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Exhibit 10.35    
  

 
 

POWER PURCHASE AND SALE AGREEMENT    
    
    between    
    
    EME Homer City Generation L.P.    
    
    and

    
    Edison Mission Marketing & Trading, Inc.    
  

Sales
by Edison Mission Marketing & Trading, Inc. will be pursuant to: 

Edison
Mission Marketing & Trading, Inc.'s Rate Schedule

FERC No. 1 (Docket No. ER99-852, dated February 5, 1999) 

Sales
by EME Homer City Generation L.P. will be pursuant to: 

EME
Homer City Generation L.P.'s Rate Schedule

FERC No. 1 (Docket No. ER99-6661, dated February 24, 1999) 

 
 
 

TABLE OF CONTENTS

	Article 1.	 	Definitions	 	1
	

Article 2.	
 	

Transactions and Commitments of the Parties	
 	

4
	 	 	2.1	 	Form of Contract	 	4
	 	 	2.2	 	Non-Firm Transactions	 	5
	 	 	2.3	 	Firm Transactions	 	5
	

Article 3.	
 	

Quantity and Interruptions of Firm Transactions	
 	

5
	 	 	3.1	 	Quantity	 	5
	 	 	3.2	 	Interruptions of Firm Transactions	 	5
	

Article 4.	
 	

Delivery Points and Reliability Guidelines	
 	

7
	 	 	4.1	 	Delivery Point	 	7
	 	 	4.2	 	Reliability Guidelines	 	7
	

Article 5.	
 	

Price	
 	

7
	

Article 6.	
 	

Term	
 	

7
	

Article 7.	
 	

Records and Billing	
 	

7
	 	 	7.1	 	Accounting Period	 	7
	 	 	7.2	 	Late Payments	 	7
	 	 	7.3	 	Billing	 	7
	 	 	7.4	 	Records	 	8
	 	 	7.5	 	Termination	 	8
	

Article 8.	
 	

Limitation of Liability	
 	

8
	 	 	8.1	 	Title Transfer	 	8
	 	 	8.2	 	Responsibilities and Liabilities	 	8
	 	 	8.3	 	Remedies	 	8
	 	 	8.4	 	Limitation of Liability	 	8
	

Article 9.	
 	

Assignment and Succession	
 	

9
	

Article 10.	
 	

Force Majeure and General Limitation of Liability	
 	

9
	 	 	10.1	 	Effect of Force Majeure	 	9
	 	 	10.2	 	Force Majeure	 	9
	 	 	10.3	 	Good Electric Operating Practice	 	9
	 	 	10.4	 	Interruption by Transmitting Utility	 	9
	

Article 11.	
 	

Taxes	
 	

10
	 	 	11.1	 	Allocation of an Indemnity of Taxes	 	10
	 	 	11.2	 	Cooperation	 	10
	

Article 12.	
 	

Arbitration	
 	

10
	

Article 13.	
 	

Events of Default	
 	

10
	 	 	13.1	 	Event of Default	 	10
	 	 	13.2	 	Rights Under Agreement	 	11
	 	 	13.3	 	Termination Upon Default	 	11

i

 

	

Article 14.	
 	

Miscellaneous	
 	

11
	 	 	14.1	 	Regulatory	 	11
	 	 	14.2	 	Authorizations	 	12
	 	 	14.3	 	Notices	 	12
	 	 	14.4	 	Costs	 	12
	 	 	14.5	 	Expenses	 	13
	 	 	14.6	 	Consent to Recording	 	13
	 	 	14.7	 	Entirety	 	13
	 	 	14.8	 	Governing Law	 	13
	 	 	14.9	 	Non-Waiver	 	13
	 	 	14.10	 	UCC Applicability	 	13
	 	 	14.11	 	Severability	 	13
	 	 	14.12	 	Security	 	13
	 	 	14.13	 	Set-Off	 	13
	 	 	14.14	 	Headings	 	14
	 	 	14.15	 	Confidentiality	 	14
	 	 	14.16	 	Forward Contract	 	14
	 	 	14.17	 	Energy Sales Agreement	 	14
	 	 	14.18	 	Rights of EMMT Subject to Certain Other Agreements	 	14
	 	 	14.19	 	Special Termination Event	 	15
	 	 	14.20	 	Risk Management Guidelines	 	15
	Exhibit A	 	Form of Transaction Summary	 	16
	

Exhibit B	
 	

EMMT's FERC Rate Schedule No. 1	
 	

18
	

Exhibit C	
 	

EME Homer City Generation L.P.'s FERC Rate Schedule No.	
 	

19

ii

  

 
 

POWER PURCHASE AND SALE AGREEMENT    
  

        THIS POWER PURCHASE AND SALE AGREEMENT (the "Agreement") is made and entered into this 31st day of October, 2002, by and between EME Homer City
Generation L.P., a Pennsylvania limited partnership, hereinafter referred to as "Homer City" or the "Counterparty", and Edison Mission Marketing & Trading, Inc., a California
corporation, hereinafter referred to as "EMMT" (each a "Party" and collectively, the "Parties"). 

 
 

WITNESSETH:    
  

        WHEREAS, EMMT and Counterparty are not end users of Power, and the Power purchased and sold hereunder will not be used for Buyer's consumption; and 

        WHEREAS,
EMMT and Counterparty may from time to time request of the other to either Purchase and/or Sell Power and enter into Power Purchase and Sale Transactions pursuant to which Power
is delivered and received at one or more mutually agreeable Delivery Points; and 

        WHEREAS,
the Parties desire to set forth certain terms and conditions applicable to any such Power Purchase and Sale Transaction; 

        NOW,
THEREFORE, in consideration of the mutual agreements, covenants and conditions herein contained, EMMT and Counterparty hereby agree as follows: 

 
 

ARTICLE 1.
  DEFINITIONS    
  

        In addition to terms defined elsewhere in this Agreement, the following definitions shall apply hereunder: 

        "Affiliate" shall have the meaning set forth in the Participation Agreements. 

        "Basic Lease Rent" shall have the meaning set forth in the Participation Agreements. 

        "Business Day" means any day on which Federal Reserve member banks in New York City are open for business. 

        "Buyer" means the Party hereunder who is obligated to purchase Power during the Period of Delivery specified for that Transaction. 

        "Collateral Agent" shall have the meaning set forth in the Participation Agreements. 

        "Company" means a Party and "Companies" means the Parties. 

        "Contract Price" means the agreed price for the purchase of Power in a Transaction, which will be fair and equitable and would be be
agreed to by a prudent person with an nonaffiliated third party and which will be determined in accordance with fair market value based on standard industry practice, and which Counterparty will be
able to confirm by conducting reasonable audits on EMMT's procedures for determining fair market value. 

        "Contract Quantity" means that quantity of Power which Seller agrees to sell to Buyer, and which Buyer agrees to purchase from Seller in a
Transaction. 

        "Delivery Point" means the point(s) of delivery agreed in the Transaction. 

        "Due Date" means the date on which payments are due hereunder. 

        "Energy Sales Agreement" means the Energy Sales Agreement between the Parties dated as of March 18, 1999, until and to the extent
superceded by the Master Purchase, Sale and Services 

1

 

Agreement entered into or to be entered into by the Parties on or about the date hereof, and thereafter, to the extent so superseding, such Master Purchase, Sale and Services Agreement. 

        "EPT" means Eastern Prevailing Time, that is the prevailing time (standard or daylight savings) used at the Delivery Point. 

        "Expiration Date" means the date on which an option expires, as specified in the Transaction Summary. 

        "Facility Leases" shall have the meaning set forth in the Participation Agreements. 

        "Fair Market Value" means such price as is fair and equitable and would be agreed to by a prudent person with a nonaffiliated third party
and which for purposes of this Agreement will be determined by EMMT in accordance with fair market value based on standard industry practice, and which Homer City will be able to confirm by conducting
reasonable audits on EMMT's procedures for determining fair market value. 

        "Homer City Financing Documents" means (i) the Participation Agreement (PA1), dated as of December 7, 2001, between Homer
City, Homer City OL1 LLC, Wells Fargo National Bank Northwest, National Association, General Electric Capital Corporation, Homer City Funding LLC, The Bank of New York (as Security Agent) and The Bank
of New York (as Bondholder Trustee); (ii) the Participation Agreement (PA2), dated as of December 7, 2001, between Homer City, Homer City OL2 LLC, Wells Fargo National Bank Northwest,
National Association, General Electric Capital Corporation, Homer City Funding LLC, The Bank of New York (as Security Agent) and The Bank of New York (as Bondholder Trustee); (iii) the
Participation Agreement (PA3), dated as of December 7, 2001, between Homer City, Homer City OL3 LLC, Wells Fargo National Bank Northwest, National Association, General Electric Capital
Corporation, Homer City Funding LLC, The Bank of New York (as Security Agent) and The Bank of New York (as Bondholder Trustee); (iv) the Participation Agreement (PA4), dated as of
December 7, 2001, between Homer City, Homer City OL4 LLC, Wells Fargo National Bank Northwest, National Association, General Electric Capital Corporation, Homer City Funding LLC, The Bank of
New York (as Security Agent) and The Bank of New York (as Bondholder Trustee); (v) the Participation Agreement (PA5), dated as of December 7, 2001, between Homer City, Homer City OL5
LLC, Wells Fargo National Bank Northwest, National Association, General Electric Capital Corporation, Homer City Funding LLC, The Bank of New York (as Security Agent) and The Bank of New York (as
Bondholder Trustee); (vi) the Participation Agreement (PA6), dated as of December 7, 2001, between Homer City, Homer City OL6 LLC, Wells Fargo National Bank Northwest, National
Association, General Electric Capital Corporation, Homer City Funding LLC, The Bank of New York (as Security Agent) and The Bank of New York (as Bondholder Trustee); (vii) the Participation
Agreement (PA7), dated as of December 7, 2001, between Homer City, Homer City OL7 LLC, Wells Fargo National Bank Northwest, National Association, General Electric Capital
Corporation, Homer City Funding LLC, The Bank of New York (as Security Agent) and The Bank of New York (as Bondholder Trustee); (viii) the Participation Agreement (PA8), dated as of
December 7, 2001, between Homer City, Homer City OL8 LLC, Wells Fargo National Bank Northwest, National Association, General Electric Capital Corporation, Homer City Funding LLC, The Bank of
New York (as Security Agent) and The Bank of New York (as Bondholder Trustee); and (ix) the Letter Agreement dated as of December 7, 2001, between EMMT and The Bank of New York (as
Security Agent). 

        "Interest Rate" means the lesser of Prime Rate plus 1.0 percent and the maximum lawful rate permitted by applicable law. 

        "Insolvency Proceedings" shall have the meaning set forth in section 14.18(b). 

        "Lease Event of Default" shall have the meaning set forth in the Participation Agreements. 

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        "Lease Financing Party" shall mean each Owner Lessor and each Owner Participant.

        "Master Agreement" means this Agreement. 

        "Nature of Transaction" means whether the Transaction is non-firm, as set forth in Article 2.2 of this Agreement, or
firm, as set forth in Article 2.3 of this Agreement. 

        "Operative Documents" shall have the meaning set forth in the Participation Agreements. 

        "Owner Lessor" shall have the meaning set forth in the Participation Agreements. 

        "Owner Lessor's Percentage" shall have the meaning set forth in the Participation Agreements. 

        "Owner Participant" shall have the meaning set forth in the Participation Agreements. 

        "Participation Agreement" shall mean each of the Participation Agreements described in the definition of Homer City Financing Documents in
this Agreement, and "Participation Agreements" shall mean all of such Participation Agreements. 

        "Period of Delivery" means the period of time measured from the date deliveries are to commence under a Transaction through the date
deliveries are to terminate under a Transaction, which period shall not exceed twelve (12) months. 

        "Power" means electric capacity and/or energy or associated services. 

        "Premium" means the premium amount for the purchase or sale of an option to purchase or sell Power as specified in the Transaction
Summary. 

        "Price" means Contract Price. 

        "Prime Rate" means, for any date, the per annum rate of interest announced from time to time by Citibank, N.A., as its "prime" rate for
commercial loans, effective for such date as established from time to time by such bank. 

        "Quantity" means Contract Quantity. 

        "Regulatory Approvals" means, for any Transaction, all applicable state and federal regulatory authorizations, consents, or approvals
required for the Transaction to occur. 

