Document:

Exhibit 4.2

Space above reserved for
Recorder of Deeds

This Instrument Grants a Security Interest by a Public
Utility and a Transmitting Utility

Indenture of Mortgage and Deed of Trust

Dated as of June 1,
2006

THE EMPIRE DISTRICT GAS COMPANY,

As Grantor,

to

SPENCER R. THOMSON, DEED OF TRUST TRUSTEE

for the benefit of

THE BANK
OF NEW YORK TRUST COMPANY, N.A., BOND TRUSTEE, as Grantee

with an address
of:

2 North LaSalle
Street, Suite 1020

Chicago, IL 60602

SECURING FIRST MORTGAGE BONDS

______________________

Legal
Description:  See Schedule A

THIS AGREEMENT
CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS.

 

TABLE OF CONTENTS

The Empire
District Gas Company

Indenture of Mortgage and Deed of Trust

Dated as of June 1, 2006

	
  

  	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
  Article One

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Definitions And
  Other Provisions Of General Application

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 101

  	
   

  	
  Definitions.

  	
   

  	
  4

  
	
  Section 102

  	
   

  	
  Property Additions; Cost.

  	
   

  	
  20

  
	
  Section 103

  	
   

  	
  Compliance Certificates and Opinions.

  	
   

  	
  22

  
	
  Section 104

  	
   

  	
  Form of Documents Delivered to Trustee.

  	
   

  	
  22

  
	
  Section 105

  	
   

  	
  Acts of Holders.

  	
   

  	
  24

  
	
  Section 106

  	
   

  	
  Notices, Etc. to Trustee or Company.

  	
   

  	
  26

  
	
  Section 107

  	
   

  	
  Notice to Holders of First Mortgage Bonds; Waiver.

  	
   

  	
  27

  
	
  Section 108

  	
   

  	
  Conflict with Trust Indenture Act.

  	
   

  	
  27

  
	
  Section 109

  	
   

  	
  Effect of Headings and Table of Contents.

  	
   

  	
  27

  
	
  Section 110

  	
   

  	
  Successors and Assigns.

  	
   

  	
  28

  
	
  Section 111

  	
   

  	
  Separability Clause.

  	
   

  	
  28

  
	
  Section 112

  	
   

  	
  Benefits of Mortgage.

  	
   

  	
  28

  
	
  Section 113

  	
   

  	
  Governing Law.

  	
   

  	
  28

  
	
  Section 114

  	
   

  	
  Legal Holidays.

  	
   

  	
  28

  
	
  Section 115

  	
   

  	
  Investment of Cash Held by Trustee.

  	
   

  	
  28

  
	
  Section 116

  	
   

  	
  Force Majeure.

  	
   

  	
  29

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Article Two

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  First Mortgage
  Bond Forms

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 201

  	
   

  	
  Forms Generally.

  	
   

  	
  29

  
	
  Section 202

  	
   

  	
  Form of Trustee’s Certificate of Authentication.

  	
   

  	
  30

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Article Three

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  The First
  Mortgage Bonds

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 301

  	
   

  	
  Issuable in Series.

  	
   

  	
  30

  

 

 

 

	
  Section 302

  	
   

  	
  Denominations.

  	
   

  	
  34

  
	
  Section 303

  	
   

  	
  Execution, Authentication, Delivery and Dating.

  	
   

  	
  34

  
	
  Section 304

  	
   

  	
  Temporary First Mortgage Bonds.

  	
   

  	
  36

  
	
  Section 305

  	
   

  	
  Registration, Registration of Transfer and Exchange.

  	
   

  	
  36

  
	
  Section 306

  	
   

  	
  Mutilated, Destroyed, Lost and Stolen First Mortgage
  Bonds.

  	
   

  	
  38

  
	
  Section 307

  	
   

  	
  Payment of Interest; Interest Rights Preserved.

  	
   

  	
  38

  
	
  Section 308

  	
   

  	
  Persons Deemed Owners.

  	
   

  	
  40

  
	
  Section 309

  	
   

  	
  Cancellation.

  	
   

  	
  40

  
	
  Section 310

  	
   

  	
  Computation of Interest.

  	
   

  	
  40

  
	
  Section 311

  	
   

  	
  Payment to be in Proper Currency.

  	
   

  	
  41

  
	
  Section 312

  	
   

  	
  Extension of Interest Payment.

  	
   

  	
  41

  
	
  Section 313

  	
   

  	
  CUSIP Numbers.

  	
   

  	
  41

  
	
  Section 314

  	
   

  	
  Global Bonds.

  	
   

  	
  41

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Article Four

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Issuance of
  First Mortgage Bonds

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 401

  	
   

  	
  Issuance of the Initial Series Bonds.

  	
   

  	
  43

  
	
  Section 402

  	
   

  	
  Issuance of First Mortgage Bonds other than the
  Initial Series Bonds.

  	
   

  	
  43

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Article Five

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Redemption of
  First Mortgage Bonds

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 501

  	
   

  	
  Applicability of Article.

  	
   

  	
  45

  
	
  Section 502

  	
   

  	
  Election to Redeem; Notice to Trustee.

  	
   

  	
  46

  
	
  Section 503

  	
   

  	
  Selection of First Mortgage Bonds to be Redeemed.

  	
   

  	
  46

  
	
  Section 504

  	
   

  	
  Notice of Redemption.

  	
   

  	
  46

  
	
  Section 505

  	
   

  	
  First Mortgage Bonds Payable on Redemption Date.

  	
   

  	
  48

  
	
  Section 506

  	
   

  	
  First Mortgage Bonds Redeemed in Part.

  	
   

  	
  48

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Article Six

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Sinking Funds

  	
   

  	
   

  
	
  Section 601

  	
   

  	
  Applicability Of Article.

  	
   

  	
  49

  
	
  Section 602

  	
   

  	
  Satisfaction of Sinking Fund Payments with First
  Mortgage Bonds.

  	
   

  	
  49

  
	
  Section 603

  	
   

  	
  Redemption of First Mortgage Bonds for Sinking Fund.

  	
   

  	
  49

  

 

 

 

	
  

  	
   

  	
  Article Seven

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Representations
  and Covenants

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 701

  	
   

  	
  Payment of First Mortgage Bonds; Lawful Possession.

  	
   

  	
  50

  
	
  Section 702

  	
   

  	
  Maintenance of Office or Agency.

  	
   

  	
  50

  
	
  Section 703

  	
   

  	
  Money for First Mortgage Bond Payments to be Held in
  Trust.

  	
   

  	
  51

  
	
  Section 704

  	
   

  	
  Corporate Existence.

  	
   

  	
  52

  
	
  Section 705

  	
   

  	
  Annual Officers’ Certificate as to Compliance.

  	
   

  	
  53

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Article Eight

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Satisfaction and
  Discharge

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 801

  	
   

  	
  Satisfaction and Discharge of First Mortgage Bonds.

  	
   

  	
  53

  
	
  Section 802

  	
   

  	
  Effective Time; Satisfaction and Discharge of
  Mortgage.

  	
   

  	
  55

  
	
  Section 803

  	
   

  	
  Application of Trust Money.

  	
   

  	
  56

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Article Nine

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Events of
  Default; Remedies

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 901

  	
   

  	
  Events of Default.

  	
   

  	
  57

  
	
  Section 902

  	
   

  	
  Acceleration of Maturity; Rescission and Annulment.

  	
   

  	
  57

  
	
  Section 903

  	
   

  	
  Collection of Indebtedness, Power of Sale,
  Foreclosure and Suits for Enforcement by Trustee.

  	
   

  	
  59

  
	
  Section 904

  	
   

  	
  Trustee May File Proofs of Claim.

  	
   

  	
  60

  
	
  Section 905

  	
   

  	
  Trustee May Enforce Claims Without Possession of
  First Mortgage Bonds.

  	
   

  	
  60

  
	
  Section 906

  	
   

  	
  Application of Money Collected.

  	
   

  	
  61

  
	
  Section 907

  	
   

  	
  Limitation on Suits.

  	
   

  	
  61

  
	
  Section 908

  	
   

  	
  Unconditional Right of Holders to Receive Principal,
  Premium and Interest.

  	
   

  	
  62

  
	
  Section 909

  	
   

  	
  Restoration of Rights and Remedies.

  	
   

  	
  62

  
	
  Section 910

  	
   

  	
  Rights and Remedies Cumulative.

  	
   

  	
  62

  
	
  Section 911

  	
   

  	
  Delay or Omission Not Waiver.

  	
   

  	
  62

  
	
  Section 912

  	
   

  	
  Control by Holders of First Mortgage Bonds.

  	
   

  	
  63

  
	
  Section 913

  	
   

  	
  Waiver of Past Defaults.

  	
   

  	
  63

  
	
  Section 914

  	
   

  	
  Undertaking for Costs.

  	
   

  	
  63

  
	
  Section 915

  	
   

  	
  Waiver of Usury, Stay or Extension Laws.

  	
   

  	
  64

  
	
  Section 916

  	
   

  	
  Receiver and other Remedies.

  	
   

  	
  64

  

 

 

 

	
  

  	
   

  	
  Article Ten

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  The Trustee

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 1001

  	
   

  	
  Certain Duties and Responsibilities.

  	
   

  	
  64

  
	
  Section 1002

  	
   

  	
  Notice of Defaults.

  	
   

  	
  65

  
	
  Section 1003

  	
   

  	
  Certain Rights of Trustee.

  	
   

  	
  65

  
	
  Section 1004

  	
   

  	
  Not Responsible for Recitals or Issuance of First
  Mortgage Bonds.

  	
   

  	
  66

  
	
  Section 1005

  	
   

  	
  May Hold First Mortgage Bonds.

  	
   

  	
  66

  
	
  Section 1006

  	
   

  	
  Money Held in Trust.

  	
   

  	
  67

  
	
  Section 1007

  	
   

  	
  Compensation, Reimbursement and Indemnity.

  	
   

  	
  67

  
	
  Section 1008

  	
   

  	
  Disqualification; Conflicting Interests.

  	
   

  	
  68

  
	
  Section 1009

  	
   

  	
  Corporate Trustee Required; Eligibility.

  	
   

  	
  68

  
	
  Section 1010

  	
   

  	
  Resignation and Removal; Appointment of Successor.

  	
   

  	
  69

  
	
  Section 1011

  	
   

  	
  Acceptance of Appointment by Successor.

  	
   

  	
  70

  
	
  Section 1012

  	
   

  	
  Merger, Conversion, Consolidation or Succession to
  Business.

  	
   

  	
  71

  
	
  Section 1013

  	
   

  	
  Preferential Collection of Claims Against Company.

  	
   

  	
  71

  
	
  Section 1014

  	
   

  	
  Co-Trustee and Separate Trustees.

  	
   

  	
  71

  
	
  Section 1015

  	
   

  	
  Appointment of Authenticating Agent.

  	
   

  	
  72

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Article Eleven

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Holders’ Lists
  and Reports by Trustee and Company

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 1101

  	
   

  	
  Lists of Holders.

  	
   

  	
  74

  
	
  Section 1102

  	
   

  	
  Reports by Trustee and Company.

  	
   

  	
  74

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Article Twelve

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Consolidation,
  Merger, Conveyance, or Other Transfer

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 1201

  	
   

  	
  Company May Consolidate, Etc., Only on Certain
  Terms.

  	
   

  	
  75

  
	
  Section 1202

  	
   

  	
  Successor Company Substituted.

  	
   

  	
  76

  
	
  Section 1203

  	
   

  	
  Extent of Lien Hereof on Property of Successor Company.

  	
   

  	
  77

  
	
  Section 1204

  	
   

  	
  Release of Company Upon Conveyance or Other
  Transfer.

