	 	Provision of Services by Sempra:

	 	 	 	Upon request of ANP, Sempra shall perform or cause to be
performed the following Services on terms and conditions to be
mutually agreed by the parties:

	 	a.	 	Financing/Accounting Services
	 
	 	b.	 	Assistance in baghouse construction matters
	 
	 	c.	 	Power Settlement Services
	 
	 	d.	 	Information Systems/Telecom Services
	 
	 	e.	 	Human Resources Services
	 
	 	f.	 	Assistance with Tax Matters
	 
	 	g.	 	Settlement and Scheduling Services
	 
	 	h.	 	Such other services as mutually agreed by the parties

	III.	 	Services Metrics for Services provided by Sempra:

	 	 	 	Sempra shall provide the Services in a commercially reasonable manner.

	IV.	 	Compensation for Services provided by Sempra:

	 	 	 	ANP shall pay Sempra for in-house Services rendered on the basis of salary plus a stated mark-up to reflect
overhead. Any outside consultants shall be retained and paid for by ANP.

	V.	 	Right to Use Sempra Software and Hardware by ANP:

	 	 	 	ANP shall be entitled to the use of certain software and hardware of Sempra as
mutually deemed appropriate, subject to the terms and conditions of any applicable
agreement with respect to such hardware and software.

	VI.	 	Compensation for Use of Software and Hardware by ANP:

	 	 	 	ANP shall pay Sempra for the use of software and hardware on an actual cost basis.

	VII.	 	Payment Terms:

	 	 	 	Sempra shall invoice ANP on a monthly basis. ANP shall pay invoices in full within
thirty (30) days after receipt, subject to the right to withhold disputed portions of
any invoice.

	VIII.	 	Coordination Representative:

	 	 	 	The Parties shall each appoint a representative to coordinate
the requesting, coordination, scheduling and delivery of Services
and Use of Software and Hardware by the Parties.

	IX.	 	Audit Provision

42

 

	 	 	 	ANP shall have the right to examine and audit books and
records of Sempra maintained pursuant to the Transition Services
Agreement.

	X.	 	Term:

	 	 	 	The Transition Services Agreement will be effective for an agreed period of time, to
be specified in the definitive agreement, but not to exceed 60 days, subject to the
terms of such early termination provisions as the parties deem necessary and
appropriate.

	XI.	 	Limitation of Liability:

	 	 	 	Parties shall not be liable for loss of profits or revenue or
any other indirect, incidental, consequential, punitive or exemplary
damages.

	X.	 	Customary Force Majeure Clause
	 
	XI.	 	Arbitration Clause
	 
	XII.	 	Confidentiality Clause

43

 

Section 8.10

Sellers’ Persons with Knowledge

	•	 	Stephen Schaefer

	•	 	Rick Vaccari

	•	 	Octavio Simoes

	•	 	Darren Stephens

	•	 	Mike Fields

	•	 	Barbara Clemenhagen

	•	 	Vince Cegielski

	•	 	Andrew Wolan

	•	 	Mike Tierney

	•	 	Lisa Gomez

	•	 	Dale Lebsack

	•	 	Kathleen Garrett

	•	 	Kenny Draper

	•	 	Mel Wolfschlag

	•	 	Sonny Williamson

	•	 	Robert Stevens

	•	 	Kathy Walker

	•	 	Nancy Cameron

44

 

ANNEX A

SHARING PERCENTAGE

	 	 	 
	Seller	 	Sharing Percentage
	Topaz Power Group GP, LLC
	 	0.10%
	 
	 	 
	Topaz Power Group LP, LLC
	 	99.90%

45

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