        "Renewal Rent" shall have the meaning set forth in the Participation Agreements. 

        "Rent" shall have the meaning set forth in the Participation Agreements. 

        "Revenue Account" shall have the meaning set forth in the Participation Agreements. 

        "Risk Management Guidelines" shall have the meaning set forth in Section 14.20. 

        "Schedule," "Scheduled," or "Scheduling" means communicating with and confirming with a Transmitting Utility or other parties or Buyer or
Seller that a particular amount of Power is to be delivered or received and providing all such information and satisfying all such requirements as may be necessary to cause such Transmitting Utility
to recognize and confirm the delivery or receipt of the Power. 

        "Seller" means the Party hereunder who is obligated to sell Power during the Period of Delivery specified for that Transaction. 

        "Senior Debt" shall have the meaning set forth in Section 14.18(c). 

        "Strike Price" means the price at which Buyer may exercise its option to purchase or sell Power or accept a cash payment in lieu thereof. 

        "Subordinated Debt" shall have the meaning set forth in Section 14.18(c). 

3

 

        "Supplemental Lease Rent" shall have the meaning set forth in the Participation Agreements. 

        "System Resources" means the electrical systems on which Seller and Buyer, or the third party(ies) designated by them, have arranged for
Seller to make and Buyer to receive delivery of Power under this Agreement. 

        "Taxes" means all ad valorem, property, occupation, utility, gross receipts, sales, use, excise and other taxes, governmental charges,
licenses, permits and assessments, other than taxes based on net income or net worth. 

        "Termination Value" shall have the meaning set forth in the Participation Agreements. 

        "Transaction" means a particular, specifically agreed to purchase or sale of Power, or a physical derivative of such a purchase or sale,
to be performed under this Agreement, as evidenced by the
agreement of the Parties documented in accordance with Article 2.1 of this Agreement. The Parties agree that any physically settled option Transaction qualifies as and shall be considered a
"trade option" pursuant to 17 C.F.R. Sec. 32.4(a). 

        "Transaction Summary" means a written notice setting forth the specific terms of a Transaction, similar to the form set forth on Exhibit
"A". 

        "Transmitting Utility" means the utility or utilities transmitting power (not Buyer or Seller) to or from the Delivery Point(s) in an
individual Transaction hereunder. 

 
 

ARTICLE 2.
  TRANSACTIONS AND COMMITMENTS OF THE PARTIES    
  

        2.1    Form of Contract.    The specific terms of individual Transactions for the sale and delivery, purchase and
receipt, and transmission of Power hereunder shall be determined by EMMT at the time of the Transaction and shall be confirmed by the Parties in the manner set forth in this Article 2.1. The
specific terms shall include at a minimum (i) the Period of Delivery, (ii) the Contract Price, (iii) the Delivery Point(s), (iv) the Contract Quantity, (v) the
Nature of Transaction, (vi) for a Transaction involving an option, the Premium, Strike Price, and Expiration Date, and (vii) such other terms as agreed or such other terms contained in a
Transaction Summary. Such terms are collectively referred to herein as the "Economic Terms." The Economic Terms of individual Transactions shall be confirmed in accordance with the following: 

        (a)  Each
Party shall designate the persons with the authority to agree to Transactions on behalf of such Party ("Authorized Representatives"). The following persons are
designated as the initial Authorized Representatives of the Parties: 

        (1)  For
EMMT: Paul Jacob, Robert McGaughey, and Paul Weiss; and 

        (2)  For
Homer City: Georgia Nelson, Fred McCluskey, Guy Gorney, Mark Mikulka, Doug McFarlan, Paul Gracey, John Finneran, and Maria Rigatti. 

        (3)  The
Parties may change their Authorized Representatives pursuant to the notice provisions of Article 14.3. 

        (b)  Each
Transaction shall be effectuated and evidenced (i) by a written notice executed by an Authorized Representative of EMMT ("Transaction Summary") substantially
in the form of Exhibit A hereto or (ii) in a telephonic notice from EMMT to Homer City whereby Homer City is provided with all information that would have been provided in a Transaction
Summary, followed as soon thereafter as practicable with a written Transaction Summary; in either case, with reasonably acceptable documentation showing that the Contract Price is at Fair Market
Value, taking all parameters of the Transaction into account. 

4

 

        (c)  In
the event of a conflict between the terms of this Agreement and the "Additional Terms" in a Transaction Summary, the terms of this Agreement shall apply to the
relevant Transaction unless both Parties have executed the Transaction Summary. 

        Each
Transaction, and the documentation of such Transaction, shall constitute an integral part of this Agreement and shall be read and construed as one with this Agreement. 

        2.2    Non-Firm Transactions.    For purposes of this Agreement, "Non-Firm" means, with
respect to a Transaction, that delivery or receipt of Power may be interrupted for any reason, or for no reason, without liability on the part of either Party, except and to the extent a Party fails
to give to the other Party timely notice of interruption. 

        Either
Party may, at its sole discretion and without liability (except for failure to provide notice of interruption within the time specified for such notice in the documentation of the
Transaction or this Agreement), interrupt, in whole or in part, the Scheduling of Power at any time for any reason, provided that notice of interruption shall be given to the other Party, and that no
such interruption shall be retroactive to any time prior to giving of notice of interruption. In the event the interrupting Party fails to give timely notice of interruption, the interrupting Party
shall be liable only for direct actual damages resulting from the failure to timely notify and shall only be liable in the event the non-interrupting Party has exercised all reasonable
efforts to minimize and avoid such damages. 

        The
Parties hereby agree that such actual direct damages shall be computed in the same manner as liquidated damages for the interruption of firm transactions as set forth in
Article 3 hereof, with respect to volumes of Power not scheduled or delivered/received prior to notice of interruption and that such damages shall be the sole and exclusive remedy for such
event. Both Parties hereby stipulate that such liquidated damages are reasonable in light of the anticipated harm and the difficulty of estimation or calculation of actual damages, and each Party
hereby waives the right to contest such damages as an unreasonable penalty. 

        2.3    Firm Transactions.    For purposes of this Agreement, a Transaction shall be deemed firm to the extent as
specified in the terms in the documentation of the Transaction. "Firm" means, with respect to a Transaction, that either Party shall be relieved of its obligations to schedule or deliver/receive
without liability only to the extent that, and for the period during which, such performance is prevented by Force Majeure. In the absence of Force Majeure, the interrupting Party shall have the
obligations set forth in Article 3.2 of this Agreement. 

 
 

ARTICLE 3
  QUANTITY AND INTERRUPTIONS OF FIRM TRANSACTIONS    
  

        3.1    Quantity.    The quantity of Power to be Scheduled for delivery and receipt, subject to the other provisions of
the Agreement and in each Transaction hereunder, shall be the Contract Quantity. The Seller shall be responsible for any transmission losses and loss charges relating to the transmission of Power to
the Delivery Point. 

        3.2    Interruptions of Firm Transactions.    If the Transaction is a firm Transaction, then with respect to the
unauthorized failure to Schedule, deliver, and/or receive in whole or in part the Contract Quantity in accordance with this Agreement or a Transaction: 

        (a)  As
an alternative to the liquidated damages provisions of Article 3.2(b) below, if the Parties both agree, the non-performing Party may Schedule
deliveries or receipts, as the case may be, pursuant to such terms as the Parties agree in order to discharge some or all of the obligation to pay liquidated damages. In the absence of such agreement,
the liquidated damages provisions of Article 3.2(b) below shall apply. 

5

 

        (b)  (1)
In the event Seller fails to schedule and to deliver the Contract Quantity, where such failure was not excused by Force Majeure (as defined herein) or by Buyer,
Seller shall pay Buyer on the date payment would otherwise be due under this Agreement, pursuant to Article 3.2(b)(3) herein below, an amount for each MWhr of such deficiency equal to the price
at which Buyer is, or would be able, to purchase or otherwise receive comparable supplies of Power in a commercially reasonable manner (adjusted to reflect differences in transmission costs, if any)
minus the "Contract Price" reflected in the Transaction Summary; provided, however, if the amount determined in the preceding clause is negative, then
the amount shall be equal to zero for purposes of calculating the deficiency payment. 

        (2)  In
the event Buyer fails to schedule and to receive the Quantity, where such failure was not excused by Force Majeure or by Seller, Buyer shall pay the Seller, on the
date payment would otherwise be due under this Agreement, pursuant to Article 3.2(b)(3) herein below, an amount for each MWhr of such deficiency equal to the "Contract Price" reflected in the
Transaction Summary; minus the price at which Seller is, or would be able, to sell or otherwise dispose of comparable supplies of Power in a commercially reasonable manner (adjusted to reflect
differences in transmission costs, if any); provided, however, if the amount determined in the preceding clause is negative, then the amount shall be
equal to zero for purposes of calculating the deficiency payment. 

        (3)  The
Parties agree further that such payments for liquidated damages will become due and payable hereunder, and that the non-performing Party will pay the
aggrieved Party any amounts due under this Article 3.2(b) upon receipt by the non-performing Party of a written demand for payment setting forth the basis and calculation, as set
forth above, of the amount of liquidated damages demanded, such demand to be sent in accordance with Article 14.3 (Notices) and in accordance with the time schedules of Article 7.1 (date
statements would be due) and Article 7.2 (date payment would be due). 

        (4)  Notwithstanding
any other provision herein, EMMT agrees that it will not enter into Transactions with Homer City on a forward (i.e., more than day-ahead)
basis obligating Homer City to pay liquidated damages in respect of a failure by any of the three Homer City generating units to deliver electric energy during the period for which such units are
committed unless the liquidated damages payable by Homer City, in combination with any damages payable under the Energy Sales Agreement, total an aggregate amount of less than $200 million. 

        (c)  Both
Parties hereby stipulate that the liquidated damages set forth in Article 3.2(b) above are reasonable in light of the anticipated harm and the difficulty of
estimation or calculation of actual damages, and each Party hereby waives the right to contest such damages as an unreasonable penalty. 

        (d)  In
the event either Party fails to pay to the other Party amounts in accordance with Article 3.2(b) above when due, the aggrieved Party shall have the right to
(i) suspend performance under the Transaction for which such amounts are due until such amounts plus interest have been paid, and/or (ii) exercise any remedy available at law or in
equity to enforce payment of such amount plus interest. 

6

 

 
 

ARTICLE 4.
  DELIVERY POINTS AND RELIABILITY GUIDELINES    
  

        4.1    Delivery Point(s).    Seller shall deliver the Power to Buyer at the Delivery Point(s). 

        4.2    Reliability Guidelines.    Each Party agrees to adhere to accepted electric industry practice and specifically
adhere to the applicable operating policies, criteria and/or guidelines of the North American Electric Reliability Council ("NERC") and any regional or subregional requirement. 

 
 

ARTICLE 5
  PRICE    
  

        Buyer agrees to pay Seller the Contract Price for Power. The Contract Price will be the total consideration paid by Buyer to Seller for Power Scheduled hereunder
subject to Article 11. 

 
 

ARTICLE 6
  TERM    
  

        Subject to the other provisions of this Agreement, the term of this Agreement shall commence on the date first stated above and shall remain in effect for an
initial period of one year. This Agreement shall thereafter be in effect from month to month, until terminated by either Party upon 30 days prior written notice; provided, however, no such
termination notice shall be effective as to any ongoing Transaction hereunder until both Parties have fulfilled all their obligations hereunder with respect to such Transaction. 

 
 

ARTICLE 7.
  RECORDS AND BILLING    
  

        7.1    Accounting Period.    The accounting period shall be one (1) calendar month. For each calendar month
during the term of this Agreement, EMMT shall render to Counterparty (by regular mail, facsimile or other acceptable means pursuant to Article 14.3), on or before the fifth (5th) day of the
following calendar month, a statement setting forth (i) the amount of Power received by the Buyer from the Seller for each Transaction, and (ii) the Contract Price for such Power. The
Parties hereby agree that they shall discharge mutual debts and payment obligations due and owing to each other on the same date pursuant to all Transactions through netting, in which case all amounts
owed by each Party to the other Party hereunder, including any related damages, interest, and payment or credits, shall be netted so that only the excess amount remaining due shall be paid by the
Party who owes it. On or before thirty (30) days after sending such statement to Counterparty, or if such day is not a business day, the immediately following business day, the Party owing
payment shall render, by wire transfer or other method as agreed upon by the Parties, the total amount to be paid by such Party to the other Party for
the Transactions set forth therein pursuant to Article 14.3. If Counterparty, in good faith, disputes a statement, Counterparty shall provide a written explanation of the basis for the dispute. 