  	
   

  	
  77

  
	
  Section 1205

  	
   

  	
  Merger into Company; Extent of Lien Hereof.

  	
   

  	
  78

  
	
  Section 1206

  	
   

  	
  Transfer of Less Than Substantially all the
  Mortgaged Property.

  	
   

  	
  78

  

 

 

 

	
  

  	
   

  	
  Article Thirteen

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Supplemental
  Mortgages

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 1301

  	
   

  	
  Supplemental Mortgages Without Consent of Holders.

  	
   

  	
  78

  
	
  Section 1302

  	
   

  	
  Supplemental Mortgages with Consent of Holders.

  	
   

  	
  80

  
	
  Section 1303

  	
   

  	
  Execution of Supplemental Mortgages.

  	
   

  	
  81

  
	
  Section 1304

  	
   

  	
  Effect of Supplemental Mortgages.

  	
   

  	
  81

  
	
  Section 1305

  	
   

  	
  Conformity with Trust Indenture Act.

  	
   

  	
  82

  
	
  Section 1306

  	
   

  	
  Reference in First Mortgage Bonds to Supplemental
  Mortgages.

  	
   

  	
  82

  
	
  Section 1307

  	
   

  	
  Modification Without Supplemental Mortgage.

  	
   

  	
  82

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Article Fourteen

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Meetings of
  Holders; Action Without Meeting

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 1401

  	
   

  	
  Purposes For Which Meetings May Be Called.

  	
   

  	
  82

  
	
  Section 1402

  	
   

  	
  Call, Notice and Place of Meetings.

  	
   

  	
  83

  
	
  Section 1403

  	
   

  	
  Persons Entitled to Vote at Meetings.

  	
   

  	
  83

  
	
  Section 1404

  	
   

  	
  Quorum; Action.

  	
   

  	
  84

  
	
  Section 1405

  	
   

  	
  Attendance at Meetings; Determination of Voting
  Rights; Conduct and Adjournment of Meetings.

  	
   

  	
  84

  
	
  Section 1406

  	
   

  	
  Counting Votes and Recording Action of Meetings.

  	
   

  	
  85

  
	
  Section 1407

  	
   

  	
  Action Without Meeting.

  	
   

  	
  86

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Article Fifteen

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Immunity of
  Incorporators, Shareholders, Officers and Directors

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 1501

  	
   

  	
  Liability Solely Corporate.

  	
   

  	
  86

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Article Sixteen

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Possession, Use
  and Release of Mortgaged Property

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 1601

  	
   

  	
  Quiet Enjoyment.

  	
   

  	
  86

  
	
  Section 1602

  	
   

  	
  Dispositions Without Release.

  	
   

  	
  87

  
	
  Section 1603

  	
   

  	
  Release of Mortgaged Property.

  	
   

  	
  88

  
	
  Section 1604

  	
   

  	
  Preservation of Lien.

  	
   

  	
  89

  
	
  Section 1605

  	
   

  	
  Release of Minor Properties.

  	
   

  	
  89

  
	
  Section 1606

  	
   

  	
  Withdrawal or Other Application of Cash.

  	
   

  	
  90

  

 

 

 

	
  Section 1607

  	
   

  	
  Release of Property Taken by Eminent Domain, Etc.

  	
   

  	
  91

  
	
  Section 1608

  	
   

  	
  Disclaimer or Quitclaim.

  	
   

  	
  91

  
	
  Section 1609

  	
   

  	
  Miscellaneous.

  	
   

  	
  92

  
	
  Section 1610

  	
   

  	
  Maintenance of Properties.

  	
   

  	
  93

  
	
  Section 1611

  	
   

  	
  Payment of Taxes; Discharge of Liens.

  	
   

  	
  93

  
	
  Section 1612

  	
   

  	
  Insurance.

  	
   

  	
  94

  
	
  Section 1613

  	
   

  	
  Recording, Filing, Etc.

  	
   

  	
  96

  
	
  SCHEDULE A — DESCRIPTION OF
  MORTGAGED PROPERTY

  	
   

  	
   

  
	
  EXHIBIT I — FORM OF WRITTEN INSTRUMENT OF
  TRANSFER

  	
   

  	
   

  

 

CROSS REFERENCE SHEET
SHOWING THE LOCATION IN THE MORTGAGE OF THE

PROVISIONS INSERTED CORRELATIVE TO SECTIONS 310 THROUGH 318(a),

INCLUSIVE, OF THE TRUST INDENTURE ACT OF 1939

	
  Trust Indenture Act Section

  	
   

  	
   

  	
   

  	
  Mortgage Section

  	
   

  
	
  §§ 310)

  	
  (a)(1)

  	
   

  	
  1009

  	
   

  
	
   

  	
  (a)(2)

  	
   

  	
  1009

  	
   

  
	
   

  	
  (a)(3)

  	
   

  	
  1014

  	
   

  
	
   

  	
  (a)(4)

  	
   

  	
  Not
  Applicable

  	
   

  
	
   

  	
  (a)(5)

  	
   

  	
  1008

  	
   

  
	
   

  	
  (b)

  	
   

  	
  1008,
  1010

  	
   

  
	
   

  	
  (c)

  	
   

  	
  Not
  Applicable

  	
   

  
	
  §§ 311

  	
  (a)

  	
   

  	
  1013

  	
   

  
	
   

  	
  (b)

  	
   

  	
  1013

  	
   

  
	
   

  	
  (c)

  	
   

  	
  Not
  Applicable

  	
   

  
	
  §§ 312

  	
  (a)

  	
   

  	
  1101

  	
   

  
	
   

  	
  (b)

  	
   

  	
  1101

  	
   

  
	
   

  	
  (c)

  	
   

  	
  1101

  	
   

  
	
  §§ 313

  	
  (a)

  	
   

  	
  1102

  	
   

  
	
   

  	
  (b)(1)

  	
   

  	
  Not
  Applicable

  	
   

  
	
   

  	
  (b)(2)

  	
   

  	
  1102

  	
   

  
	
   

  	
  (c)

  	
   

  	
  1102

  	
   

  
	
   

  	
  (d)

  	
   

  	
  1102

  	
   

  
	
  §§ 314

  	
  (a)

  	
   

  	
  1102

  	
   

  
	
   

  	
  (a)(4)

  	
   

  	
  705

  	
   

  
	
   

  	
  (b)

  	
   

  	
  1613

  	
   

  
	
   

  	
  (c)(1)

  	
   

  	
  103

  	
   

  
	
   

  	
  (c)(2)

  	
   

  	
  103

  	
   

  
	
   

  	
  (c)(3)

  	
   

  	
  Not
  Applicable

  	
   

  
	
   

  	
  (d)

  	
   

  	
  1609

  	
   

  
	
   

  	
  (e)

  	
   

  	
  103

  	
   

  
	
   

  	
  (f)

  	
   

  	
  Not
  Applicable

  	
   

  
	
  §§ 315

  	
  (a)

  	
   

  	
  1001(a)

  	
   

  
	
   

  	
  (b)

  	
   

  	
  1002

  	
   

  
	
   

  	
  (c)

  	
   

  	
  1001(b)

  	
   

  
	
   

  	
  (d)

  	
   

  	
  1001(c)

  	
   

  
	
   

  	
  (d)(1)

  	
   

  	
  1001(a),
  1001(c)

  	
   

  
	
   

  	
  (d)(2)

  	
   

  	
  1001(c)

  	
   

  
	
   

  	
  (d)(3)

  	
   

  	
  1001(c)

  	
   

  
	
   

  	
  (e)

  	
   

  	
  914

  	
   

  
	
  §§ 316

  	
  (a)

  	
   

  	
  912,
  913

  	
   

  
	
   

  	
  (a)(1)(A)

  	
   

  	
  902,
  912

  	
   

  
	
   

  	
  (a)(1)(B)

  	
   

  	
  913

  	
   

  
	
   

  	
  (a)(2)

  	
   

  	
  Not
  Applicable

  	
   

  
	
   

  	
  (b)

  	
   

  	
  908

  	
   

  
	
   

  	
  (c)

  	
   

  	
  301

  	
   

  
							

 

 

 

	
  §§ 317

  	
  (a)(1)

  	
   

  	
  903

  	
   

  
	
   

  	
  (a)(2)

  	
   

  	
  904

  	
   

  
	
   

  	
  (b)

  	
   

  	
  703

  	
   

  
	
  §§ 318

  	
  (a)

  	
   

  	
  108

  	
   

  

 

NOTE:  This
reconciliation and tie shall not, for any purpose, be deemed to be a part of
the Mortgage.

 2

THIS INDENTURE SECURES AMONG
OTHER THINGS FUTURE ADVANCES AND OBLIGATIONS AND IS TO BE GOVERNED BY THE
PROVISIONS OF SECTION 443.055 OF THE MISSOURI REVISED STATUTES. THE TOTAL
PRINCIPAL AMOUNT OF OBLIGATIONS THAT MAY BE SECURED HEREUNDER IS
$300,000,000.

INDENTURE OF MORTGAGE AND DEED OF TRUST,
dated as of the 1st day of June, 2006, among THE EMPIRE DISTRICT
GAS COMPANY, a corporation organized and existing under the laws of the State
of Kansas (hereinafter called “Company”),
party of the first part, Spencer R. Thomson, Esq., a Missouri resident, as
deed of trust trustee hereunder (hereinafter called “Deed of
Trust Trustee”), for the benefit of The Bank of New York Trust
Company, N.A., as bond trustee and beneficiary under the deed of trust created
hereunder, a national banking
association organized and existing under the laws of the United States (hereinafter called “Trustee”),
party of the second part.

Recitals
of the Company

Whereas,
the Company is authorized by law, and deems it necessary from time to time, to
borrow money for its proper corporate purposes, and to that end, in exercise of
said authority, has duly authorized and directed the issue of its first
mortgage bonds, not limited in aggregate principal amount except as otherwise
hereinafter provided, to be known as its “First Mortgage Bonds”, to be issued
in one or more series, the bonds of each series to bear such date or dates, to
mature on such date or dates, to bear such rate or rates of interest and to
contain such additional designations and such other specifications and
provisions as are hereinafter in this Mortgage provided or permitted, the bonds
of each series to be issuable originally as registered bonds without coupons,
as the Company shall elect; and in order to secure the payment of the principal
of, and interest and premium, if any, on, the bonds, to provide for the
authentication thereof by the Trustee and to establish and declare the terms
and conditions upon which the bonds are to be issued, received and held, the
Company has duly authorized and directed the execution and delivery of this
Mortgage; and

Whereas,
the Company has duly authorized the creation of a series of its First Mortgage
Bonds to be issued under this Mortgage, to be known as “First Mortgage Bonds,
6.82% Series due 2036” (the “Initial Series Bonds”)
having the terms set forth in the First Supplemental Indenture, dated of even
date herewith (the “First Supplemental
Indenture”), and has duly authorized the execution and delivery of
this instrument and the First Supplemental Indenture to provide the terms and
conditions upon which the First Mortgage Bonds, including the Initial Series Bonds,
are to be authenticated, issued and delivered;

And Whereas,
all acts and things required by law and by the articles of incorporation and
by-laws of the Company necessary to make the First Mortgage Bonds, including
the Initial Series Bonds, the valid, binding and legal obligations of the
Company, when executed by the Company and authenticated and delivered by the
Trustee as in this Mortgage and in the First Supplemental Indenture provided,
and to constitute this Mortgage, when duly executed and delivered, a valid and
binding indenture of mortgage and deed of trust for the security of all bonds,
including the Initial Series Bonds, duly issued hereunder in accordance
with their 

 

respective terms, have been done and performed; and
the execution and delivery of this Mortgage and the issue of the Initial Series Bonds
have been in all respects duly authorized;

Granting
Clauses

Now, Therefore, This Mortgage
Witnesseth, that the
Company, for and in consideration of the premises and the sum of $1.00 to it in
hand paid by the Trustee, the receipt whereof is hereby acknowledged, and of
other valuable considerations, in order to secure the payment of the principal
of and interest and premium, if any, on all First Mortgage Bonds at any time
issued and outstanding under this Mortgage according to their tenor, purport
and effect and the performance of the covenants therein and herein contained
and to declare the terms and conditions upon and subject to which said bonds
are and are to be issued and secured, by these presents does hereby grant,
bargain, sell, assign, mortgage, pledge, transfer, set over, alien, release,
convey and confirm unto the Deed of Trust Trustee, with power of sale, and to
the Trustee, and their successors in the trusts created hereby and their
assigns, and grants to (i) the Trustee, a security
interest in all of the Company’s right, title and interest in and to the
following described property constituting personal property, rights, privileges
and franchises of the Company and (ii) the Deed of Trust Trustee, all of
the Company’s right, title and interest in and to the following described
property constituting real property (including leaseholds, easements and rights
of way) and any improvements, as described below, thereon, in each case whether
now owned or hereafter acquired (subject to the terms and conditions set forth
in this Mortgage):

All the property, rights, privileges, easements and
franchises particularly described in annexed Schedule A, which such description
is hereby made a part of, and is deemed to be included in, this Mortgage as
fully as if set forth in this Mortgage at length.