        7.2    Late Payments.    Late payments shall be payable with interest accrued daily at the lesser of the Prime Rate of
interest for commercial loans per annum established by Citibank, New York, New York or its successor, plus one (1%) percent or the highest lawful rate. 

        7.3    Billing.    

        (a)  The
Parties shall discuss disputes using commercially reasonable efforts to resolve the dispute amicably and promptly. Upon determination of the correct billing amount,
the proper adjustment shall be paid or refunded promptly, and in no event more than ten (10) days after such resolution, with interest accrued in accordance with Article 7.2 from and
including the date such amount should have been paid. 

7

  

        (b)  The
Parties shall have no rights to dispute the accuracy of any bill or payment after a period of one (1) year from the date on which the original bill was
delivered. 

        (c)  If
either Party's records reveals that a bill was not delivered for a specific transaction, either Party may deliver to the other a bill within one (1) year from
the date on which the bill should have been delivered under Article 7.1 of this Agreement. Unless otherwise agreed, the payment terms for this bill shall be in accordance with this Agreement
and may not be altered without proper notice and agreement between both Parties. 

        7.4    Records.    Each Party, or any third party representative of a Party, shall keep complete and accurate records
and memoranda of its operations hereunder, and shall maintain such data as may be necessary for the purpose of ascertaining the reasonableness and accuracy of all relevant data, estimates, or
statements of charges submitted hereunder for a period of two (2) years from the date of a Transaction. Furthermore, within the stated period of two (2) years from the date of a
Transaction, each Party may request in writing copies of the records of the other Party to the extent reasonably necessary to verify the accuracy of any statement, charge or computation made pursuant
to the provisions of this Agreement. 

        7.5    Termination.    Article 7 of this Agreement will survive any termination of the Agreement for the
purpose of such billing and payment objections. 

 
 

ARTICLE 8
  LIMITATION OF LIABILITY    
  

        8.1    Title Transfer.    Title to Power Scheduled hereunder shall transfer from Seller to Buyer at the Delivery
Point. 

        8.2    Responsibilities and Liabilities.    The Seller's responsibilities and liabilities extend to the Delivery
Point. The Buyer's responsibilities and liabilities originate at and from the Delivery Point. 

        8.3    Remedies.    Except for non-payment, the penalties herein are the sole remedies, either at law or
in equity, for either Party arising from the performance or non-performance of this Agreement. 

        8.4    Limitation of Liability.    FOR BREACH OF ANY PROVISION FOR WHICH AN EXPRESS REMEDY OR MEASURE OF DAMAGES IS
PROVIDED IN THIS AGREEMENT, THE LIABILITY OF THE DEFAULTING PARTY SHALL BE LIMITED AS SET FORTH IN SUCH PROVISION, AND ALL OTHER DAMAGES OR REMEDIES HEREBY ARE WAIVED. IF NO REMEDY OR MEASURE OF
DAMAGES IS EXPRESSLY PROVIDED, THE LIABILITY OF THE DEFAULTING PARTY SHALL BE LIMITED TO DIRECT DAMAGES ONLY, AND ALL OTHER DAMAGES AND REMEDIES, EITHER AT LAW OR IN EQUITY, ARE WAIVED. IN NO EVENT
SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR CONSEQUENTIAL, INCIDENTAL, PUNITIVE, EXEMPLARY OR INDIRECT DAMAGES IN TORT, FOR CONTRACT OR OTHERWISE, EITHER AT LAW OR IN EQUITY. 

 
 

ARTICLE 9
  ASSIGNMENT AND SUCCESSION    
  

        Except for assignments to the Collateral Agent executed on or before the date hereof, neither Party shall assign this Agreement or its rights hereunder without
the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed. Upon any assignment made in compliance with this Article 9, this Agreement shall inure
to and be binding upon the successors and assigns of the assigning Parties. Notwithstanding the foregoing, either Party may, without the need for consent from the other Party, (i) transfer,
pledge, or assign this Agreement as security for any financing with financial institutions; (ii) transfer or assign this Agreement to an Affiliate of such Party, provided that all the persons
obligated to fulfill the assigning Party's obligations under the Agreement after the assignment have substantially equivalent financial capability to that of all the persons obligated to fulfill 

8

 

the assigning Party's obligations under the Agreement before the assignment, or (iii) transfer or assign this Agreement to any person or entity succeeding to all or substantially all of the
assets of such Party; provided, however, that any such assignee shall agree to be bound by the terms and conditions hereof. 

 
 

ARTICLE 10.
  FORCE MAJEURE    
  

        10.1    Effect of Force Majeure.    In the event either Party is rendered unable by an event of Force Majeure to carry
out wholly or in part its obligations under a Transaction, if such Party gives notice and full particulars of such event of Force Majeure to the other Party as soon as practicable after the
occurrence of the event relied on, then the obligations of the Party affected by such event of Force Majeure pursuant to such Transaction, other than the obligation to make payments then due or
becoming due hereunder, shall be suspended from the inception and throughout the period of continuance of any such inability so caused, but for no longer period, and such event of Force Majeure shall,
so far as practicable, be remedied with all reasonable dispatch; provided, however, that no provision of this Agreement shall be interpreted to require Seller to deliver, or Buyer to receive, Power at
points other than the Delivery Point(s). 

        10.2    Force Majeure.    The term "Force Majeure" means an event or circumstance which prevents one Party from
performing its obligations under one or more Transactions, which event or circumstance was not anticipated as of the date the Transaction was agreed to, which is not within the reasonable control of,
or the result of the negligence of, the Party claiming the Force Majeure, and which, by the exercise of due diligence, the Party claiming the Force Majeure is unable to overcome or avoid or cause to
be avoided. Force Majeure shall not be based on (i) the loss of Buyer's markets; (ii) Buyer's inability economically to use or resell the Product purchased hereunder; (iii) the
loss or failure of Seller's supply; or (iv) Seller's ability to sell the Product at a price greater than the Contract Price. Neither Party may raise a claim of Force Majeure based in whole or
in part on curtailment by a transmission provider unless (i) such Party has contracted for firm transmission with a transmission provider for the Product to be delivered to or received at the
Delivery Point and (ii) such curtailment is due to "force majeure" or "uncontrollable force" or a similar term as defined under the transmission provider's tariff; provided, however, that
existence of the foregoing factors shall not be sufficient to conclusively or presumptively prove the existence of a Force Majeure absent a showing of other facts and circumstances which in the
aggregate with such factors establish that a Force Majeure as defined in the first sentence hereof has occurred. 

        10.3    Good Electric Operating Practice.    "Good Electric Operating Practice" means the practices, methods and acts
engaged in or approved by a significant portion of the electric power industry during the relevant time period, or the practices, methods and acts which, in the exercise of reasonable judgment in
light of the facts known at the time the decision was made, could have been expected to accomplish the desired result consistent with reliability, safety, expedition, the requirements of governmental
agencies having jurisdiction and, if appropriate or relevant under the Transaction in question, at the lowest reasonable cost; such term is not intended to be limited to the optimum practice, method
or act to the exclusion of all others, but rather to constitute a spectrum of acceptable practices, methods or acts. 

        10.4    Interruption by Transmitting Utility.    In a firm Transaction pursuant to Article 2.3, interruption by
a Transmitting Utility shall not be deemed to be Force Majeure unless (i) the Party contracting with such Transmitting Utility shall have made arrangements with such Transmitting Utility for
the firm transmission, as defined under the Transmitting Utility's tariff, of the Power to be Scheduled hereunder and (ii) such interruption is due to a Force Majeure as defined under the
Transmitting Utility's tariff. 

9

 

 
 

ARTICLE 11
  TAXES    
  

        11.1    Allocation of and Indemnity for Taxes.    The Contract Price paid hereunder includes full reimbursement for
and Seller is liable for and shall pay or cause to be paid, or reimburse Buyer if Buyer shall have paid, all Taxes applicable to the Power sold hereunder prior to the Delivery Point(s) which are in
effect and at the rates that are in effect on the date that a Transaction is entered into ("Seller's Taxes"). In the event Buyer is required to remit any of Seller's Taxes, the amount thereof shall be
deducted from any sums becoming due to Seller hereunder. Seller shall indemnify, defend and hold Buyer harmless from any liability against all Seller's Taxes. The Contract Price does not include
reimbursement for and Buyer is liable for and shall pay or cause to be paid, or reimburse Seller if Seller shall have paid, all Taxes applicable to the Power sold hereunder at and after the Delivery
Point including Taxes imposed by a taxing authority with jurisdiction over Buyer which are in effect and at the rates that are in effect on the date that a Transaction is entered into ("Buyer's
Taxes"). Buyer shall indemnify, defend and hold Seller harmless from any liability against all Buyer's Taxes. 

        11.2    Cooperation.    Both Parties shall use reasonable efforts to administer this Agreement and implement the
provisions in accordance with their intent to minimize Taxes. 

 
 

ARTICLE 12
  ARBITRATION    
  

        Any dispute or need of interpretation arising out of this Agreement shall be submitted to binding arbitration by one arbitrator qualified by education, experience
or training to render a decision upon the issues in dispute and who has not previously been employed by either Party, and does not have a direct or indirect interest in either Party or the subject
matter of the arbitration. 

        Such
arbitrator shall either be mutually agreed by the Parties within thirty (30) days after written notice from either Party requesting arbitration, or failing agreement, the
arbitration shall be conducted by a panel of three arbitrators having the qualifications set forth in the preceding sentence, one to be selected by each Party and the third arbitrator to be selected
by the two arbitrators selected by the Parties. If either Party fails to notify the other Party of the arbitrator selected by it within ten (10) days after receiving notice of the other Party's
arbitrator, or if the two arbitrators selected fail to select a third arbitrator within ten (10) days after notice is given of the selection of the second arbitrator, then such arbitrator shall
be selected under the expedited rules of the American Arbitration Association (the "AAA"). 

        Such
arbitration shall be held in New York, New York. Each Party shall divide equally the cost of the hearing, and each shall be responsible for their own expenses and those of their
counsel or other representative. The commercial arbitration rules of the AAA shall apply to the extent not inconsistent with the rules specified above. 

 
 

ARTICLE 13
  EVENTS OF DEFAULT    
  

        13.1    Event of Default.    "Event of Default" means the occurrence of any of the following events with respect to a
Party (the "Defaulting Party", the other Party being the "Non-Defaulting Party"): 

        (a)  the
Defaulting Party fails to make any payment which it is obligated to make pursuant to this Agreement to the Non-Defaulting Party which nonpayment
continues for three (3) Business Days after written notice of such default is given by the other Party; 

        (b)  any
representation or warranty of the Defaulting Party pursuant to this Agreement shall prove to have been false or misleading in any material respect when made or
deemed made; 

10

 

        (c)  the
Defaulting Party fails to observe and perform any other covenant or obligation contained in this Agreement or the Transaction Summary and such failure continues for
at least five (5) Business Days after written notice of such failure is given to the Defaulting Party; or 

        (d)  the
Defaulting Party 

        (i)    makes
a general assignment or arrangement for the benefit of its creditors; 

        (ii)  (A)
files a petition or otherwise commences, authorizes, or acquiesces in the commencement of a proceeding or cause under any bankruptcy or similar law for the
protection of creditors or (B) has such petition filed or a proceeding commenced against it and, in the case of a petition filed or proceeding commenced against it, such petition or proceeding
results in a judgment of insolvency or bankruptcy or the entry of any order for relief or the making of an order for the winding-up or liquidation of such
entity, or is not dismissed, discharged, stayed or restrained within twenty (20) Business Days of the filing or commencement thereof; 

        (iii)  otherwise
becomes bankrupt or insolvent (however evidenced); 

        (iv)  fails
or is unable or admits in writing its inability generally to pay its debts as they become due; 

        (v)  is
dissolved (other than pursuant to a consolidation, acquisition, amalgamation or merger); 

        (vi)  has
a resolution passed for its winding-up, official management or liquidation (other than pursuant to a consolidation, acquisition, amalgamation or
merger); 

        (vii) seeks
or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for all or
substantially all of its assets; 

        (viii)has
a secured party take possession of all or substantially all of its assets, or has a distress, execution, attachment, sequestration or other legal process levied,
enforced or sued on or against all or substantially all of its assets and subject secured party maintains possession, or any such process is not dismissed, discharged, stayed or restrained, in each
case within 30 days thereafter; 

        (ix)  causes
or is subject to any event with respect to it which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in
clauses (d)(i) to (viii) (inclusive); or 

        (x)  takes
any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts. 

        13.2    Rights Under Agreement.    Except as otherwise provided herein, each Party reserves to itself all rights,
counterclaims, set-offs, and other defenses which it is or may be entitled to arising from or out of the Agreement. 

        13.3    Termination Upon Default.    Upon the occurrence of an Event of Default, the Non-Defaulting Party
shall have the right to terminate any Transaction upon written notice to the Defaulting Party in addition to any other right or remedy the Non-Defaulting Party may have under this
Agreement or at law, except as otherwise limited by this Agreement. 

 
 

ARTICLE 14
  MISCELLANEOUS    
  

        14.1    Regulatory.    It is understood by the Parties that this Agreement and performance hereunder is subject to all
present and future valid and applicable laws, orders, statutes, and regulations of courts 

11

 

or regulatory bodies (state or federal) having jurisdiction over EMMT, Counterparty, or any Transaction hereunder. The rights of the Parties hereunder to Schedule the purchase and sale of Power shall
not be effective until all Regulatory Approvals have been obtained; provided, however, that if Regulatory Approvals are not issued by applicable
governmental authorities by such Transaction, either Party may terminate such Transaction without further obligation or liability to the other Party. 

        14.2    Authorizations.    The Parties hereto represent that they have (or will have at the time of documentation of
any Transaction and at the time of delivery and receipt of Power thereunder) all requisite legal, corporate and governmental authorizations necessary or proper to consummate such Transactions and to
consummate this Agreement, and that the persons signing this Agreement and consummating Transactions hereunder have been duly authorized to do so. 

        14.3    Notices.    Except as otherwise provided for in this Agreement, any notice (except of an operational nature),
request, demand, statement, or payment provided for in this Agreement shall be confirmed in writing and shall be made as specified below; provided, however, that notices of interruption may be
provided verbally, effective immediately and, upon request, confirmed in writing. A notice sent by facsimile transmission shall be deemed received by the close of the Business Day on which such notice
was transmitted or such earlier time as confirmed by the receiving Party, and notice by overnight mail or courier shall be deemed to have been received two (2) Business Days after it was sent
or such earlier time as is confirmed by the receiving Party unless it confirms a prior verbal communication in which case any such notice shall be deemed received on the day sent. The addresses of the
Parties are as follows: 

	NOTICES & CORRESPONDENCE:	 	 
	Edison Mission Marketing & Trading, Inc.

160 Federal Street

Boston, MA 02110

Attn: Counsel, Electricity Trading

Telephone: (617) 912-6000

Facsimile: (617) 912-6001	 	EME Homer City Generation L.P.

440 South Lasalle, Suite 3500

Chicago, IL 60605

Attn: General Counsel/Vice President of

Business Management

Telephone: (312) 583-6000

Facsimile: (312) 583-4946
	
INVOICES:	
 	

 
	Edison Mission Marketing & Trading, Inc.

160 Federal Street

Boston, MA 02110

Attn: Accounting

Facsimile: (617) 912-5702	 	EME Homer City Generation L.P.

400 Soute Lasalle, Suite 3500

Chicago, IL 60605

Attn: Controller

Telephone: (312) 583-6000

Facsimile: (312) 583-4946
	
PAYMENTS:	
 	

 
	Fleet Bank

1 Federal St., Boston, MA 02210

ABA Routing No.: 011-500-010

Account Number: 056-225-6897

Account of: Edison Mission Marketing &

Trading, Inc.—Trade Account

Verification: Accounting

Facsimile: (617) 912-5702	 	United States Trust Company of New York

114 West 47th St., 25th Floor, New York, NY 10036

ABA Routing No.: 021001318

Account Number: 09039700

Account of: EME Homer City Generation,

L.P. Revenue Fund Account

Verification:

Facsimile:

or
to such other address as EMMT or Counterparty shall from time to time designate by letter properly addressed. 

        14.4    Costs.    The prices stated herein include any and all costs incurred by the Seller related to the electric
energy transaction pursuant to this Agreement including, but not limited to, Seller's 

12

 

transmission costs to the Delivery Point, Seller's fuel costs, Seller's out-of-pocket costs (variable O&M), Seller's emission allowance costs, and new and existing taxes of
any nature imposed on the Seller up to and prior to the Delivery Point. 

        14.5    Expenses.    Buyer is responsible for all expenses at and extending from the Delivery Point. 

        14.6    Consent to Recording.    The Parties, and their respective employees involved in such recordings, agree that
each may electronically record all telephonic conversations between them and that any such recordings may be submitted in evidence to any court or in any proceedings for the purpose of establishing
any matters pertinent to any Transaction(s). 

        14.7    Entirety.    This Agreement, the Exhibits hereto, and the documentation of each Transaction hereunder pursuant
to Article 2.1 constitute the entire Agreement between the Parties hereto. There are no prior or contemporaneous agreements or representations affecting the same subject matter other than those
herein expressed. Except for those matters which, in accordance with Article 2.1 of this Agreement, may be resolved by verbal agreement between the Parties and documented, it is further agreed
that no amendment, modification or change herein shall be enforceable, except as specifically provided for in this Agreement, unless reduced to writing and executed by both Parties. 

        14.8    GOVERNING LAW.    INCLUDING ANY COUNTERCLAIMS AND CROSS CLAIMS ASSERTED IN SUCH ACTION, THIS AGREEMENT SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF NEW YORK, WITHOUT REGARD TO THE LAW OF SUCH STATE REQUIRING THE APPLICATION OF THE LAW OF ANOTHER STATE. 

        14.9    Non-Waiver.    No waiver by either Party hereto of any one or more defaults by the other in the
performance of any of the provisions of this Agreement, shall be construed as a waiver of any other default or defaults whether of a like kind or different nature. 

        14.10    UCC Applicability.    Except as otherwise provided for herein, the provisions of the Uniform Commercial Code
("UCC") of the state whose laws shall govern this Agreement shall be deemed to apply to all transactions and electric power (both energy and capacity) shall be deemed to be "goods" for purposes of the
UCC. EXCEPT AS EXPRESSLY SET FORTH HEREIN, SELLER EXPRESSLY NEGATES ANY OTHER REPRESENTATION OR WARRANTY, WRITTEN OR ORAL, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY REPRESENTATION OR
WARRANTY WITH RESPECT TO THE MERCHANTABILITY OR FITNESS OF ELECTRIC POWER SOLD FOR ANY PARTICULAR PURPOSE. 

        14.11    Severability.    Except as otherwise stated herein, any provision, article or section declared or rendered
unlawful by a court of law or regulatory agency with jurisdiction over the Parties, or deemed unlawful because of a statutory change, will not otherwise affect the lawful obligations that arise under
this Agreement. 

        14.12    Security.    Should either Party's creditworthiness or financial responsibility become unsatisfactory to the
other in its reasonably exercised discretion at any time during which this Agreement is in effect, the dissatisfied Party may require at its option either (i) the posting of a letter of credit
or (ii) cash prepayments or (iii) other security in a form acceptable to it. If the Party in question fails to provide satisfactory assurances, the dissatisfied Party shall have the
right, with two (2) days written notice, to (i) suspend performance until such assurances are made, and/or (ii) exercise any remedy available at law or in equity (including,
without limit, termination of any Transaction or this Agreement). 

        14.13    Set-off.    Each Party reserves to itself all rights, set-offs, counterclaims and
other remedies and/or defenses to which it is or may be entitled arising from or out of this Agreement as a result of default by the other Party. In the event of a default, all outstanding
Transactions and the obligations to 

13

 

make payment in connection therewith, under this Agreement may be offset against each other, set-off or recouped therefrom. 

        14.14    Headings.    The headings used for the Articles herein are for convenience and reference purposes only and
shall in no way affect the meaning or interpretation of the provisions of this Agreement. 

        14.15    Confidentiality.    The Parties shall keep the terms of this Agreement and any Transaction confidential,
except to the extent such information must be disclosed for the purpose of effectuating any Transactions or as may be required to be disclosed by regulatory bodies or to vested interest owners or
pursuant to the Homer City Financing Documents. 

        14.16    Forward Contract.    The Parties acknowledge and agree that all Transactions constitute "forward contracts"
and that the Parties are "forward contract merchants," as those terms are used in the United States Bankruptcy Code, and that all Transactions hereunder, together with this Agreement, form a
single, integrated agreement. 

        14.17.    Energy Sales Agreement.    The Parties acknowledge that they are also parties to the Energy Sales Agreement,
and that all transactions between them regarding electric energy and capacity not explicitly
covered by a confirmation in accordance with this Agreement are subject to the terms and conditions of the Energy Sales Agreement and the netback terms contained therein; provided, however, that the
transactions embodied in four (4) confirmations dated September 24, 2001, the two (2) confirmations dated November 28, 2001, the three (3) confirmations dated
April 15, 2002, the confirmation dated April 19, 2002, the confirmation dated May 1, 2002, and the confirmation dated June 1, 2002, related to transactions between the
Parties which contemplated, in Special Conditions (1) the execution between the Parties of a "Master (Umbrella) Agreement," shall be governed by this Agreement. 

        14.18    Rights of EMMT Subject to Certain Other Agreements.    

        (a)  Any
provision in this Agreement which, on its face, would create a default for Homer City under the Homer City Financing Documents, shall be void  ab initio, provided that the remaining terms and conditions
of this Agreement shall remain in full force and effect. No Transaction shall be consummated
hereunder unless such Transaction would be permitted pursuant to the Homer City Financing Documents. 

        (b)  Prior
to the date which is six (6) years and one (1) day after the later of (i) the termination of the last of the Facility Leases in accordance
with its terms and (ii) the payment in full of all outstanding Rent (including without limitation, Basic Lease Rent, Renewal Rent, Supplemental Rent and Termination Value), EMMT will not (and
will not permit any of its Subsidiaries to) voluntarily (x) commence against, or join with any other Person in commencing against, Homer City or any of its limited partners or general partners
any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceeding under the laws of the United States, any state of the United States or the District of
Columbia (collectively, "Insolvency Proceedings"), (y) cause Homer City or any of its limited partners or general partners to commence any
Insolvency Proceedings with respect to Homer City or any of its limited partners or general partners nor (z) consent to, or facilitate, assist, encourage, support or take any other action in
furtherance of or for the purpose of effecting, any of the foregoing; 

        (c)  In
the event of any dissolution, winding up, liquidation, arrangement, reorganization, adjustment, protection, relief or composition of Homer City or its debts, whether
voluntary or involuntary, in any bankruptcy, insolvency, arrangement, reorganization, receivership, relief or other similar case or proceeding under any federal or state bankruptcy or similar law or
upon an assignment for the benefit of creditors or any other marshaling of the assets and liabilities of Homer City or otherwise, the Owner Lessors and each other Lease Financing Party shall be
entitled to receive indefeasible payment in full of the Rent (including without limitation, Basic Rent, Termination Value 

14

 

and Supplemental Rent) and all other amounts under any of the Operative Documents, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise,
including without limitation all fees, expenses, indemnities, expense reimbursement obligations and all other obligations and liabilities of Homer City under the Operative Documents (such obligations
being, collectively, the "Senior Debt") before EMMT is entitled to receive (by way of payment, offset or otherwise) all or any portion of any indebtedness and other liabilities (including without
limitation any claims for liquidated damages or breach of contract) of Homer City now or hereafter owing to EMMT (collectively, the "Subordinated Debt") and any payment or distribution of any kind
(whether in cash,
property or securities) that otherwise would be payable or deliverable upon or with respect to such Subordinated Debt in any such case, proceeding, assignment, marshaling or otherwise (including any
payment that may be payable by reason of any other indebtedness of Homer City being subordinated to payment of the Subordinated Debt) shall be paid or delivered directly to the Collateral Agent (for
deposit into the Revenue Accounts under each Participation Agreement (in each case, in an amount equal to such Owner Lessor's Percentage thereof)) for application (in the case of cash) to, or as
collateral (in the case of non-cash property or securities) for, the payment or prepayment of the applicable Senior Debt until such Senior Debt shall have been indefeasibly paid in full in
cash. 