TOGETHER with all gas manufacturing, mixing, storage
and treating plants and equipment, and gas distribution and transmission lines
and services of the Company, and all improvements thereon and additions
thereto, including all buildings, structures, tanks, pumps, pipes, mains,
conduits, meters, machinery, equipment, fixtures, apparatus and other property
comprising or appurtenant to said gas production and gas transmission and
distribution system, including additions and modifications thereof necessary to
adapt such system to the distribution of natural gas, and any and all other
gas-related assets of the Company (including, without limitation, the Company’s
interest, if any, in the real estate upon which any such gas assets are
located) used principally in said gas transmission and distribution system now,
or at any time hereafter acquired, owned, held or possessed by the Company.

TOGETHER with all the revenues, income, earnings,
reversions, remainders, rents, issues, tolls, products, and profits of the
property subjected to or required to be subjected to the Lien of this Mortgage
and all the estate, right, title, interest, property, possession, claim and
demand whatsoever, as well in law as in equity, of the Company, of, in and to
the same and any and every part thereof, with the appurtenances belonging or in
anywise appertaining thereto.

TOGETHER with any Excepted Property that may, from
time to time hereafter, by delivery or by writing of any kind, expressly be
subjected to the Lien of this Mortgage by the Company or by anyone on its
behalf; and the Trustee is hereby authorized to receive the same at any time as
additional security hereunder. Such subjection to the Lien of this Mortgage of
any 

 2
 

 

Excepted Property as additional security may be made
subject to any reservations, limitations or conditions which shall be set forth
in a written instrument executed by the Company or the Person so acting in its
behalf or by the Trustee respecting the use and disposition of such property or
the proceeds thereof.

EXPRESSLY EXCEPTING AND EXCLUDING, HOWEVER, from the
lien of this Mortgage all right, title and interest of the Company in and to
the Excepted Property, whether now owned or hereafter acquired.

It is the intention and it is hereby agreed that all
property of the kind hereinbefore described acquired by the Company after the
date hereof shall, except as otherwise provided herein, be as fully embraced
within the provisions of this Mortgage, and subject to the lien hereby created,
as if the said property were now owned by the Company and were specifically described
herein and conveyed hereby subject to all defects and limitations of title and
to all Liens, charges, encumbrances, reservations, restrictions, conditions,
limitations, covenants, interests and exceptions existing at the time of such
acquisition.

TO HAVE AND TO HOLD all and singular the property,
rights, privileges, easements and franchises hereby granted or mentioned or
intended so to be,
together with all and singular the reversions, remainders, rents, revenues,
incomes, issues and profits, privileges and appurtenances, now or hereafter
belonging or in anywise appertaining thereto, unto the Trustee and its
successors in the trust hereby created and its and their assigns, forever,
other than in every case Excepted Property.

SUBJECT, HOWEVER, (1) to Permitted Liens and (2) as
to the property specifically described to or referred to in Schedule A hereto,
to the Liens, charges, encumbrances, reservations, restrictions, conditions,
limitations, covenants, interests and exceptions, if any, set forth or referred
to in Schedule A.

IN TRUST, NEVERTHELESS, for the equal and
proportionate benefit and security of all present and future holders of the
bonds issued and to be issued hereunder and secured by this Mortgage, and to
secure the payments of such bonds and the interest thereon when payable in
accordance with the provisions thereof or hereof, and to secure the performance
of and compliance with the covenants and conditions of this Mortgage without
preference, priority or distinction as to lien or otherwise of any one bond
over any other bond by reason of priority in the issue or negotiation thereof,
and under and subject to the provisions and conditions and for the uses and
purposes hereinafter set forth.

IT IS HEREBY COVENANTED AND AGREED by and between the Company
and the Trustee that all the First Mortgage Bonds are to be authenticated and
delivered, and that the Mortgaged Property is to be held, subject to the
further covenants, conditions and trusts hereinafter set forth, and the Company
hereby covenants and agrees to and with the Trustee, for the equal and ratable
benefit of all holders of the First Mortgage Bonds, as follows:

 3
 

 

Article One

Definitions And Other Provisions Of General
Application

Section 101            Definitions.

For all purposes of this Mortgage, except as otherwise
expressly provided or unless the context otherwise requires:

(a)           the
terms defined in this Article have the meanings assigned to them in this Article and
include the plural as well as the singular;

(b)           all
terms used herein without definition which are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to
them therein;

(c)           all
terms used herein without definition which are defined in the Uniform
Commercial Code of Missouri as in effect on the date hereof shall have the
meanings assigned to them therein;

(d)           all
accounting terms not otherwise defined herein have the meanings assigned to
them in accordance with generally accepted accounting principles in the United
States, and, except as otherwise herein expressly provided, the term “generally accepted accounting principles”
with respect to any computation required or permitted hereunder shall mean such
accounting principles as are generally accepted in the United States at the
date of such computation; provided, however, that in determining generally
accepted accounting principles applicable to the Company, effect shall be
given, to the extent required, to any order, rule or regulation of any
administrative agency, regulatory authority or other governmental body having
jurisdiction over the Company;

(e)           the
table of contents and headings are for reference purposes only and shall not in
any way affect the meaning or interpretation of this Mortgage;

(f)            any
reference to an “Article” or a “Section” refers to an Article or a
Section, as the case may be, of this Mortgage; and

(g)           the
words “herein”, “hereof” and “hereunder” and other words of similar import
refer to this Mortgage as a whole and not to any particular Article, Section or
other subdivision.

“Accountant”
means a Person engaged in the accounting profession or otherwise qualified to
pass on accounting matters (including, but not limited to, a Person certified,
registered or licensed as a public accountant, whether or not then engaged in the
public accounting profession), which Person, unless required to be Independent,
may be an employee or Affiliate of the Company.

“Act”, when used
with respect to any Holder of a First Mortgage Bond, has the meaning specified
in Section 105.

 4
 

 

“Affiliate”
means, at any time, and with respect to any Person, any other Person that at
such time directly or indirectly through one or more intermediaries Controls,
or is Controlled by, or is under common Control with, such first Person, and,
with respect to the Company, shall include any Person beneficially owning or
holding, directly or indirectly, 10% or more of any class of voting or equity
interests of the Company or any corporation of which the Company beneficially
owns or holds, in the aggregate, directly or indirectly, 10% or more of any
class of voting or equity interests. As used in this definition, “Control” means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise; and the term “Controlled”
shall have the meaning correlative to the foregoing. Unless the context
otherwise clearly requires, any reference to an “Affiliate” is a reference to
an Affiliate of the Company.

“Authenticating Agent”
means any Person or Persons (other than the Company or an Affiliate of the
Company) authorized by the Trustee to act on behalf of the Trustee to
authenticate the First Mortgage Bonds of one or more series.

“Authorized Officer”
means the Chairman of the Board, the Vice Chairman, the President, any Vice
President, the Treasurer, any Assistant Treasurer, or any other officer,
manager or agent of the Company duly authorized pursuant to a Board Resolution
to act in respect of matters relating to this Mortgage.

“Available Cash”,
at any time, shall mean all cash then held by, or deposited with, the Trustee
other than cash so held or deposited pursuant to Section 307 or Article Eight.

“Board of Directors”
means either the board of directors, board of managers or similar governing
body of the Company or any committee thereof duly authorized to act in respect
of matters relating to this Mortgage.

“Board Resolution” means a copy
of a resolution certified by the Secretary, an Assistant Secretary or an
Authorized Officer of the Company to have been duly adopted by the Board of
Directors and to be in full force and effect on the date of such certification,
and delivered to the Trustee.

“Business Day”
means any day other than a Saturday, a Sunday or a day on which commercial
banks in New York City or in the place in which the Corporate Trust Office is
located are required or authorized to be closed, except as may be otherwise
specified as contemplated by Section 301.

“Capitalized Lease Liabilities”
means, with respect to any Person, the amount, if any, shown as liabilities on
such Person’s unconsolidated balance sheet for capitalized leases of gas
manufacturing, transmission, storage or distribution not owned by such Person,
which amount shall be determined in accordance with generally accepted
accounting principles and practices applicable to the type of business in which
such Person is engaged.

“Commission”
means the Securities and Exchange Commission, as from time to time constituted,
created under the Exchange Act, or, if at any time after the date hereof such

 5
 

 

Commission is not existing and performing the duties
now assigned to it under the Trust Indenture Act, then the body, if any,
performing such duties at such time.

“Company” means
the Person named as the “Company” in the first paragraph of this instrument
until a successor Person shall have become such pursuant to the applicable
provisions of this Mortgage, and thereafter “Company” shall mean such successor
Person.

“Company Order”
or “Company Request” mean, respectively, a
written order or request, as the case may be, signed in the name of the Company
by an Authorized Officer and delivered to the Trustee.

“Corporate Trust Office”
means the office of the Trustee at which at any particular time its corporate
trust business shall be principally administered, which office at the date
hereof is located at Sixth and Marquette, Mac N9303-120, Minneapolis,
MN  55479, or such other office as the Trustee may designate from time to
time by notice to the Company.

“Corporation”
means a corporation, association, company, limited liability company,
partnership, limited partnership, joint stock company or business or statutory
trust, and references to “corporate” and other derivations of “corporation” herein
shall be deemed to include appropriate derivations of such entities.

“Cost” with
respect to Property Additions has the meaning specified in Section 102.

“Debt”, with
respect to any Person, means, without duplication, (A) indebtedness of
such Person for borrowed money evidenced by a bond, debenture, note or other
written instrument or agreement by which such Person is obligated to repay such
borrowed money, (B) any guaranty by such Person of any such indebtedness
of another Person, and (C) any Capitalized Lease Liabilities of such
Person. “Debt” does not include, among other things, (v) indebtedness of
such person under any installment sale or conditional sale agreement or any
other agreement relating to indebtedness for the deferred purchase price of property
or services, (x) any trade obligation (including obligations under gas
purchase or other commodity purchase agreements and any hedges or derivatives
associated therewith), or other obligations of such Person in the ordinary
course of business, (y) obligations of such Person under any lease
agreement that are not Capitalized Lease Liabilities or (z) any Liens
securing indebtedness, neither assumed nor guaranteed by such Person nor on
which it customarily pays interest, existing upon real estate or rights in or
relating to real estate acquired by such Person for transmission line,
transportation line, distribution line or right of way purposes.