        14.19    Special Termination Event.    This Agreement shall terminate at such time as EMMT ceases to be an Affiliate
of Homer City or upon the exercise of remedies following the occurrence of a Lease Event of Default; provided, that no Transaction under this Agreement shall be terminated upon the exercise of
remedies to the extent (but only to the extent) that EMMT has, in reliance on this Agreement and prior to the Owner Participant giving notice to Homer City of the occurrence of a Lease Event of
Default (which notice shall not be given prior to the occurrence of a Lease Event of Default or continue to be effective following the cure by Homer City of such Lease Event of Default), entered into
a Transaction with an unrelated third party pursuant to which EMMT has agreed to sell to, or acquire from, such third party the Product which EMMT had contracted to acquire from, or sell to, Homer
City pursuant to this Agreement (or which EMMT, promptly after entering into such Transaction with such unrelated third party, contracts to acquire from, or sell to, Homer City pursuant to this
Agreement). 

        14.20    Risk Management Guidelines.    The Transactions will be entered into according to the guidelines established
and amended from time to time (the "Risk Management Guidelines") by the Americas Operating, Commercial, Risk Management Committee, which includes senior officers and representatives of both EMMT and
Homer City. EMMT shall be required to use commercially reasonable care in developing and executing Transactions so as to comply with the Risk Management Guidelines. 

        IN
WITNESS WHEREOF, the Parties hereto have executed this Agreement in duplicate originals to be effective as of the day and year first written above. 

	
EME Homer City Generation L.P.	

Edison Mission Marketing & Trading, Inc.
	

By:	

MISSION ENERGY WESTSIDE, INC.,

As General Partner	

 	

 	

 
	

By:	

/s/  JOHN FINNERAN      
 John Finneran	

By:	

/s/  PAUL D. JACOB      
 Paul D. Jacob
	 	Title:	Vice President	 	Title:	President

15

  

 
 

EXHIBIT A    
  

[LOGO] 

Fax
Date: 

	

To:	
 	

 
	

 	
 	
EME Homer City

Generation, L.P.
	

Attn:                                         
                                         
              Fax:

TRANSACTION SUMMARY  

Subject to Master Agreement Between the Companies  

        The following memorializes the terms of a transaction agreed to by EMMT Trader Name, Edison Mission
Marketing & Trading, Inc. ("EMMT"), and [N/A] EME Homer City Generation L.P. ("Homer City") on Trade Date.

	Seller:	 
	

Buyer:	

 
	Agree Date:	Trade Date
	EMMT Ref. No.:	 
	Term:	Flow Date Start—Flow Date End
	Type:	 

Schedule, Quantity, and Price  

	Term	 	Quantity (MW)	 	Price (US$)	 	Deliver To
	Flow Date Start—Flow Date End	 	Quantity MW	 	 	 	 

 
 

Additional Terms

Damages  

        Damages for Non-Performance 

	(1)
	For
a firm transaction, if the Buyer fails to schedule and/or receive the Quantity, where such failure was not excused by a physically caused uncontrollable force or by Seller, Buyer
shall pay Seller (on the date payment would otherwise be due under this transaction) an amount for each MWh of such deficiency equaling the sum of: (i) the price reflected herein minus
(ii) the price at which Seller is, or would be able, to sell or otherwise dispose of comparable supplies of power in a commercially reasonable manner (adjusted to reflect differences in
transmission costs, if any); provided, however, if the amount determined in the preceding clause is negative, then the amount shall be equal to zero for purposes of calculating the deficiency payment.

	(2)
	For
a firm transaction, if the Seller fails to schedule and/or deliver the Quantity, where such failure was not excused by a physically caused uncontrollable force or by Buyer, Seller
shall pay Buyer (on the date payment would otherwise be due under this transaction) an amount for each MWh of such deficiency equaling the sum of: (i) the price at which Buyer is, or would be
able to, purchase or otherwise receive comparable supplies of power in a commercially reasonable manner (adjusted to reflect difference in transmission costs, if any) 

16

 

minus
(ii) the Price reflected herein; provided, however, if the amount determined in the preceding clause is negative, then the amount shall be equal to zero for purposes of calculating the
deficiency payment. 

	(3)
	Both
Parties hereby stipulate that the payment obligations set forth above are reasonable in light of the anticipated harm and the difficulty of estimation or calculation of actual
damages and each Party hereby waives the right to contest such payments as an unreasonable penalty.

	(4)
	Should
either Party's creditworthiness, financial responsibility, or performance become unsatisfactory to the other in its reasonably exercised discretion at any time during which
this Transaction is in effect, the dissatisfied Party may require at its option either (i) the posting of a letter of credit or (ii) cash prepayments or (iii) other security in a
form acceptable to it. If the party in question fails to provide satisfactory assurances, the dissatisfied Party shall have the right, with (2) days written notice, to (i) suspend
performance until such assurances are made, and/or(ii) exercise any remedy available at law or in equity (including, without limit, termination of this Transaction). 

Delivery Point  

        [Point of Delivery} 

Schedule Requirements  

        Parties to preschedule according to their respective scheduling obligations. 

Consent  

        The Parties agree that each may electronically record all telephonic conversations between them and that any such recordings may be submitted in evidence to any
court or in any proceedings for the purpose of establishing any matters pertinent to any Transaction. 

Payments to be made in funds that are available by the Due Date.  

Regards,

        By:
[EMMT Authorized Representative] 

        Title:

        Date:

        If you do not agree with the above, please contact [Allison Sutcliffe, Operations Analyst, at (617) 912-5943 by voice, or
(617) 912-5701] by fax.

17

  

 
 

EXHIBIT B    
  

 
 

EDISON MISSION MARKETING & TRADING, INC.    
    
    FERC RATE SCHEDULE NO. 1    
  

        1.    Availability:    Edison Mission Marketing & Trading, Inc. ("EMMT" or "Seller") makes electric
energy and capacity available under this rate schedule to any purchaser for resale, except as prohibited by paragraph 5 below. Seller also makes available ancillary services that have been sold
to Seller at market-based rates pursuant to a rate schedule that has been accepted for filing by the Federal Energy Regulatory Commission, to any purchaser except as prohibited by paragraph 5
below. 

        2.    Applicability:    This schedule is applicable to all sales of energy or capacity and all sales of ancillary
services by Seller not otherwise subject to a particular rate schedule of Seller. 

        3.    Rates:    All sales shall be made at rates established by agreement between Seller and the purchaser. 

        4.    Other Terms and Conditions:    All other terms and conditions shall be established by agreement between Seller
and the purchaser. 

        5.    Affiliate Sales Prohibited:    No sale may be made pursuant to this rate schedule to Southern California Edison
Company or any other franchised electric utility affiliate of Seller, except for such sales as may be made through a power exchange, through a bid price market coordinated by an independent system
operator, or unknowingly through an unaffiliated third party; and no energy, capacity, or ancillary services purchased from such a franchised electric utility affiliate may be sold under this rate
schedule, except for such energy, capacity, or services as may be purchased through a power exchange, through a bid price market coordinated by an independent system operator, or unknowingly through
an unaffiliated third party. 

        6.    Reassignment of Transmission:    EMMT may reassign transmission capacity that it has reserved for its own use at
a price not to exceed the highest of: (1) the original transmission rate paid by EMMT; (2) the applicable transmission provider's maximum stated firm transmission rate on file at the
time of the transmission reassignment; or (3) EMMT's opportunity costs, capped at the applicable transmission provider's cost of expansion at the time of the sale to the eligible customer. EMMT
will not recover opportunity costs in connection with reassignments without making a separate filing under section 205 of the Federal Power Act. Except for the price, the terms and conditions
under which the reassignment is made shall be the terms and conditions governing the original grant by the transmission provider. Transmission capacity may only be reassigned to a customer eligible to
take service under the transmission provider's open access transmission tariff or other transmission rate schedules. EMMT will report the name of the assignee in its quarterly reports. 

        7.    Effective Date:    This rate schedule is effective on and after the earlier of either the date of acceptance for
filing by the Federal Energy Regulatory Commission or February 5, 1999. 

18

  

 
 

EXHIBIT C    
  

 
 

EME HOMER CITY GENERATION L.P.    
    
    FERC RATE SCHEDULE NO. 1    
  

        1.    Availability:    EME Homer City Generation, L.P. ("EMEHCG") will make wholesale capacity, energy, and ancillary
services from the Homer City Electric Generating Station available under this rate Schedule as follows: 

        (a)    Electric Capacity and Energy:    EMEHCG may sell Electric Capacity and Energy from the Homer City Electric
Generating Station to any purchaser for resale, except as prohibited in paragraph 5. 

        (b)    Ancillary Services:    EMEHCG may sell the Ancillary Services of Spinning Reserve, 10-minute
Non-Spinning Reserve, 30-minute Reserve, and Regulation from the Homer City Electric Generating Station to the New York ISO or the PJN ISO or to any purchaser for
self-supply or resale within the control areas of New York ISO or PJM ISO, except as prohibited in paragraph 5. 

        (c)    EMEHCG Discretion:    The determination as to whether to enter into agreements under this Tariff shall be made
at EMEHCG's sole discretion. EMEHCG reserves the right to require a demonstration of creditworthiness to EMEHCG's satisfaction of any agreement under this Tariff. 

        2.    Applicability:    This schedule is applicable to all wholesale sales of Electric Capacity, Energy, Spinning
Reserve, 10-minute Non-Spinning Reserve, 30-Minute Reserve, and/or Regulation by EMEHCG from the Homer City Electric Generating Station not otherwise subject to a
particular rate schedule of EMEHCG. 

        3.    Rates:    all sales shall be made at rates established by agreement between the purchaser and EMEHCG. EMEHCG may
agree to have its rates determined by competitive bidding. 

        4.    Other Terms and Conditions:    All other terms and conditions shall be established by agreement between the
purchaser and EMEHCG. 

        5.    Franchised Utility Affiliate Sales Prohibited:    No sales may be made pursuant to this Rate Schedule to a
public utility with a franchised electric service area that is owned or controlled by, under common ownership or control with, or that controls or owns EMEHCG except pursuant to a separate filing
under Section 205 of the Federal Power Act. 

        6.    Effective Date:    This Rate Schedule shall be effective on the date specified by the Federal Energy Regulatory
Commission. 

19

QuickLinks

Exhibit 10.35

POWER PURCHASE AND SALE AGREEMENT between EME Homer City Generation L.P. and Edison Mission Marketing & Trading, Inc.

TABLE OF CONTENTS

POWER PURCHASE AND SALE AGREEMENT

WITNESSETH

ARTICLE 1. DEFINITIONS

ARTICLE 2. TRANSACTIONS AND COMMITMENTS OF THE PARTIES

ARTICLE 3 QUANTITY AND INTERRUPTIONS OF FIRM TRANSACTIONS

ARTICLE 4. DELIVERY POINTS AND RELIABILITY GUIDELINES

ARTICLE 5 PRICE

ARTICLE 6 TERM

ARTICLE 7. RECORDS AND BILLING

ARTICLE 8 LIMITATION OF LIABILITY

ARTICLE 9 ASSIGNMENT AND SUCCESSION

ARTICLE 10. FORCE MAJEURE

ARTICLE 11 TAXES

ARTICLE 12 ARBITRATION

ARTICLE 13 EVENTS OF DEFAULT

ARTICLE 14 MISCELLANEOUS

EXHIBIT A

Additional Terms

EXHIBIT B

EDISON MISSION MARKETING & TRADING, INC. FERC RATE SCHEDULE NO. 1

EXHIBIT C

EME HOMER CITY GENERATION L.P. FERC RATE SCHEDULE NO. 1<Page>

                                                                  EXHIBIT 10.26

                         EXECUTIVE EMPLOYMENT AGREEMENT

          THIS EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement") is made as of
June 17, 2002, between Focal Communications Corporation, a Delaware corporation
(the "Company"), and Kathy Perone ("Executive").

          In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and Executive agree as follows:

          1.      EMPLOYMENT. The Company will employ Executive, and Executive
hereby accepts employment with the Company, on the terms and subject to the
conditions set forth in this Agreement, for the period beginning on June 17,
2002 (the "START DATE") and ending as provided in Section 5 hereof (the
"EMPLOYMENT PERIOD").

          2.      POSITION AND DUTIES.

          (a)     During the Employment Period, Executive will serve as the
President and Chief Executive Officer of the Company, and Executive will render
such administrative, financial and other executive and managerial services to
the Company and its Subsidiaries which are consistent with Executive's position
as the Company's Board of Directors (the "BOARD") may from time to time direct.

          (b)     During the Employment Period, Executive will report to the
Board and will devote her best efforts and her full business time and attention
(except for permitted vacation periods and reasonable periods of illness or
other incapacity) to the business and affairs of the Company; PROVIDED that
Executive shall be permitted to serve on the advisory boards or boards of
directors of other businesses or charitable entities, so long as such service
does not interfere with her performance of her duties to the Company under this
Agreement, and so long as she periodically informs the Board of such
commitments. Executive will perform her duties, responsibilities and functions
to the best of her abilities in a diligent, trustworthy, professional and
efficient manner and will comply with the Company's and its Subsidiaries'
policies and procedures in all material respects.

          (c)     For purposes of this Agreement, "SUBSIDIARIES" will mean any
corporation or other entity of which the securities or other ownership interests
having the voting power to elect a majority of the board of directors or other
governing body are, at the time of determination, owned by the Company, directly
or through one of more Subsidiaries.

          3.      COMPENSATION AND BENEFITS.

          (a)     During the Employment Period, Executive's base salary will be
$325,000 per annum (increasing on each anniversary of the Start Date to 105% of
the prior year's base salary), or such higher rate as the Board may determine
from time to time (as adjusted from time to time, the "BASE SALARY"), which
salary shall be payable by the Company in regular installments in accordance
with the Company's general payroll practices (in effect from time to time).

<Page>

          (b)     At the end of each calendar year during the Employment Period,
the Board may, in its sole discretion, award a bonus to Executive of up to 100%
of Executive's Base Salary in effect on December 31st of such year (or, in the
case of calendar year 2002, of up to $189,583), the amount of which bonus will
be determined by the Board in its sole discretion based on Executive's
achievement of performance objectives agreed to by Executive and the Board at
the beginning of each such year (or, in the case of calendar year 2002,
performance objectives agreed to by Executive and the Board prior to the Start
Date) and such other factors as the Board deems appropriate.

          (c)     On the Start Date, Executive will be entitled to receive a
grant of options ("OPTIONS") to acquire 600,000 shares of the Company's common
stock (as such number of shares is proportionally adjusted for any stock split,
stock dividend, reverse stock split, combination of shares, or other
recapitalization affecting the Company's common stock occurring after the date
hereof and prior to the issuance of such options). In connection with such grant
of options, the Company and Executive will enter into a Non-Qualified Stock
Option Agreement in form and substance substantially as set forth in EXHIBIT B
attached hereto.

          (d)     On each anniversary of the Start Date occurring during the
Employment Period, the Board may, in its sole discretion, award Executive a
grant of up to 100,000 Options (as such number is proportionally adjusted for
any stock split, stock dividend, reverse stock split, combination of shares, or
other recapitalization affecting the Company's common stock occurring after the
date hereof and prior to the issuance of such Options), the number of which
Options will be determined by the Board in its sole discretion based on
Executive's achievement of performance objectives agreed to by Executive and the
Board at the beginning of each calendar year and such other factors as the Board
deems appropriate. In connection with any such grant, the Company and Executive
will enter into a Non-Qualified Stock Option Agreement in form and substance
substantially as set forth in EXHIBIT C attached hereto, with such changes
thereto as are mutually agreed to the Board and Executive.

          (e)     During the Employment Period, Executive will be entitled to
participate in all of the Company's employee benefit programs for which senior
executive employees of the Company and its Subsidiaries are generally eligible;
PROVIDED that Executive will be entitled to five (5) weeks of paid vacation each
calendar year in accordance with the Company's policies, which if not taken
during any year may not be carried forward to any subsequent calendar year and
no compensation shall be payable in lieu thereof (except as expressly provided
in Section 5).

          (f)     During the Employment Period, the Company will reimburse
Executive for each of the following (without duplication):

                  (i)     all reasonable out-of-pocket travel and other business
     expenses incurred by her as required in the course of performing her duties
     and responsibilities under this Agreement, which expenses will be
     reimbursed in a manner consistent with the Company's policies in effect
     from time to time with respect to travel, entertainment and other business
     expenses, and subject to the Company's requirements with respect to
     reporting and documentation of such expenses;

                                       -2-
<Page>

                  (ii)    all reasonable out-of-pocket expenses incurred by her
     in commuting between her permanent homes in New Jersey and Florida, on the
     one hand, and the Company's offices in Chicago or such other locations to
     which Executive is required to travel, on the other hand, up to four
     roundtrips per calendar month (unless otherwise approved by the Board), but
     not including any personal travel such as travel between her permanent
     homes), which expenses will be reimbursed in a manner consistent with the
     Company's policies in effect from time to time with respect to travel,
     entertainment and other business expenses, and subject to the Company's
     requirements with respect to reporting and documentation of such expenses;

                  (iii)   for so long as Executive serves as a director on the
     Board, all reasonable out-of-pocket business expenses incurred by her in
     connection with attending meetings of the Board, subject to the Company's
     requirements with respect to reporting and documentation of such expenses;

                  (iv)    to the extent such services are not provided by the
     Company, all reasonable fees and disbursements for one legal counsel to
     Executive incurred in complying with periodic reporting or filing
     requirements under applicable securities laws arising out of (A)
     Executive's position with the Company, (B) compensation by the Company, or
     (C) ownership of the Company's securities; and

                  (v)     all reasonable fees and disbursements for one legal
     counsel to Executive incurred on or prior to the date hereof in negotiating
     and documenting her employment arrangement with the Company.

Executive agrees that she will work in good faith with the Company to manage her
reimbursable expenses in a cost- and tax-efficient manner.

          (g)     During the Employment Period, the Company will provide
Executive with the use and occupancy of an apartment in Chicago leased by the
Company.

          (h)     To the extent any portion of the benefit provided under
paragraphs 3(f)(ii), 3(f)(v), or 3(g) is properly included as taxable income
under the Internal Revenue Code of 1986, as amended (the "CODE"), the Company
shall, in addition to providing such benefits, pay to Executive prior to April
10 of the year following the year such benefits are provided an amount equal to
the result from dividing (i) the Tax Cost (as defined below) of such benefits BY
(ii) one MINUS the highest combined federal and state tax rates actually
applicable to Executive for the taxable year in which such reimbursement is
received (taking into account the federal deduction for state taxes paid and the
character of income recognized by Executive). For purposes of this Agreement,
the "Tax Cost" of any benefits provided under paragraphs 3(f)(ii), 3(f)(v), or
3(g) will mean the product obtained by multiplying (x) the amount of gross
income includable as a result of such benefits TIMES (y) the highest combined
federal and state tax rates actually applicable to Executive for the taxable
year in which such benefits are provided (taking into account the federal
deduction for state taxes paid and the character of income recognized by
Executive by reason of such benefits).

                                       -3-
<Page>

          (i)     During the Employment Period, the Company will maintain
directors and officers indemnity insurance in amount and coverage reasonably
satisfactory to Executive (it being understood that the Company's existing
insurance is satisfactory to Executive); and the Company's certificate of
incorporation and bylaws will provide for indemnification and exculpation of
directors and officers to the fullest extent permitted under applicable law.

          (j)     The Company may withhold from any amounts payable under this
Agreement all federal, state, or other taxes and withholding amounts as the
Company is required to withhold under applicable law.

          (k)     The Company shall, if requested by Executive, allow and assist
Executive in establishing a 10(b)-5-1 plan for purposes of sales of securities
of the Company by Executive, and, to the extent such services are not provided
by the Company, all reasonable fees and disbursements for one legal counsel to
Executive incurred in connection with establishing such plan will be treated as
incurred pursuant to Section 3(f)(iv).

          4.      BOARD MEMBERSHIP. With respect to all regular elections of
directors during the Employment Period, the Company shall nominate, and use its
reasonable efforts to cause the election of, Executive to serve as a member of
the Board. For so long as Executive serves on the Board, Executive shall be
appointed by the Board to serve on all committees (other than the compensation
committee) with authority over the Company's budget or any component thereof,
including any capital spending committees, and shall be entitled to attend all
meetings (other than customary meetings in executive session that are not
meetings of the Board within the meaning of Section 141 of the Delaware General
Corporation Law) of any committee of the Board (other than the compensation
committee). Upon the termination or expiration of the Employment Period,
Executive shall resign as a director of the Company and its Subsidiaries, as the
case may be, and from each committee of the Board.

          5.      TERM.

          (a)     The Employment Period shall continue from the Start Date until
the earliest to occur of Executive's resignation, death, Disability (as defined
below), or termination by the Company. The Company may terminate Executive's
employment at any time with or without Cause (as defined below), and Executive
may terminate her employment at any time with or without Good Reason (as defined
below) upon giving written notice of her resignation to the Company at least 60
days prior to the date of such termination.

          (b)     If Executive's employment is terminated due to Executive's
death, the Company will pay to Executive's estate Executive's Base Salary
(together with all unused vacation benefits for the year of termination accrued)
through the date of termination.

          (c)     If Executive's employment is terminated due to Executive's
Disability, Executive will be entitled to receive her Base Salary (together with
all unused vacation benefits for the year of termination accrued) through the
date of termination, and Executive will be entitled to such benefits as are
available under the Company's long-term disability insurance plans as in effect
on the date of termination. Executive will be "DISABLED" only if, as a result of

                                       -4-
<Page>

her incapacity due to physical or mental illness, she is considered disabled
under the Company's long-term disability insurance plans referred to in the
preceding sentence.

          (d)     If Executive's employment is terminated due to Executive's
resignation (other than for Good Reason) or a termination by the Company for
Cause, Executive will be entitled to receive her Base Salary (together with all
unused vacation benefits for the year of termination accrued) through the date
of such termination.

          (e)     If Executive's employment is terminated due to Executive's
resignation for Good Reason or a termination by the Company (other than for
Cause), then Executive will be entitled to receive:

                  (i)     her Base Salary (together with all unused vacation
     benefits for the year of termination accrued) through the date of
     termination;

                  (ii)    a lump-sum cash payment within 30 days after the date
     of such termination equal to the sum of (x) 100% of her annual Base Salary
     in effect on the date of termination PLUS (y) 100% of any bonus actually
     paid to Executive pursuant to Section 3(b) in respect of the calendar
     year-end most recently preceding the date of termination; PROVIDED that in
     the case of any termination during calendar 2002 the payment under this
     clause (ii) would be $0, and in the case of any termination during calendar
     year 2003 the payment under this clause (ii) would be an amount equal to
     $341,250 multiplied by a fraction, the numerator of which is the amount of
     any bonus actually paid to Executive pursuant to Section 3(b) in respect of
     the end of calendar year 2002, and the denominator of which is $189,583;
     and

                  (iii)   a continuation through the one-year anniversary of the
     date of termination of her participation in the Company's health and other
     insurance benefit programs for which senior executive employee's are
     generally eligible (unless at any time during such one-year period
     Executive obtains other employment with substantially comparable health and
     other insurance benefits)

PROVIDED that, with respect to clauses (ii) and (iii), Executive will be
entitled to receive such amounts if and only if Executive has executed and
delivered to the Company the General Release substantially in form and substance
as set forth in EXHIBIT A attached hereto and only so long as Executive has not
breached the provisions of paragraphs 6, 7 and 8 hereof.

          (f)     Except as otherwise expressly provided herein, all of
Executive's rights to salary, bonuses, employee benefits and other compensation
hereunder which would have accrued or become payable after the termination or
expiration of the Employment Period shall cease upon such termination or
expiration, other than those expressly required under applicable law (such as
COBRA).

          (g)     For purposes of this Agreement, "CAUSE" shall mean Executive's
(i) commission of a felony, (ii) commission of any other act or omission
involving dishonesty, disloyalty or fraud with respect to the Company or any of
its Subsidiaries or any of their

                                       -5-
<Page>

customers or suppliers, (iii) reporting to work under the influence of alcohol
or illegal drugs, the use of illegal drugs (whether or not at the workplace) or
other repeated conduct causing the Company or any of its Subsidiaries
substantial public disgrace or disrepute or economic harm, (iv) continued and
repeated refusal or failure (other than by reason of Disability) to perform her
duties as reasonably directed by the Board, (v) gross negligence or willful
misconduct that is materially detrimental to the Company or any of its
Subsidiaries, or (vi) any other material breach of this Agreement; PROVIDED that
in the case of (iii) through (iv) or (vi) above, Executive shall have received
written notice from the Board of the acts purportedly constituting "Cause" and
shall have failed to cure such acts within 30 days following receipt of such
notice; AND PROVIDED FURTHER that a termination for "Cause" shall occur only
upon the vote of a majority of the members of the Board (other than Executive)
at a meeting of which Executive has been notified and offered the opportunity to
appear before the Board and address the acts purportedly giving rise to such
"Cause."