“Deed of Trust Trustee”
means the Person named as the “Deed of Trust Trustee” in the first paragraph of
this Mortgage until a successor Deed of Trust Trustee shall have been appointed
by the Trustee pursuant to Section 1010 or otherwise have become such with
respect to one or more series of First Mortgage Bonds pursuant to the
applicable provisions of this Mortgage, and thereafter “Deed of Trust Trustee”
shall mean or include each Person who is then a Deed of Trust Trustee
hereunder, and if at any time there is more than one such Person, “Deed of
Trust Trustee” as used with respect to the First Mortgage Bonds of any series
shall mean the Deed of Trust Trustee with respect to First Mortgage Bonds of
that series.

“Defaulted Interest”
has the meaning specified in Section 307.

 6
 

 

“Depositary”
means, with respect to the First Mortgage Bonds of any series issuable or issued
in whole or in part in the form of one or more Global Bonds, the Person
designated as Depositary by the Company pursuant to Section 301 hereof,
which must be a clearing agency registered under the Exchange Act, and, if so
provided pursuant to Section 301 hereof with respect to the First Mortgage
Bonds of any series, any successor to such Person. If at any time there is more
than one such Person, “Depositary” shall mean, with respect to any series of
First Mortgage Bonds, the qualifying entity which has been appointed with
respect to the First Mortgage Bonds of that series.

“Discount First Mortgage
Bond” means any First Mortgage Bond which provides for an amount
less than the principal amount thereof to be due and payable upon a declaration
of acceleration of the Maturity thereof pursuant to Section 902. “Interest”
with respect to a Discount First Mortgage Bond means interest, if any, borne by
such First Mortgage Bond at a Stated Interest Rate.

“Dollar” or “$”
means a dollar or other equivalent unit in such coin or currency of the United
States of America as at the time shall be legal tender for the payment of
public and private debts.

“Eligible Obligations”
means:

(a)           with
respect to First Mortgage Bonds denominated in Dollars, Government Obligations
or, if specified pursuant to Section 301 with respect to any First
Mortgage Bonds, other Investment Securities; or

(b)           with
respect to First Mortgage Bonds denominated in a currency other than Dollars or
in a composite currency, such other obligations or instruments as shall be
specified with respect to such First Mortgage Bonds, as contemplated by Section 301.

“Event of Default”
has the meaning specified in Section 901.

“Excepted
Property” means:

(i)            all
cash on hand or in banks or other financial institutions, deposit accounts,
securities accounts, shares of stock, interests in business or statutory trusts
or general or limited partnerships or limited liability companies, bonds,
notes, equity (including the capital stock or other equity interest in any
direct or indirect subsidiary of the Company), mortgages, other evidences of
indebtedness and other securities, security entitlements and investment
property, repurchase agreements, of whatsoever kind and nature, not hereafter
paid or delivered to, deposited with or held by the Trustee hereunder or
required so to be;

(ii)           all
rights, contracts, operating agreements and the interest of the Company as
lessor under any leases and other agreements of whatsoever kind and nature;

(iii)          all
contract rights, bills, notes and other instruments and chattel paper (except
to the extent that any of the same constitute securities, security entitlements
or investment property, in which case they are separately excepted from the
Lien of this Mortgage under clause (i) above);

 7
 

 

(iv)          all
accounts receivable and unbilled revenues created at any time when no Event of
Default has occurred and is continuing;

(v)           all
governmental and other licenses, permits, franchises, consents and allowances;

(vi)          all
patents, patent licenses and other patent rights, patent applications, trade
names, trademarks, copyrights, domain names and other intellectual property;

(vii)         all
claims, credits, choses in action, commercial tort claims and other intangible
property and general intangibles including, but not limited to, computer
software;

(viii)        all
automobiles, buses, trucks, truck cranes, tractors, trailers and similar
vehicles and movable equipment;

(ix)           all
rolling stock, rail cars and other railroad equipment;

(x)            all
vessels, boats, barges, and other marine equipment;

(xi)           all
airplanes, helicopters, aircraft engines and other flight equipment;

(xii)          all
parts, accessories and supplies used in connection with any of items specified
in clauses (viii) — (xi);

(xiii)         all
personal property of such character that the perfection of a security interest
therein or other Lien thereon is not governed by the Uniform Commercial Code as
in effect in the jurisdiction in which such property is located;

(xiv)        all
goods, stock in trade, wares, merchandise and inventory held for the purpose of
sale or lease in the ordinary course of business;

(xv)         all
materials, supplies, inventory and other items of personal property which are
consumable (otherwise than by ordinary wear and tear) in their use in the
operation or ownership of the Mortgaged Property;

(xvi)        all
fuel whether or not any such fuel is in a form consumable in the operation or
ownership of the Mortgaged Property;

(xvii)       all
hand and other portable tools and equipment;

(xviii)      all
furniture and furnishings;

(xix)         all
computers and data processing, data storage, data transmission,
telecommunications and other facilities, equipment, supplies and apparatus,
which, in any case, are used primarily for administrative or clerical purposes
or are otherwise not necessary for the operation or maintenance of the
facilities, machinery, equipment or fixtures described or referred to in the
Granting Clauses of this Mortgage;

 8
 

 

(xx)          all
coal, lignite, ore, gas, oil and other minerals and all timber and all rights
and interests in any of the foregoing, whether or not such minerals or timber
shall have been mined or extracted or otherwise separated from the land;

(xxi)         all
electric energy and capacity, gas (natural or artificial), including gas held
in storage, steam, water and other products generated, produced, manufactured,
purchased or otherwise acquired by the Company;

(xxii)        all
property which is the subject of a lease agreement designating the Company as
lessee and all right, title and interest of the Company in and to such property
and in, to and under such lease agreement, whether or not such lease agreement
is intended as security;

(xxiii)       all
leasehold interests, permits, easements, licenses and similar rights, whether
now owned or hereafter acquired by the Company, which are intended to be hereby
conveyed, transferred or assigned and which may not be legally so conveyed,
transferred or assigned, or which cannot be so conveyed, transferred or
assigned without the consent of other parties whose consent is not secured or
without subjecting the Trustee to a liability not otherwise contemplated by the
provisions of the Mortgage or which otherwise may not be hereby lawfully and/or
effectively granted, conveyed, mortgaged, transferred and assigned by the
Company;

(xxiv)       all
personal property with respect to which the granting of a Lien therein pursuant
to this Mortgage by the Company would require any consent or approval of,
registration or filing with, or any other action by, any state or local
Governmental Authority which shall not have been obtained;

(xxv)        any
of the certificates, franchises, grants, immunities, privileges, and rights
granted by any Governmental Authority, or any political subdivision thereof,
described in the Granting Clauses of this Mortgage which (i) would be
breached by the grant of a security interest created therein pursuant to the
terms of this Mortgage or the assignment thereof, (ii) would require the
consent of any such Governmental Authority which shall not have been obtained
or (iii) with respect to which the granting of a security interest or the
assignment would be prohibited by applicable law;

(xxvi)       any
of the permits and rights granted by any railroad which (i) would be
breached by the grant of a security interest created therein pursuant to the
terms of this Mortgage or the assignment thereof, (ii) would require the
consent of such railroad prior to or after any such grant or assignment which
shall not have been obtained, or (iii) with respect to which the granting
of a security interest or the assignment would be prohibited by applicable law;
and

(xxvii)      the
last day of the term of each leasehold estate (oral or written, or any
agreement therefor) then owned or thereafter acquired by the Company;

provided, however, that, subject to the provisions of Section 1203,
(A) if, at any time after the occurrence of an Event of Default, the
Trustee, or any separate trustee or co-trustee appointed under Section 1014
or any receiver appointed pursuant to Section 916 or otherwise, shall have
entered into possession of all or substantially all the Mortgaged Property, to
the extent permitted by law, all the Excepted Property described or referred to
in the foregoing clauses (viii) through (xix) then owned or held or
thereafter acquired by the Company, to the extent that the same is used in
connection with, or otherwise relates or is attributable to, the Mortgaged
Property, shall immediately, and, in the case of any Excepted Property
described or referred to in the foregoing clause (xxii), to the extent that the
same is 

 9
 

 

used in connection with, or otherwise relates or is
attributable to, the Mortgaged Property, become subject to the Lien of this
Mortgage, junior and subordinate to any Liens at that time existing on such
Excepted Property, and the Trustee or such other trustee or receiver may, to
the extent permitted by law or by the terms of any such other Lien (and subject
to the rights of the holders of all such other Liens), at the same time
likewise take possession thereof, (B) whenever all Events of Default shall
have been cured and the possession of all or substantially all of the Mortgaged
Property shall have been restored to the Company, such Excepted Property (as
well as all Excepted Property described or referred to in the foregoing clause
(iv)) shall again be excepted and excluded from the Lien hereof to the extent
set forth above; it being understood that the Company may, however, pursuant to
any future amendment to this Mortgage subject any Excepted Property to the Lien
of this Mortgage whereupon the same shall cease to be Excepted Property, and (C) to
the extent not prohibited by any other provision of the Mortgage, nothing
contained in the release herein provided for shall prevent the Company, prior
to any such entering into possession, from selling, assigning, transferring,
pledging or otherwise disposing of property of the character thereby released
from the lien hereof by this paragraph and in any such case the title,
possession or other rights of the purchaser, assignee or transferee thereof
shall be free and clear of such lien as would otherwise attach under the
Mortgage in the event of such entering into possession.

“Exchange Act”
means the Securities Exchange Act of 1934, as amended.

“Expert” means a
Person which is an engineer, appraiser or other expert and which, with respect
to any certificate to be signed by such Person and delivered to the Trustee, is
qualified to pass upon the matters set forth in such certificate. For purposes
of this definition, (a) “engineer” means a Person engaged in the
engineering profession or otherwise qualified to pass upon engineering matters
(including, but not limited to, a Person licensed as a professional engineer,
whether or not then engaged in the engineering profession) and (b) “appraiser”
means a Person engaged in the business of appraising property or otherwise
qualified to pass upon the Fair Value or fair market value of property.

“Experts’ Certificate”
means a certificate signed by an Authorized Officer, by an Accountant and by an
Expert (which Accountant and Expert (a) shall be selected either by the
Board of Directors or by an Authorized Officer, the execution of such
certificate by such Authorized Officer to be conclusive evidence of such
selection, and (b) except as otherwise required in Sections 402 and 1609,
may be an employee or Affiliate of the Company) and delivered to the Trustee. The
amount stated in any Experts’ Certificate as to the Cost, Fair Value or fair
market value of property shall be conclusive and binding upon the Company, the
Trustee and the Holders of the First Mortgage Bonds.

“Fair Value”,
with respect to property, means the fair value of such property as determined
in the reasonable judgment of the Expert certifying to such value, such
determination to be based on any one or more factors deemed relevant by such
Expert including, without limitation, (a) the amount which would be likely
to be obtained in an arm’s-length transaction with respect to such property
between an informed and willing buyer and an informed and willing seller, under
no compulsion, respectively, to buy or sell, (b) the amount of investment 

 10
 

 

with respect to such property which, together with a
reasonable return thereon, would be likely to be recovered through ordinary
business operations or otherwise, (c) the cost, accumulated depreciation,
and replacement cost with respect to such property and/or (d) any other
relevant factors; provided, however, that (x) the Fair Value of property
shall be determined without deduction for any Liens on such property prior to
the Lien of this Mortgage and (y) the Fair Value to the Company of
Property Additions may be of less value to a Person which is not the owner or
operator of the Mortgaged Property or any portion thereof than to a Person
which is such owner or operator. Fair Value may be determined, without physical
inspection, by the use of accounting and engineering records and other data
maintained by the Company or otherwise available to the Expert certifying the
same.

“First Mortgage Bonds”
means any first mortgage bonds authenticated and delivered under this Mortgage.

“First Supplemental
Indenture” has the meaning ascribed to it in the recitals hereto.

“Global Bond”
means a First Mortgage Bond evidencing all or part of a series of First
Mortgage Bonds, issued to the Depositary for such series or its nominee and
registered in the name of such Depositary or nominee.

“Governmental Authority”
means the government of the United States or of any State or Territory thereof
or of the District of Columbia or of any county, municipality or other political
subdivision of any thereof, or any department, agency, authority or other
instrumentality of any of the foregoing.

“Government Obligations”
means securities which are (a) (i) direct obligations of the United
States where the payment or payments thereunder are supported by the full faith
and credit of the United States or (ii) obligations of a Person controlled
or supervised by and acting as an agency or instrumentality of the United
States where the timely payment or payments thereunder are unconditionally
guaranteed as a full faith and credit obligation by the United States or (b) depository
receipts issued by a bank (as defined in Section 3(a)(2) of the
Securities Act, which may include the Trustee or any Authenticating Agent or
Paying Agent) as custodian with respect to any such Government Obligation or a
specific payment of interest on or principal of or other amount with respect to
any such Government Obligation held by such custodian for the account of the
holder of a depository receipt, provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to
the holder of such depository receipt from any amount received by the custodian
in respect of the Government Obligation or the specific payment of interest on
or principal of or other amount with respect to the Government Obligation
evidenced by such depository receipt.

“Holder” means a
Person in whose name a First Mortgage Bond is registered in the Security
Register.

“Independent”,
when applied to any Accountant or Expert, means such a Person who (a) is
in fact independent, (b) does not have any direct material financial
interest in the Company or in any other obligor upon the First Mortgage Bonds
or in any Affiliate of the Company or of such other obligor, (c) is not
connected with the Company or such other obligor as an officer, 

 11
 

 

employee, promoter, underwriter, trustee, partner,
director or any person performing similar functions and (d) shall be
reasonably acceptable to the Trustee. The acceptance by the Trustee of an
opinion or certificate of an Independent Person shall be sufficient evidence
that such Independent Person has been approved by the Trustee.

“Independent Experts’
Certificate” means a certificate signed by an Expert who is Independent
and delivered to the Trustee.

“Initial Series Bonds”
has the meaning ascribed to it in the recitals hereto.

“Interest Payment Date”,
when used with respect to any First Mortgage Bond, means the Stated Maturity of
an installment of interest on such First Mortgage Bond.

“Investment Securities”
means any of the following obligations or securities on which neither the
Company, any other obligor on the First Mortgage Bonds nor any Affiliate of
either is the obligor: (a) Government Obligations; (b) interest
bearing deposit accounts (which may be represented by certificates of deposit)
in any national or state bank (which may include the Trustee or any
Authenticating Agent or Paying Agent) or savings and loan association whose
outstanding securities (or securities of the bank holding company owning all of
the capital stock of such bank or savings and loan association) are rated by a
nationally recognized rating organization in either of the two highest rating
categories (without regard to modifiers) for short-term securities or in any of
the three highest rating categories (without regard to modifiers) for long-term
securities; (c) bankers’ acceptances drawn on and accepted by any
commercial bank (which may include the Trustee or any Authenticating Agent or Paying
Agent) whose outstanding securities (or securities of the bank holding company
owning all of the capital stock of such commercial bank) are rated by a
nationally recognized rating organization in either of the two highest rating
categories (without regard to modifiers) for short-term securities or in any of
the three highest rating categories (without regard to modifiers) for long-term
securities; (d) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, any State or Territory of
the United States or the District of Columbia, or any political subdivision of
any of the foregoing, which are rated by a nationally recognized rating
organization in either of the two highest rating categories (without regard to
modifiers) for short-term securities or in any of the three highest rating
categories (without regard to modifiers) for long-term securities; (e) bonds
or other obligations of any agency or instrumentality of the United States; (f) corporate
debt securities which are rated by a nationally recognized rating organization
in either of the two highest rating categories (without regard to modifiers)
for short-term securities or in any of the three highest rating categories
(without regard to modifiers) for long-term securities; (g) repurchase
agreements with respect to any of the foregoing obligations or securities with
any banking or financial institution (which may include the Trustee or any
Authenticating Agent or Paying Agent) whose outstanding securities (or
securities of the bank holding company owning all of the capital stock of such
bank or financial institution) are rated by a nationally recognized rating
organization in either of the two highest rating categories (without regard to
modifiers) for short-term securities or in any of the three highest rating
categories (without regard to modifiers) for long-term securities; (h) securities
issued by any regulated investment company (including any investment company
for which the Trustee or any Authenticating Agent or Paying Agent is the
advisor), as defined in Section 851 of the Internal Revenue Code of 1986,
as amended, or any successor section of such Code or successor federal 

 12
 

 

statute, provided that the portfolio of such
investment company is limited to obligations or securities of the character and
investment quality contemplated in clauses (a) through (f) above and
repurchase agreements which are fully collateralized by any of such obligations
or securities; and (i) any other obligations or securities which may
lawfully be purchased by the Trustee in its capacity as such.

“Lien” means any
mortgage, deed of trust, pledge, security interest, encumbrance, easement,
lease, reservation, restriction, servitude, charge or similar right and any
other lien of any kind, including, without limitation, any conditional sale or
other title retention agreement, any lease in the nature thereof, and any
defect, irregularity, exception or limitation in record title.

“Maturity”, when
used with respect to any First Mortgage Bond, means the date on which the
principal of such First Mortgage Bond or an installment of principal becomes
due and payable as provided in such First Mortgage Bond or in this Mortgage,
whether at the Stated Maturity, by declaration of acceleration, upon call for
redemption or otherwise.

“Mortgage” means
this instrument as originally executed and as it may from time to time be
supplemented or amended by one or more mortgages supplemental hereto entered
into pursuant to the applicable provisions hereof, including, for all purposes
of this instrument and any such supplemental mortgage, the provisions of the
Trust Indenture Act that are deemed to be a part of and govern this Mortgage
and any such supplemental mortgage, respectively. The term “Mortgage” shall
also include the provisions or terms of particular series of First Mortgage
Bonds established in any Officers’ Certificate, Board Resolution or Company
Order delivered pursuant to Sections 201, 301, 303 and 1307.

“Mortgaged Property”
means, as of any particular time, all property which at such time is subject to
the Lien of this Mortgage.

“Notice of Default”
means a written notice of the kind specified in Section 901(c).

“Officers’ Certificate”
means a certificate signed by any two Authorized Officers of the Company and
delivered to the Trustee.

“Opinion of Counsel”
means a written opinion of counsel, who may be counsel for the Company.

“Outstanding”
means, as of the date of determination, all First Mortgage Bonds theretofore
authenticated and delivered under this Mortgage, except:

(a)           First
Mortgage Bonds theretofore canceled or delivered to the Security Registrar for
cancellation;

(b)           First
Mortgage Bonds deemed to have been paid for all purposes of this Mortgage in
accordance with Section 801 (whether or not the Company’s indebtedness in
respect thereof shall be satisfied and discharged for any other purpose); and

(c)           First
Mortgage Bonds, the principal, premium, if any, and interest, if any, which
have been fully paid pursuant to the third paragraph of Section 306 or in
exchange for or in lieu 

 13
 

 

of which other First Mortgage Bonds have been
authenticated and delivered pursuant to this Mortgage, other than any such
First Mortgage Bonds in respect of which there shall have been presented to the
Trustee proof satisfactory to it and the Company that such First Mortgage Bonds
are held by a bona fide purchaser or purchasers in whose hands such First
Mortgage Bonds are valid obligations of the Company;

provided, however, that in determining whether or not the
Holders of the requisite principal amount of the First Mortgage Bonds
Outstanding under this Mortgage, or the First Mortgage Bonds Outstanding of any
series or Tranche, have given any request, demand, authorization, direction,
notice, consent or waiver hereunder or whether or not a quorum is present at a
meeting of Holders of First Mortgage Bonds:

(x)            First
Mortgage Bonds owned by the Company or any other obligor upon the Bonds or any
Affiliate of the Company or of such other obligor (unless the Company, such
Affiliate or such obligor owns all First Mortgage Bonds Outstanding under this
Mortgage, or (except for the purposes of actions to be taken by Holders of more
than one series or more than one Tranche, as the case may be, voting as a class
under Section 1302) all First Mortgage Bonds Outstanding of each such
series and each such Tranche, as the case may be, determined without regard to
this clause (x)) shall be disregarded and deemed not to be Outstanding, except
that, in determining whether the Trustee shall be protected in relying upon any
such request, demand, authorization, direction, notice, consent or waiver or
upon any such determination as to the presence of a quorum, only First Mortgage
Bonds which the Responsible Officer of the Trustee actually knows to be so
owned shall be so disregarded; provided, however, that First Mortgage Bonds so
owned which have been pledged in good faith may be regarded as Outstanding if
it is established to the reasonable satisfaction of the Trustee that the pledgee,
and not the Company, or any such other obligor or Affiliate of either thereof,
has the right so to act with respect to such First Mortgage Bonds and that the
pledgee is not the Company or any other obligor upon the First Mortgage Bonds
or any Affiliate of the Company or of such other obligor; and provided,
further, that in no event shall any First Mortgage Bond which shall have been
delivered to evidence or secure, in whole or in part, the Company’s obligations
in respect of other indebtedness be deemed to be owned by the Company if the
principal of such First Mortgage Bond is payable, whether at Stated Maturity or
upon mandatory redemption, at the same time as the principal of such other
indebtedness is payable, whether at Stated Maturity or upon mandatory
redemption or acceleration, but only to the extent of such portion of the
principal amount of such First Mortgage Bond as does not exceed the principal
amount of such other indebtedness;

(y)           the
principal amount of a Discount First Mortgage Bond that shall be deemed to be
Outstanding for such purposes shall be the amount of the principal thereof that
would be due and payable as of the date of such determination upon a
declaration of acceleration of the Maturity thereof pursuant to Section 902;
and

(z)            the
principal amount of any First Mortgage Bond which is denominated in a currency
other than Dollars or in a composite currency that shall be deemed to be
Outstanding for such purposes shall be the amount of Dollars which could have
been purchased by the principal amount (or, in the case of a Discount First
Mortgage Bond, the Dollar equivalent on the date determined as set forth below
of the amount determined as provided in (y) above) 

 14
 

 

of such currency or composite currency evidenced by
such First Mortgage Bond, in each such case certified to the Trustee in an
Officers’ Certificate, based (i) on the average of the mean of the buying
and selling spot rates quoted by three banks which are members of the New York
Clearing House Association selected by the Company in effect at 11:00 A.M.
(New York time) in The City of New York on the fifth Business Day preceding any
such determination or (ii) if on such fifth Business Day it shall not be
possible or practicable to obtain such quotations from such three banks, on such
other quotations or alternative methods of determination which shall be as
consistent as practicable with the method set forth in (i) above;

provided, further, that in the case of any First
Mortgage Bond the principal of which is payable from time to time without
presentment or surrender, the principal amount of such First Mortgage Bond that
shall be deemed to be Outstanding at any time for all purposes of this Mortgage
shall be the original principal amount thereof less the aggregate amount of
principal thereof theretofore paid.

“Paying Agent”
means any Person, including the Company, authorized by the Company to pay the
principal of, and premium, if any, or interest, if any, on any First Mortgage
Bonds on behalf of the Company.