          (h)     For purposes of this Agreement, a termination by Executive for
"GOOD REASON" will mean Executive's voluntary resignation after any of the
following: (i) a demotion of Executive from the position of Chief Executive
Officer without her consent, (ii) a substantial reduction in Executive's
authority and responsibilities as Chief Executive Officer without her consent,
(iii) a reduction in Executive's Base Salary required under Section 3(a), or in
the maximum bonus for which Executive may be eligible under Section 3(b),
without her consent, (iv) a relocation of Executive's principal place of
business more than 35 miles from the greater Chicago metropolitan area without
her consent, or (v) any material breach of this Agreement, including any Option
Agreement executed pursuant to this Agreement by the Company; PROVIDED that no
such occurrence shall constitute the basis for a termination with "Good Reason"
unless Executive notifies the Company in writing within 90 days of such
occurrence that Executive considers such occurrence to be the basis for a
termination with "Good Reason" and the Company fails to cure such occurrence
within 30 days following receipt of such notice.

          6.      CONFIDENTIAL INFORMATION.

          (a)     Executive acknowledges that the information, observations and
data (including trade secrets) obtained by her while employed by the Company and
its Subsidiaries concerning the business or affairs of the Company or any
Subsidiary ("CONFIDENTIAL INFORMATION") are the property of the Company or such
Subsidiary. Therefore, Executive agrees that she shall not disclose to any
unauthorized person or use for her own purposes any Confidential Information
without the prior written consent of the Board, unless and to the extent that
the Confidential Information becomes generally known to and available for use by
the public other than as a result of Executive's acts or omissions. Executive
shall deliver to the Company at the termination or expiration of the Employment
Period, or at any other time the Company may request, all memoranda, notes,
plans, records, reports, computer tapes, printouts and software and other
documents and data (and copies thereof) embodying or relating to the
Confidential Information, Work Product (as defined below) or the business of the
Company or its Subsidiaries which she may then possess or have under her
control; PROVIDED that the Company shall provide Executive with reasonable
access during normal business hours to all such materials to the extent
reasonably required with respect to any dispute or matter with respect to which
Executive may

                                       -6-
<Page>

have personal liability, and all such materials made available to Executive
shall continue to be subject to the confidentiality provisions set forth in this
Section 6.

          (b)     Executive shall be prohibited from using or disclosing any
confidential information or trade secrets that Executive may have learned
through any prior employment. If at any time during this employment with the
Company or any Subsidiary, Executive believes she is being asked to engage in
work that will, or will be likely to, jeopardize any confidentiality or other
obligations Executive may have to former employers, Executive shall immediately
advise the Board so that Executive's duties can be modified appropriately.

          (c)     Executive represents and warrants to the Company that
Executive took nothing with her which belonged to any former employer when
Executive left her prior position and that Executive has nothing that contains
any information which belongs to any former employer. If at any time Executive
discovers this is incorrect, Executive shall promptly return any such materials
to Executive's former employer. The Company does not want any such materials,
and Executive shall not be permitted to use or refer to any such materials in
the performance of Executive's duties hereunder.

          7.      INTELLECTUAL PROPERTY, INVENTIONS AND PATENTS. Executive
acknowledges that all discoveries, concepts, ideas, inventions, innovations,
improvements, developments, methods, designs, analyses, drawings, reports,
patent applications, copyrightable work and mask work (whether or not including
any confidential information) and all registrations or applications related
thereto, all other proprietary information and all similar or related
information (whether or not patentable) which relate to the Company's or any of
its Subsidiaries' actual or anticipated business, research and development or
existing or future products or services and which are conceived, developed or
made by Executive (whether above or jointly with others) while employed by the
Company and its Subsidiaries, whether before or after the date of this Agreement
("WORK PRODUCT"), belong to the Company or such Subsidiary. Executive shall
promptly disclose such Work Product to the Board and, at the Company's expense,
perform all actions reasonably requested by the Board (whether during or after
the Employment Period) to establish and confirm such ownership (including,
without limitation, assignments, consents, powers of attorney and other
instruments).

          In accordance with Section 2872 of the Illinois Employee Patent Act,
Ill. Rev. Stat. Chap. 140, Section 301 ET SEQ. (1983), Executive is hereby
advised that this paragraph 7 regarding the Company's and its Subsidiaries'
ownership of Work Product does not apply to any invention for which no
equipment, supplies, facilities or trade secret information of the Company or
any Subsidiary was used and which was developed entirely on Executive's own
time, unless (i) the invention relates to the business of the Company or any
Subsidiary or to the Company's or any Subsidiaries' actual or demonstrably
anticipated research or development or (ii) the invention results from any work
performed by Executive for the Company or any Subsidiary.

          8.      NON-COMPETE, NON-SOLICITATION.

          (a)     Executive acknowledges and agrees with the Company that in the
course of her employment with the Company she will become familiar with the
Company's trade secrets

                                       -7-
<Page>

and with other confidential and proprietary information concerning the Company
and its Subsidiaries, that Executive's services to the Company and its
Subsidiaries are special and unique in nature and of an extraordinary value to
the Company, and that the Company would be irreparably damaged if Executive were
to provide similar services to any Person competing with the Company or any of
its Subsidiaries or engaged in similar business.

          (b)     Therefore, in order to induce the Company to hire Executive
and enter into this Agreement, and in further consideration of Executive's
compensation under employment arrangements with the Company, Executive covenants
and agrees that during the Employment Period and (so long as the Company pays to
Executive all amounts and provides such benefits as are owed to her under the
terms of this Agreement) for one (1) year thereafter (the "NONCOMPETE PERIOD"),
she shall not directly or indirectly, either for herself or for any other
Person, participate in any business or enterprise that engages or proposes to
engage in the provision or sale of local exchange telecommunications services
within the United States.

          (c)     For purposes hereof, "PERSON" means any individual,
partnership, corporation, limited liability company, association, joint stock
company, trust, joint venture, unincorporated organization, or governmental
entity, department, agency, or political subdivision.

          (d)     For purposes hereof, "participate in" will including, without
limitation, having any direct or indirect interest in any Person, whether as a
sole proprietor, owner, stockholder, partner, member, joint venturer, creditor,
or otherwise, or rendering any direct or indirect service or assistance to any
Person (whether as a director, officer, manager, supervisor, employee, agent,
consultant, or otherwise), other than passive ownership of not more than 2% of
the outstanding stock of any class of a corporation which is publicly traded, so
long as Executive has no active participation in the business of such
corporation.

          (e)     During the Noncompete Period, Executive shall not directly or
indirectly through another Person (i) induce or attempt to induce any employee
of the Company or any Subsidiary to leave the employ of the Company or such
Subsidiary, or in any way interfere with the relationship between the Company or
any Subsidiary and any employee thereof, (ii) hire any person who was an
employee of the Company or any Subsidiary at any time during the period from six
months' prior to the termination of the Employment Period until six months'
after the termination of the Employment Period, or (iii) induce or attempt to
induce any customer, supplier, licensee, licensor, franchisee or other business
relation of the Company or any Subsidiary to cease doing business with the
Company or such Subsidiary, or in any way interfere with the relationship
between any such customer, supplier, licensee or business relation and the
Company or any Subsidiary (including, without limitation, making any negative or
disparaging statements or communications regarding the Company or its
Subsidiaries).

          9.      ENFORCEMENT. If, at the time of enforcement of Section 6, 7 or
8 of this Agreement, a court holds that the restrictions stated herein are
unreasonable under circumstances then existing, the parties hereto agree that
the maximum period, scope or geographical area reasonable under such
circumstances shall be substituted for the stated period, scope or area. Because
Executive's services are unique and because Executive has access to Confidential

                                       -8-
<Page>

Information and Work Product, the parties hereto agree that money damages would
not be an adequate remedy for any breach of this Agreement. Therefore, in the
event a breach or threatened breach of this Agreement, the Company or its
successors or assigns, in addition to other rights and remedies existing in
their favor, shall be entitled to specific performance and/or injunctive or
other equitable relief from a court of competent jurisdiction in order to
enforce, or prevent any violations of, the provisions hereof (without posting a
bond or other security). In addition, in the event of an alleged breach or
violation by Executive of Section 8, the Noncompete Period shall be tolled until
such breach or violation has been duly cured. Executive acknowledges that the
restrictions contained in Section 8 are reasonable and that she has reviewed the
provisions of this Agreement with her legal counsel.

          10.     EXECUTIVE'S REPRESENTATIONS. Executive hereby represents and
warrants to the Company that (i) the execution, delivery and performance of this
Agreement by Executive do not and shall not conflict with, breach, violate or
cause a default under any contract, agreement, instrument, order, judgment or
decree to which Executive is a party or by which she is bound, (ii) Executive is
not a party to or bound by any employment agreement, noncompete agreement or
confidentiality agreement with any other person or entity, and (iii) upon the
execution and delivery of this Agreement by the Company, this Agreement shall be
the valid and binding obligation of Executive, enforceable in accordance with
its terms. Executive hereby acknowledges and represents that she has consulted
with independent legal counsel regarding her rights and obligations under this
Agreement and that she fully understands the terms and conditions contained
herein. As a inducement to the Company to enter into this Agreement, Executive
acknowledges and agrees that no provision contained herein shall entitle her to
remain in the employment of the Company or any of its Subsidiaries or affect the
right of the Company to terminate her employment at any time and for any reason.

          11.     MISCELLANEOUS.

          (a)     SURVIVAL. Sections 6 through 11 shall survive and continue in
full force in accordance with their terms notwithstanding the expiration or
termination of the Employment Period.

          (b)     NOTICES. Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered, sent by reputable overnight
courier service or mailed by first class mail, return receipt requested, to the
recipient at the address below indicated:

          Notices to Executive:

                  Kathleen A. Perone
                  13054 Sandwedge Court
                  Jacksonville, FL 32224

          Notices to the Company:

                                       -9-
<Page>

                  Focal Communications Corporation
                  200 North LaSalle Street, Suite 1100
                  Chicago, IL 60601
                  Attention: General Counsel
                  Telephone: 312-895-8400
                  Fax: 312-895-4229

or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when so
delivered, sent or mailed.

          (c)     SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement or any action in any other jurisdiction,
but this Agreement shall be reformed, construed and enforced in such
jurisdiction as if such invalid, illegal or unenforceable provision had never
been contained herein.

          (d)     COMPLETE AGREEMENT. This Agreement and those documents
expressly referred to herein embody the complete agreement and understanding
among the parties and supersede and preempt any prior understandings, agreements
or representations by or among the parties, written or oral, which may have
related to the subject matter hereof in any way.

          (e)     NO STRICT CONSTRUCTION. The language used in this Agreement
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
party.

          (f)     COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.

          (g)     SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Executive, the Company and their
respective heirs, successors and assigns, except that Executive may not assign
her rights or delegate her duties or obligations hereunder without the prior
written consent of the Company.

          (h)     CHOICE OF LAW. All issues and questions concerning the
construction, validity, enforcement and interpretation of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of Illinois, without giving effect to any choice of
law or conflict of law rules or provisions (whether of the State of Illinois or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Illinois.

                                      -10-
<Page>

          (i)     AMENDMENT AND WAIVER. The provisions of this Agreement may be
amended or waived only with the prior written consent of the Company (as
approved by the Board) and Executive, and no course of conduct or course of
dealing or failure or delay by any party hereto in enforcing or exercising any
of the provisions of this Agreement (including, without limitation, the
Company's right to terminate the Employment Period for Cause) shall affect the
validity, binding effect or enforceability of this Agreement or be deemed to be
an implied waiver of any provision of this Agreement.

          (j)     INSURANCE. The Company may, at its discretion, apply for and
procure in its own name and for its own benefit life and/or disability insurance
on Executive in any amount or amounts considered available. Executive agrees to
cooperate in any medical or other examination, supply any information and
execute and deliver any applications or other instruments in writing as may be
reasonably necessary to obtain and constitute such insurance. Executive hereby
represents that she has no reason to believe that her life is not insurable at
rates now prevailing for healthy men of her age.