“Periodic Offering”
means an offering of First Mortgage Bonds of a series from time to time, any or
all of the specific terms of which First Mortgage Bonds, including without
limitation the rate or rates of interest, if any, thereon, the Stated Maturity
or Maturities thereof and the redemption provisions, if any, with respect
thereto, are to be determined by the Company or its agents from time to time
subsequent to the initial request for the authentication and delivery of such
First Mortgage Bonds by the Trustee, as contemplated in Section 301 and
clause (b) of Section 303.

“Permitted
Liens” means

(a)           Liens
on the Mortgaged Property existing as of the date hereof and set forth or
referred to on Schedule A;

(b)           as
to property acquired by the Company after the date hereof that becomes
Mortgaged Property, Liens existing or placed thereon at the time of the
acquisition thereof (including, but not limited to, any Prior Lien);

(c)           Liens
for taxes, assessments and other governmental charges or requirements which are
not delinquent or which are being contested in good faith by appropriate
proceedings;

(d)           mechanics’,
workmen’s, repairmen’s, materialmen’s, warehousemen’s, and carriers’ Liens,
other Liens incident to construction, improvement, repair or maintenance of
property, Liens or privileges of any employees of the Company for salary or
wages earned, but not yet payable, and other Liens, including without
limitation Liens for worker’s compensation awards, arising in the ordinary
course of business for charges or requirements which are not delinquent or
which are being contested in good faith and by appropriate proceedings;

(e)           Liens
in respect of attachments, judgments or awards arising out of judicial or
administrative proceedings with respect to which the Company shall in good
faith be prosecuting 

 15
 

 

(or have the right to prosecute) an appeal or other
proceeding for review and with respect to which the Company shall have secured
a stay of execution pending such appeal or other proceeding;

(f)            easements,
leases, reservations or other rights of others in, on, over and/or across, and
laws, regulations and restrictions affecting, and defects, irregularities,
exceptions and limitations in title to, the Mortgaged Property or any part
thereof; provided, however, that such easements, leases, reservations, rights,
laws, regulations, restrictions, defects, irregularities, exceptions and
limitations do not or, following cure by or on behalf of the Company through
the exercise of eminent domain (promptly undertaken by the Company after
acquiring notice thereof), will not in the aggregate materially impair the use
by the Company of the Mortgaged Property considered as a whole for the purposes
for which it is held by the Company;

(g)           restrictions,
servitudes, defects, irregularities, exceptions and limitations in title to
real property subject to rights-of-way in favor of the Company or otherwise or
used or to be used by the Company primarily for right-of-way purposes or real
property held under lease, easement, license or similar right; provided,
however, that (i) the Company shall have obtained from the apparent owner
or owners of such real property a sufficient right, by the terms of the
instrument granting such right-of-way, lease, easement, license or similar
right, to the use thereof for the purposes for which the Company acquired the
same; or (ii) the Company has power under eminent domain or similar
statutes to remove such defects, irregularities, exceptions or limitations; or (iii) such
defects, irregularities, exceptions and limitations may be otherwise remedied
without undue effort or expense; and defects, irregularities, exceptions and
limitations in title to reclaimed lands, flood lands, flooding rights and/or
water rights;

(h)           Liens
securing indebtedness or other obligations neither created, assumed nor
guaranteed by the Company nor on account of which it customarily pays interest
upon real property or rights in or relating to real property acquired by the
Company for the purpose of telephonic, telegraphic, radio, wireless or other
electronic communication or otherwise for the purpose of obtaining
rights-of-way or for any other purposes;

(i)            leases
existing as of the date hereof affecting properties owned by the Company at
said date and renewals and extensions thereof; and leases affecting such properties
entered into after such date or affecting properties acquired by the Company
after such date which, in either case, (i) have respective terms of not
more than 10 years (including extensions or renewals at the option of the
tenant) or (ii) do not materially impair the use by the Company of such
properties for the respective purposes for which they are held by the Company;

(j)            Liens
vested in lessors, licensors, franchisors or permitters for rent or other
amounts to become due or for other obligations or acts to be performed, the
payment of which rent or the performance of which other obligations or acts is
required under leases, subleases, licenses, franchises or permits, so long as
the payment of such rent or other amounts or the performance of such other
obligations or acts is not delinquent or is being contested in good faith and
by appropriate proceedings;

(k)           controls,
restrictions, obligations, duties and/or other burdens imposed by federal,
state, municipal or other law, or by rules, regulations or orders of
Governmental Authorities, 

 16
 

 

upon the Mortgaged Property or any part thereof or the
operation or use thereof or upon the Company with respect to the Mortgaged
Property or any part thereof or the operation or use thereof or with respect to
any franchise, grant, license, permit or public purpose requirement, or any
rights reserved to or otherwise vested in Governmental Authorities to impose
any such controls, restrictions, obligations, duties and/or other burdens;

(l)            rights
which Governmental Authorities may have by virtue of franchises, grants,
licenses, permits or contracts, or by virtue of law, to take, condemn,
appropriate, occupy, purchase, recapture or designate a purchaser of or order
the sale of the Mortgaged Property or any part thereof, to terminate
franchises, grants, licenses, permits, contracts or other rights or to regulate
the property and business of the Company; and any and all obligations of the
Company correlative to any such rights;

(m)          Liens
required by law or governmental regulations (i) as a condition to the
transaction of any business or the exercise of any privilege or license, (ii) to
enable the Company to maintain self-insurance or to participate in any funds
established to cover any insurance risks, (iii) in connection with workmen’s
compensation, unemployment insurance, social security, any pension or welfare
benefit plan or (iv) to share in the privileges or benefits required for
companies participating in one or more of the arrangements described in clauses
(ii) and (iii) above;

(n)           Liens
on the Mortgaged Property or any part thereof which are granted by the Company (i) to
secure (or to obtain letters of credit or bonds that secure) public or
statutory obligations, (ii) to secure the performance of duties; or (iii) to
secure, or serve in lieu of, surety, stay or appeal bonds, provided that in the
case of clause (ii) or (iii) such Liens are junior and subordinate to
the Lien of the Mortgage;

(o)           rights
reserved to or vested in others to take or receive any part of any coal, ore,
gas, oil and other minerals, any timber and/or any electric capacity or energy,
gas, water, steam and any other products, developed, produced, manufactured,
generated, purchased or otherwise acquired by the Company or by others on
property of the Company;

(p)           (i) rights
and interests of Persons other than the Company arising out of contracts,
agreements and other instruments to which the Company is a party and which
relate to the common ownership or joint use of property; and (ii) all
Liens on the interests of Persons other than the Company in property owned in
common by such Persons and the Company;

(q)           any
restrictions on assignment and/or requirements of any assignee to qualify as a
permitted assignee and/or public utility or public service corporation;

(r)            Liens,
if any, which may be deemed to exist with respect to property leased by the
Company pursuant to leases which are treated under generally accepted
accounting principles as capital leases;

(s)           any
Liens which have been bonded for the full amount in dispute or for the payment
of which other adequate security arrangements have been made;

(t)            rights
and interests granted pursuant to Section 1602(e);

 

 17

 

(u)           Prepaid
Liens;

(v)           any
Liens, claims, encumbrances, rights, or interests of Persons claiming such
rights, interests, etc. as descendants of American Indians or as Indian Tribes,
whether pursuant to the Non-Intercourse Act of 1834 (25 U.S.C. § 177) or otherwise;

(w)          Purchase
Money Liens to the extent permitted by Section 1611; and

(x)            any
Lien of the Trustee granted pursuant to Section 1007.

“Person” means
any individual, corporation, joint venture, limited liability company,
partnership, trust or unincorporated organization or any Governmental
Authority.

“Place of Payment”,
when used with respect to the First Mortgage Bonds of any series, or Tranche
thereof, means the place or places, specified as contemplated by Section 301,
at which, subject to Section 702, principal of and premium, if any, and
interest, if any, on the First Mortgage Bonds of such series or Tranche are
payable.

“Predecessor First Mortgage
Bond” of any particular First Mortgage Bond means every previous
First Mortgage Bond evidencing all or a portion of the same debt as that
evidenced by such particular First Mortgage Bond; and, for the purposes of this
definition, any First Mortgage Bond authenticated and delivered under Section 306
in exchange for or in lieu of a mutilated, destroyed, lost or stolen First
Mortgage Bond shall be deemed to evidence the same debt as the mutilated,
destroyed, lost or stolen First Mortgage Bond.

“Prepaid Liens”
means any Lien securing indebtedness for the payment of which money in the
necessary amount shall have been irrevocably deposited in trust with the
trustee or other holder of such Lien; provided, however, that if such
indebtedness is to be redeemed or otherwise prepaid prior to the stated
maturity thereof, any notice requisite to such redemption or prepayment shall
have been given in accordance with the mortgage or other instrument creating
such Lien or irrevocable instructions to give such notice shall have been given
to such trustee or other holder.

“Prior Lien”
means any Lien securing Prior Lien Debt.

“Prior Lien Debt”
means Debt, other than First Mortgage Bonds, created, issued, incurred or
assumed by the Company which is secured by a Lien, other than a Permitted Lien
(except those referred to in clauses (a), (b) and (w) of the
definition of such term), upon any Mortgaged Property of the Company prior to
or on a parity with the lien of this Mortgage.

“Property Additions”
has the meaning specified in Section 102.

“Purchase Money Lien”
means, with respect to any property being acquired or disposed of by the
Company or being released from the Lien of this Mortgage, a Lien on such
property which

(a)           is
taken or retained by the transferor of such property to secure all or part of
the purchase price thereof;

 18
 

 

(b)           is
granted to one or more Persons other than the transferor which, by making
advances or incurring an obligation, give value to enable the grantor of such
Lien to acquire rights in or the use of such property;

(c)           is
granted to any other Person in connection with the release of such property
from the Lien of this Mortgage on the basis of the deposit with the Trustee or
the trustee or other holder of a Lien prior to the Lien of this Mortgage of
obligations secured by such Lien on such property (as well as any other
property subject thereto); or

(d)           is
held by a trustee or agent for the benefit of one or more Persons described in
clause (a), (b) and/or (c) above, provided that such Lien may be
held, in addition, for the benefit of one or more other Persons which shall
have theretofore given, or may thereafter give, value to or for the benefit or
account of the grantor of such Lien for one or more other purposes; and,
without limiting the generality of the foregoing, for purposes of this
Mortgage, the term Purchase Money Lien shall be deemed to include any Lien
described above whether or not such Lien (x) shall permit the issuance or
other incurrence of additional indebtedness secured by such Lien on such
property, (y) shall permit the subjection to such Lien of additional
property and the issuance or other incurrence of additional indebtedness on the
basis thereof and/or (z) shall have been granted prior to the acquisition,
disposition or release of such property, shall attach to or otherwise cover
property other than the property being acquired, disposed of or released and/or
shall secure obligations issued prior and/or subsequent to the issuance of the
obligations delivered in connection with such acquisition, disposition or
release.

“Redemption Date”,
when used with respect to any First Mortgage Bond to be redeemed, means the
date fixed for such redemption by or pursuant to this Mortgage.

“Redemption Price”,
when used with respect to any First Mortgage Bond to be redeemed, means the
price at which it is to be redeemed pursuant to this Mortgage, exclusive of
accrued and unpaid interest.

“Regular Record Date”
for the interest payable on any Interest Payment Date on the First Mortgage
Bonds of any series means the date specified for that purpose as contemplated
by Section 301.

“Required Currency”
has the meaning specified in Section 311.

“Responsible Officer”,
when used with respect to the Trustee, means any officer within the corporate
trust administration group of the Trustee (or any successor group of the
Trustee) with direct responsibility for the administration of this Mortgage and
also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of his knowledge of and
familiarity with the particular subject.

“Securities Act”
means the Securities Act of 1933, as amended.

“Security Register”
and “Security Registrar” have the respective
meanings specified in Section 305.

 19
 

 

“Special Record Date”
for the payment of any Defaulted Interest on the First Mortgage Bonds of any
series means a date fixed by the Trustee pursuant to Section 307.

“Stated Interest Rate”
means a rate (whether fixed or variable) at which an obligation by its terms is
stated to bear simple interest. Any calculation or other determination to be
made under this Mortgage by reference to the Stated Interest Rate on a First
Mortgage Bond shall be made without regard to the effective interest cost to
the Company of such First Mortgage Bond and without regard to the Stated
Interest Rate on, or the effective cost to the Company of, any other indebtedness
the Company’s obligations in respect of which are evidenced or secured in whole
or in part by such First Mortgage Bond.

“Stated Maturity”,
when used with respect to any First Mortgage Bond or any obligation or any
installment of principal thereof or interest thereon, means the date on which
the principal of such obligation or such installment of principal or interest
is stated to be due and payable (without regard to any provisions for
redemption, prepayment, acceleration, purchase or extension).

“Successor Company”
has the meaning set forth in Section 1201.

“Supplemental Mortgage”,
“Supplemental Indenture” or “Mortgage Supplemental hereto” means an instrument
supplementing or amending this Mortgage executed and delivered pursuant to Article Thirteen.

“Tranche” means
a group of First Mortgage Bonds which (a) are of the same series and (b) have
identical terms except as to principal amount, date of issuance, interest rate,
payment terms and/or maturity date.

“Trustee” means
the Person named as the “Trustee” in the first paragraph of this Mortgage until
a successor Trustee shall have been appointed by the Company pursuant to Section 1010
or otherwise have become such with respect to one or more series of First
Mortgage Bonds pursuant to the applicable provisions of this Mortgage, and
thereafter “Trustee” shall mean or include each Person who is then a Trustee
hereunder, and if at any time there is more than one such Person, “Trustee” as
used with respect to the First Mortgage Bonds of any series shall mean the
Trustee with respect to First Mortgage Bonds of that series.

“Trust Indenture Act”
means, as of any time, the Trust Indenture Act of 1939 as in effect at such
time.

“United States”
means the United States of America, its territories, its possessions and other
areas subject to its jurisdiction.

Section 102            Property Additions; Cost.

(a)           “Property Additions” means, as of any
particular time, any item, unit or element of property which at such time is
owned by the Company and is Mortgaged Property.

(b)           When
the aggregate amount of any Property Additions are calculated for any purpose
under the Mortgage, there shall be deducted from the Cost or Fair Value to the
Company 

 20
 

 

thereof, as the case may be (as of the date so
calculated), an amount equal to all related reserves (estimated, if necessary,
as to particular property) for depreciation, depletion, obsolescence or
amortization recorded on the books of the Company as of the date so calculated
in respect of such Property Additions which have not theretofore been deducted
from the Cost or Fair Value of Property Additions theretofore so calculated.

(c)           Except
as otherwise provided in Section 1603, the term “Cost” with respect to Property Additions
shall mean the sum of (i) any cash delivered in payment therefor or for
the acquisition thereof, (ii) an amount equivalent to the fair market
value in cash (as of the date of delivery) of any securities or other property
delivered in payment therefor or for the acquisition thereof, (iii) the
principal amount of any other obligations incurred or assumed in connection
with the payment for such Property Additions or for the acquisition thereof and
(iv) any other amounts which, in accordance with generally accepted
accounting principles, are properly charged or chargeable to the plant or other
property accounts of the Company with respect to such Property Additions as
part of the cost of construction or acquisition thereof, including, but not
limited to, any allowance for funds used during construction or any similar or
analogous amount; provided, however, that, notwithstanding any other provision
of this Mortgage,

(i)               with respect to
Property Additions owned by a successor corporation immediately prior to the
time it shall have become such by consolidation or merger or acquired by a
successor corporation in or as a result of a consolidation or merger
(excluding, in any case, Property Additions owned by the Company immediately
prior to such time), Cost shall mean the amount or amounts at which such
Property Additions are recorded in the plant or other property accounts of such
successor corporation, or the predecessor corporation from which such Property
Additions are acquired, as the case may be, immediately prior to such
consolidation or merger;

(ii)              with respect to
Property Additions which shall have been acquired (otherwise than by
construction) by the Company without any consideration consisting of cash,
securities or other property or the incurring or assumption of indebtedness, no
determination of Cost shall be required, and, wherever in this Mortgage
provision is made for Cost or Fair Value, Cost with respect to such Property
Additions shall mean an amount equal to the Fair Value to the Company thereof
or, if greater, the aggregate amount reflected in the Company’s books of
account with respect thereto upon the acquisition thereof; and

(iii)             in no event
shall the Cost of Property Additions be required to reflect any adjustment to
the amount or amounts at which such Property Additions are recorded in plant or
other property accounts due to the non-recoverability of investment or
otherwise.

If any Property Additions are shown by the Experts’
Certificate provided for in Section 402(b)(ii) to include property
which has been used or operated by others than the Company in a business
similar to that in which it has been or is to be used or operated by the
Company, the Cost thereof need not be reduced by any amount in respect of any
goodwill, going concern value, franchises, contracts, operating agreements and
other rights and/or intangible property simultaneously acquired for which no
separate or distinct consideration shall have been paid or 

 21
 

 

apportioned, and in such case the term Property
Additions as defined herein may include such goodwill, going concern value,
rights and intangible property.

Section 103            Compliance Certificates and Opinions.

Except as otherwise expressly provided in this
Mortgage, upon any application or request by the Company to the Trustee to take
any action under any provision of this Mortgage, the Company shall furnish to
the Trustee an Officers’ Certificate stating that in the opinion of the
Authorized Officers executing such Officers’ Certificate all conditions
precedent, if any, provided for in this Mortgage relating to the proposed
action (including any covenants compliance with which constitutes a condition
precedent) have been complied with and an Opinion of Counsel stating that in
the opinion of such counsel all such conditions precedent, if any, have been
complied with, except that in the case of any such application or request as to
which the furnishing of such documents is specifically required by any
provision of this Mortgage relating to such particular application or request,
no additional certificate or opinion need be furnished.

Every certificate or opinion with respect to
compliance with a condition or covenant provided for in this Mortgage shall
include:

(a)           a
statement that each Person signing such certificate or opinion has read such
covenant or condition and the definitions herein relating thereto;

(b)           a
brief statement as to the nature and scope of the examination or investigation
upon which the statements or opinions contained in such certificate or opinion
are based;

(c)           a
statement that, in the opinion of each such Person, such Person has made such
examination or investigation as is necessary to enable such Person to express
an informed opinion as to whether or not such covenant or condition has been
complied with; and

(d)           a
statement as to whether, in the opinion of each such Person, such condition or
covenant has been complied with.

Section 104            Form of Documents Delivered to Trustee.

(a)           Any
Officers’ Certificate may be based (without further examination or
investigation), insofar as it relates to or is dependent upon legal matters,
upon an opinion of, or representations by, counsel, and, insofar as it relates
to or is dependent upon matters which are subject to verification by
Accountants, upon a certificate or opinion of, or representations by, an
Accountant, and insofar as it relates to or is dependent upon matters which are
required in this Mortgage to be covered by a certificate or opinion of, or
representations by, an Expert, upon the certificate or opinion of, or
representations by, an Expert, unless, in any case, either such officer has
actual knowledge that the certificate or opinion or representations with
respect to the matters upon which such Officers’ Certificate may be based as
aforesaid are erroneous.

Any Experts’ Certificate may be based (without further
examination or investigation), insofar as it relates to or is dependent upon
legal matters, upon an opinion of, or representations by, counsel, and insofar
as it relates to or is dependent upon factual matters, information with 

 22
 

 

respect to which is in the possession of the Company
and which are not subject to verification by Experts, upon a certificate or
opinion of, or representations by, an officer or officers of the Company,
unless such Expert has actual knowledge that the certificate or opinion or
representations with respect to the matters upon which his certificate or
opinion may be based as aforesaid are erroneous.

Any certificate of an Accountant may be based (without
further examination or investigation), insofar as it relates to or is dependent
upon legal matters, upon an opinion of, or representations by, counsel, and in
so far as it relates to or is dependent upon factual matters, information with
respect to which is in the possession of the Company and which are not subject
to verification by Accountants, upon a certificate of, or representations by,
an officer or officers of the Company, unless such Accountant has actual
knowledge that the certificate or opinion or representations with respect to
the matters upon which his certificate or opinion may be based as aforesaid are
erroneous.

Any Opinion of Counsel may be based (without further
examination or investigation), insofar as it relates to or is dependent upon
factual matters, information with respect to which is in the possession of the
Company, upon a certificate of, or representations by, an officer or officers
of the Company, and, insofar as it relates to or is dependent upon matters
which are subject to verification by Accountants upon a certificate or opinion
of, or representations by, an Accountant, and, insofar as it relates to or is
dependent upon matters required in this Mortgage to be covered by a certificate
or opinion of, or representations by, an Expert, upon the certificate or
opinion of, or representations by, an Expert, unless such counsel has actual
knowledge that the certificate or opinion or representations with respect to
the matters upon which his opinion may be based as aforesaid are erroneous. In
addition, any Opinion of Counsel may be based (without further examination or
investigation), insofar as it relates to or is dependent upon matters covered
in an Opinion of Counsel rendered by other counsel, upon such other Opinion of
Counsel, unless such counsel has actual knowledge that the Opinion of Counsel
rendered by such other counsel with respect to the matters upon which his
Opinion of Counsel may be based as aforesaid are erroneous. Further, any
Opinion of Counsel with respect to the status of title to or the sufficiency of
descriptions of property, and/or the existence of Liens thereon, and/or the
recording or filing of documents, and/or any similar matters, may be based
(without further examination or investigation) upon (i) title insurance
policies or commitments and reports, abstracts of title, lien search
certificates and other similar documents or (ii) certificates of, or
representations by, officers, employees, agents and/or other representatives of
the Company or (iii) any combination of the documents referred to in (i) and
(ii), unless, in any case, such counsel has actual knowledge that the document
or documents with respect to the matters upon which his opinion may be based as
aforesaid are erroneous. If, in order to render any Opinion of Counsel provided
for herein, the signer thereof shall deem it necessary that additional facts or
matters be stated in any Officers’ Certificate, certificate of an Accountant or
Experts’ Certificate provided for herein, then such certificate may state all
such additional facts or matters as the signer of such Opinion of Counsel may
request.

(b)           In
any case where several matters are required to be certified by, or covered by
an opinion of, any specified Person, it is not necessary that all such matters
be certified by, or covered by the opinion of, only one such Person, or that
they be so certified or covered by only one document, but one such Person may
certify or give an opinion with respect to some matters 

 23
 

 

and one or more other such Persons as to other
matters, and any such Person may certify or give an opinion as to such matters
in one or several documents. Where (i) any Person is required to make,
give or execute two or more applications, requests, consents, certificates,
statements, opinions or other instruments under this Mortgage, or (ii) two
or more Persons are each required to make, give or execute any such
application, request, consent, certificate, statement, opinion or other
instrument, any such applications, requests, consents, certificates,
statements, opinions or other instruments may, but need not, be consolidated
and form one instrument.