          (k)     EXECUTIVE'S COOPERATION. During the Employment and thereafter,
Executive shall cooperate with the Company and its Subsidiaries in any internal
investigation or administrative, regulatory or judicial proceeding as reasonably
requested by the Company (including, without limitation, Executive being
available to the Company upon reasonable notice for interviews and factual
investigations, appearing at the Company's request to give testimony without
requiring service of a subpoena or other legal process, volunteering to the
Company all pertinent information and turning over to the Company all relevant
documents which are or may come into Executive's possession, all at times and on
schedules that are reasonably consistent with Executive's other permitted
activities and commitments). In the event the Company requires Executive's
cooperation in accordance with this paragraph, the Company shall reimburse
Executive for her reasonable out-of-pocket expenses incurred in connection
therewith (including travel, lodging, meals, and reasonable legal expenses,
subject to the Company's requirements with respect to reporting and
documentation of such expenses)

          (l)     MANDATORY ARBITRATION. Except as otherwise expressly provided
herein with respect to the availability of equitable remedies, all claims,
disputes, controversies or other matters in question arising under or relating
to this Agreement (collectively, "Disputes") will, if unable to be resolved
within 10 days of preliminary negotiation between Executive and the Company, be
resolved through binding arbitration in accordance with the commercial
arbitration rules and practices of the American Arbitration Association. Such
arbitration will be in New York, New York, or such other place as is mutually
agreeable to Executive and the Company. The cost of each arbitration proceeding,
including without limitation the arbitrator's compensation and expenses, hearing
room charges, court reporter transcript charges, reasonable attorney fees and
expenses, etc., will be allocated among the parties by the arbitrator based upon
the relative merits of the positions of the parties to such Dispute in such
arbitration. The parties hereto agree that, subject to the provisions herein
with respect to the availability of equitable remedies, mandatory arbitration
under this Section 11(l) will be the sole and exclusive remedy for resolving and
remedying all Disputes hereunder.

                                      -11-
<Page>

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                      -12-
<Page>

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

                                        FOCAL COMMUNICATIONS CORPORATION

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

                                        Name:
                                               ---------------------------------

                                        Title:
                                               ---------------------------------

                                        EXECUTIVE

                                        ----------------------------------------
                                        Kathy Perone

<Page>

                                                                       EXHIBIT A

                                 GENERAL RELEASE

     I, Kathy Perone, in consideration of and subject to the performance by
Focal Communications Corporation, a Delaware corporation (together with its
subsidiaries, the "Company"), of its material obligations under the Employment
Agreement, dated as of June 17, 2002 (the "AGREEMENT"), do hereby release and
forever discharge as of the date hereof the Company and all present and former
directors, officers, agents, representatives, employees, successors and assigns
of the Company and its direct or indirect owners (collectively, the "RELEASED
PARTIES") to the extent provided below.

1.   I understand that any payments or benefits paid or granted to me under
     paragraph 5(b) of the Agreement represent, in part, consideration for
     signing this General Release and are not salary, wages or benefits to which
     I was already entitled. I understand and agree that I will not receive the
     payments and benefits specified in paragraph 5(b) of the Agreement unless I
     execute this General Release and do not revoke this General Release within
     the time period permitted hereafter or breach this General Release.

2.   Except as provided in paragraph 4 below, I knowingly and voluntarily
     release and forever discharge the Company and the other Released Parties
     from any and all claims, controversies, actions, causes of action,
     cross-claims, counter-claims, demands, debts, compensatory damages,
     liquidated damages, punitive or exemplary damages, other damages, claims
     for costs and attorneys' fees, or liabilities of any nature whatsoever in
     law and in equity, both past and present (through the date of this General
     Release) and whether known or unknown, suspected, or claimed against the
     Company or any of the Released Parties which I, my spouse, or any of my
     heirs, executors, administrators or assigns, may have, which arise out of
     or are connected with my employment with, or my separation from, the
     Company (including, but not limited to, any allegation, claim or violation,
     arising under: Title VII of the Civil Rights Act of 1964, as amended; the
     Civil Rights Act of 1991; the Age Discrimination in Employment Act of 1967,
     as amended (including the Older Workers Benefit Protection Act); the Equal
     Pay Act of 1963, as amended; the Americans with Disabilities Act of 1990;
     the Family and Medical Leave Act of 1993; the Civil Rights Act of 1866, as
     amended; the Worker Adjustment Retraining and Notification Act; the
     Employee Retirement Income Security Act of 1974; any applicable Executive
     Order Programs; the Fair Labor Standards Act; or their state or local
     counterparts; or under any other federal, state or local civil or human
     rights law, or under any other local, state, or federal law, regulation or
     ordinance; or under any public policy, contract or tort, or under common
     law; or arising under any policies, practices or procedures of the Company;
     or any claim for wrongful discharge, breach of contract, infliction of
     emotional distress, defamation; or any claim for costs, fees, or other
     expenses, including attorneys' fees incurred in these matters) (all of the
     foregoing collectively referred to herein as the "CLAIMS").

3.   I represent that I have made no assignment or transfer of any right, claim,
     demand, cause of action, or other matter covered by paragraph 2 above.

                                      ExA-1
<Page>

4.   I agree that this General Release does not waive or release any rights or
     claims that I may have under the Age Discrimination in Employment Act of
     1967 which arise after the date I execute this General Release. I
     acknowledge and agree that my separation from employment with the Company
     in compliance with the terms of the Agreement shall not serve as the basis
     for any claim or action (including, without limitation, any claim under the
     Age Discrimination in Employment Act of 1967).

5.   In signing this General Release, I acknowledge and intend that it shall be
     effective as a bar to each and every one of the Claims hereinabove
     mentioned or implied. I expressly consent that this General Release shall
     be given full force and effect according to each and all of its express
     terms and provisions, including those relating to unknown and unsuspected
     Claims (notwithstanding any state statute that expressly limits the
     effectiveness of a general release of unknown, unsuspected and
     unanticipated Claims), if any, as well as those relating to any other
     Claims hereinabove mentioned or implied. I acknowledge and agree that this
     waiver is an essential and material term of this General Release and that
     without such waiver the Company would not have agreed to the terms of the
     Agreement. I further agree that in the event I should bring a Claim seeking
     damages against the Company, or in the event I should seek to recover
     against the Company in any Claim brought by a governmental agency on my
     behalf, this General Release shall serve as a complete defense to such
     Claims. I further agree that (a) I am not aware of any pending charge or
     complaint of the type described in paragraph 2 as of the execution of this
     General Release, and (b) if any such pending charge or complaint of which I
     am not presently aware is or becomes in existence, I will upon becoming
     aware of such charge or complaint use all reasonably diligent efforts to
     cause such charge or complaint to be dismissed or terminated.

6.   I agree that neither this General Release, nor the furnishing of the
     consideration for this General Release, shall be deemed or construed at any
     time to be an admission by the Company, any Released Party or myself of any
     improper or unlawful conduct.

7.   I agree that if I violate this General Release by bringing any Claim
     against the Company or any other Released Parties, I will pay all costs and
     expenses of defending against the suit incurred by the Released Parties,
     including reasonable attorneys' fees and expenses.

8.   I agree that this General Release is confidential and agree not to disclose
     any information regarding the terms of this General Release, except to my
     immediate family and any tax, legal or other counsel I have consulted
     regarding the meaning or effect hereof or as required by law, and I will
     instruct each of the foregoing not to disclose the same to anyone.

9.   Any non-disclosure provision in this General Release does not prohibit or
     restrict me (or my attorney) from responding to any inquiry about this
     General Release or its underlying facts and circumstances by the Securities
     and Exchange Commission (SEC), the National Association of Securities
     Dealers, Inc. (NASD), any other self-regulatory organization or
     governmental entity.

                                      ExA-2
<Page>

10.  I agree to reasonably cooperate with the Company in any internal
     investigation or administrative, regulatory, or judicial proceeding. I
     understand and agree that my cooperation may include, but not be limited
     to, making myself available to the Company upon reasonable notice for
     interviews and factual investigations; appearing at the Company's request
     to give testimony without requiring service of a subpoena or other legal
     process; volunteering to the Company pertinent information; and turning
     over to the Company all relevant documents which are or may come into my
     possession all at times and on schedules that are reasonably consistent
     with my other permitted activities and commitments. I understand that in
     the event the Company asks for my cooperation in accordance with this
     provision, the Company will reimburse me solely for my reasonable
     out-of-pocket expenses incurred in connection therewith (including travel,
     lodging, meals, and reasonable legal expenses, subject to the Company's
     requirements with respect to reporting and documentation of such expenses).

11.  Notwithstanding anything in this General Release to the contrary, this
     General Release shall not relinquish, diminish, or in any way affect any
     rights or claims arising out of any breach by the Company or by any
     Released Party of the Agreement.

12.  Whenever possible, each provision of this General Release shall be
     interpreted in, such manner as to be effective and valid under applicable
     law, but if any provision of this General Release is held to be invalid,
     illegal or unenforceable in any respect under any applicable law or rule in
     any jurisdiction, such invalidity, illegality or unenforceability shall not
     affect any other provision or any other jurisdiction, but this General
     Release shall be reformed, construed and enforced in such jurisdiction as
     if such invalid, illegal or unenforceable provision had never been
     contained herein.

BY SIGNING THIS GENERAL RELEASE, I REPRESENT AND AGREE THAT:

(a)  I HAVE READ IT CAREFULLY;

(b)  I UNDERSTAND ALL OF ITS TERMS AND KNOW THAT I AM GIVING UP IMPORTANT
     RIGHTS, INCLUDING BUT NOT LIMITED TO, RIGHTS UNDER THE AGE DISCRIMINATION
     IN EMPLOYMENT ACT OF 1967, AS AMENDED, TITLE VII OF THE CIVIL RIGHTS ACT OF
     1964, AS AMENDED; THE EQUAL PAY ACT OF 1963, THE AMERICANS WITH
     DISABILITIES ACT OF 1990; AND THE EMPLOYEE RETIREMENT INCOME SECURITY ACT
     OF 1974, AS AMENDED;

(c)  I VOLUNTARILY CONSENT TO EVERYTHING IN IT;

(d)  I HAVE BEEN ADVISED TO CONSULT WITH AN ATTORNEY BEFORE EXECUTING IT AND I
     HAVE DONE SO OR, AFTER CAREFUL READING AND CONSIDERATION I HAVE CHOSEN NOT
     TO DO SO OF MY OWN VOLITION;

(e)  I HAVE HAD AT LEAST 21 DAYS FROM THE DATE OF MY RECEIPT OF THIS RELEASE
     SUBSTANTIALLY IN ITS FINAL FORM ON _______________ __, _____

                                      ExA-3
<Page>

     TO CONSIDER IT AND THE CHANGES MADE SINCE THE _______________ __, _____
     VERSION OF THIS RELEASE ARE NOT MATERIAL AND WILL NOT RESTART THE REQUIRED
     21-DAY PERIOD;

(f)  THE CHANGES TO THE AGREEMENT SINCE _______________ ___, _____ EITHER ARE
     NOT MATERIAL OR WERE MADE AT MY REQUEST.

(g)  I UNDERSTAND THAT I HAVE SEVEN DAYS AFTER THE EXECUTION OF THIS RELEASE TO
     REVOKE IT AND THAT THIS RELEASE SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE
     UNTIL THE REVOCATION PERIOD HAS EXPIRED;

(h)  I HAVE SIGNED THIS GENERAL RELEASE KNOWINGLY AND VOLUNTARILY AND WITH THE
     ADVICE OF ANY COUNSEL RETAINED TO ADVISE ME WITH RESPECT TO IT; AND

(i)  I AGREE THAT THE PROVISIONS OF THIS GENERAL RELEASE MAY NOT BE AMENDED,
     WAIVED, CHANGED OR MODIFIED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY AN
     AUTHORIZED REPRESENTATIVE OF THE COMPANY AND BY ME.

DATE:
      ---------------                          ---------------------------------

                                      ExA-4
<Page>

                                                                       EXHIBIT B

                         INITIAL STOCK OPTION AGREEMENT

See attached.

                                      ExB-1
<Page>

                                                                       EXHIBIT C

                      REPLENISHMENT STOCK OPTION AGREEMENT

See attached.

                                      ExC-1

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