(c)           Whenever,
subsequent to the receipt by the Trustee of any Board Resolution, Officers’
Certificate, Experts’ Certificate, Opinion of Counsel or other document or
instrument, a clerical, typographical or other inadvertent or unintentional
error or omission shall be discovered therein, a new document or instrument may
be substituted therefor in corrected form with the same force and effect as if
originally filed in the corrected form and, irrespective of the date or dates
of the actual execution and/or delivery thereof, such substitute document or
instrument shall be deemed to have been executed and/or delivered as of the
date or dates required with respect to the document or instrument for which it
is substituted. Anything in this Mortgage to the contrary notwithstanding, if
any such corrective document or instrument indicates that action has been taken
by or at the request of the Company which could not have been taken had the
original document or instrument not contained such error or omission, the action
so taken shall not be invalidated or otherwise rendered ineffective but shall
be and remain in full force and effect, except to the extent that such action
was a result of willful misconduct or bad faith. Without limiting the
generality of the foregoing, any First Mortgage Bonds issued under the
authority of such defective document or instrument shall nevertheless be the
valid obligations of the Company entitled to the benefits of this Mortgage
equally and ratably with all other Outstanding First Mortgage Bonds, except as
aforesaid.

Section 105            Acts of Holders.

(a)           Any
request, demand, authorization, direction, notice, consent, election, waiver or
other action provided by this Mortgage to be made, given or taken by Holders
may be embodied in and evidenced by one or more instruments of substantially
similar tenor signed by such Holders in person or by an agent duly appointed in
writing or, alternatively, may be embodied in and evidenced by the record of
Holders voting in favor thereof, either in person or by proxies duly appointed
in writing, at any meeting of Holders duly called and held in accordance with
the provisions of Article Fourteen, or a combination of such instruments
and any such record. Except as herein otherwise expressly provided, such action
shall become effective when such instrument or instruments or record or both
are delivered to the Trustee and, where it is hereby expressly required, to the
Company. Such instrument or instruments and any such record (and the action
embodied therein and evidenced thereby) are herein sometimes referred to as the
“Act” of the Holders signing such
instrument or instruments and so voting at any such meeting. Proof of execution
of any such instrument or of a writing appointing any such agent, or of the
holding by any Person of a First Mortgage Bond, shall be sufficient for any
purpose of this Mortgage and (subject to Section 1001) conclusive in favor
of the Trustee and the Company, if made in the manner provided in this Section.
The record of any meeting of Holders shall be proved in the manner provided in Section 1406.
Without limiting the generality of the foregoing, unless otherwise established
in or pursuant to a Board Resolution or set forth or determined in an Officers’
Certificate, or established in one or more indentures supplemental hereto,
pursuant to 

 24
 

 

Section 301 hereof, a Holder, including a
Depositary that is a Holder of a Global Bond, may make, give or take, by a
proxy, or proxies, duly appointed in writing, any request, demand,
authorization, direction, notice, consent, waiver or other action provided in
this Indenture to be made, given or taken by Holders, and a Depositary that is
a Holder of a Global Bond may provide its proxy or proxies to the beneficial
owners of interests in any such Global Bond through such Depositary’s standing
instructions and customary practices.

(b)           The
fact and date of the execution by any Person of any such instrument or writing
may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such
instrument or writing acknowledged to him the execution thereof or may be
proved in any other manner which the Trustee and the Company deem sufficient. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority.

(c)           The
ownership, principal amount (except as otherwise contemplated in clause (y) of
the first proviso to the definition of Outstanding) and serial numbers of First
Mortgage Bonds held by any Person, and the date of holding the same, shall be
proved by the Security Register.

(d)           Any
request, demand, authorization, direction, notice, consent, election, waiver or
other Act of a Holder shall bind every future Holder of the same First Mortgage
Bond and the Holder of every First Mortgage Bond issued upon the registration
of transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon such
First Mortgage Bond.

(e)           Until
such time as written instruments shall have been delivered to the Trustee with
respect to the requisite percentage of principal amount of First Mortgage Bonds
for the action contemplated by such instruments, any such instrument executed
and delivered by or on behalf of a Holder may be revoked with respect to any or
all of such First Mortgage Bonds by written notice by such Holder or any
subsequent Holder, proven in the manner in which such instrument was proven.

(f)            First
Mortgage Bonds of any series, or any Tranche thereof, authenticated and
delivered after any Act of Holders may bear a notation as to any action taken
by such Act of Holders. If the Company shall so determine, new First Mortgage
Bonds of any series, or any Tranche thereof, so modified as to conform, in the
opinion of the Company, to such action may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding First Mortgage Bonds of such series or Tranche.

(g)           If
the Company shall solicit from Holders any request, demand, authorization,
direction, notice, consent, waiver or other Act, the Company may, at its
option, fix in advance a record date for the determination of Holders entitled
to give such request, demand, authorization, direction, notice, consent, waiver
or other Act, but the Company shall have no obligation to do so. If such a
record date is fixed, such request, demand, authorization, direction, notice,
consent, waiver or other Act may be given before or after such record date, but
only the Holders of record at the close of business on the record date shall be
deemed to be Holders for the purposes of 

 25
 

 

determining whether Holders of the requisite
proportion of the Outstanding First Mortgage Bonds have authorized or agreed or
consented to such request, demand, authorization, direction, notice, consent,
waiver or other Act, and for that purpose the Outstanding First Mortgage Bonds
shall be computed as of the record date.

Section 106            Notices, Etc. to Trustee or Company.

Except as otherwise provided herein, any request,
demand, authorization, direction, notice, consent, election, waiver or Act of
Holders or other document provided or permitted by this Mortgage to be made
upon, given or furnished to, or filed with, the Trustee by any Holder or by the
Company, or the Company by the Trustee or by any Holder, shall be sufficient
for every purpose hereunder (unless otherwise expressly provided herein) if in
writing and delivered personally to an officer or other responsible employee of
the addressee, or transmitted by facsimile transmission or other direct written
electronic means to such telephone number or other electronic communications
address set forth for such party below or such other address as the parties
hereto shall from time to time designate, or delivered by registered or certified
mail or reputable overnight courier, charges prepaid, to the applicable address
set forth for such party below or to such other address as either party hereto
may from time to time designate:

If to the Trustee, to:

The Bank of New York Trust Company, N.A.

2 North LaSalle Street, Suite 1020

Chicago, IL 60602

Attention: Corporate Finance

Telecopy:  (312) 827-8542

If to the Deed of Trust Trustee, to:

Spencer R. Thomson, Esq.

c/o Blackwell Sanders law firm

4801 Main Street, Suite 1000

Kansas City, Missouri 64112

Telephone: (816) 983-8000

Telecopy: (816) 983-8080

If to the Company, to:

The Empire District Gas Company

602 Joplin Street

Joplin, Missouri  64801

Attention:              Chief
Financial Officer

Telephone:            (417) 625-5100

Telecopy:              (417) 625-5153

 26
 

 

Any communication contemplated herein shall be deemed
to have been made, given, furnished and filed if personally delivered, on the
date of delivery, if transmitted by facsimile transmission or other direct
written electronic means, on the date of transmission if transmitted during
normal business hours and otherwise on the next Business Day, and if
transmitted by registered or certified mail or reputable overnight courier, on
the date of receipt.

Section 107            Notice to Holders of First Mortgage Bonds; Waiver.

Except as otherwise expressly provided herein, where
this Mortgage provides for notice to Holders of any event, such notice shall be
sufficiently given, and shall be deemed given, to Holders if in writing and
mailed, first-class postage prepaid, to each Holder affected by such event, at
the address of such Holder as it appears in the Security Register, not later
than the latest date, and not earlier than the earliest date, if any,
prescribed for the giving of such Notice.

In case by reason of the suspension of regular mail
service or by reason of any other cause it shall be impracticable to give such
notice to Holders by mail, then any manner of giving such notice as shall be
acceptable to the Trustee shall constitute a sufficient notification for every
purpose hereunder. In any case where notice to Holders is given by mail,
neither the failure to mail such notice, nor any defect in any notice so
mailed, to any particular Holder shall affect the sufficiency of such notice
with respect to Holders.

Any notice required by this Mortgage may be waived in
writing by the Person entitled to receive such notice, either before or after
the event otherwise to be specified therein, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.

Section 108            Conflict with Trust Indenture Act.

If this Mortgage shall become qualified and shall
become subject to the Trust Indenture Act, (a) if any provision of this
Mortgage limits, qualifies or conflicts with another provision hereof which is
required or deemed to be included in this Mortgage by, or is otherwise governed
by, any provision of the Trust Indenture Act, such other provision shall
control and (b) if any provision hereof otherwise conflicts with the Trust
Indenture Act, the Trust Indenture Act shall control unless otherwise provided
as contemplated by Section 301 with respect to any series of First
Mortgage Bonds. Except as expressly provided otherwise herein, any reference
herein to a requirement under the Trust Indenture Act shall only apply upon and
so long as this Mortgage is qualified under and subject to the Trust Indenture
Act.

Section 109            Effect of Headings and Table of Contents.

The Article and Section headings in this
Mortgage and the Table of Contents are for convenience only and shall not
affect the construction hereof.

 27
 

 

Section 110            Successors and Assigns.

All covenants and agreements in this Mortgage by the
Company and Trustee shall bind their respective successors and assigns, whether
so expressed or not.

Section 111            Separability Clause.

In case any provision in this Mortgage or the First
Mortgage Bonds shall be held to be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.

Section 112            Benefits of Mortgage.

Nothing in this Mortgage or the First Mortgage Bonds,
express or implied, shall give to any Person, other than the parties hereto,
their successors hereunder and the Holders of any Outstanding First Mortgage
Bonds, any benefit or any legal or equitable right, remedy or claim under this
Mortgage.

Section 113            Governing Law.

This Mortgage and the First Mortgage Bonds shall be
governed by and construed in accordance with the law of the State of Missouri,
except to the extent that the Trust Indenture Act shall be applicable and
except to the extent that the laws of any other state where the Company then
owns Mortgaged Property shall govern the Mortgage Lien and related provisions
of the Mortgage with respect to property in such state; provided however that
the rights and obligations of the Trustee shall be governed by the laws of the
state of New York.

Section 114            Legal Holidays.

In any case where any Interest Payment Date,
Redemption Date or Stated Maturity of any First Mortgage Bond shall not be a
Business Day at any Place of Payment, then (notwithstanding any other provision
of this Mortgage or of the First Mortgage Bonds other than a provision in First
Mortgage Bonds of any series, or any Tranche thereof, or in the Supplemental
Mortgage, Board Resolution or Officers’ Certificate which establishes the terms
of the First Mortgage Bonds of such series or Tranche, which specifically
states that such provision shall apply in lieu of this Section) payment of
interest or principal and premium, if any, need not be made at such Place of
Payment on such date, but may be made on the next succeeding Business Day at
such Place of Payment with the same force and effect as if made on the Interest
Payment Date, Redemption Date, or Stated Maturity, and, if such payment is made
or duly provided for on such Business Day, no interest shall accrue on the
amount so payable for the period from and after such Interest Payment Date,
Redemption Date or Stated Maturity, as the case may be, to such Business Day.

Section 115            Investment of Cash Held by Trustee.

Any cash held by the Trustee or any Paying Agent under
any provision of this Mortgage shall, except as otherwise provided in Section 1606
or in Article Eight, at the request of the Company evidenced by Company
Order, be invested or reinvested in Investment Securities 

 28
 

 

designated by the Company (such Company Order to
contain a representation to the effect that the securities designated therein
constitute Investment Securities) and any interest on such Investment
Securities shall be promptly paid over to the Company as received free and
clear of any Lien. Such Investment Securities shall be held subject to the same
provisions hereof as the cash used to purchase the same, but upon a like
request of the Company shall be sold, in whole or in designated part, and the
proceeds of such sale shall be held subject to the same provisions hereof as
the cash used to purchase the Investment Securities so sold. If such sale shall
produce a net sum less than the cost of the Investment Securities so sold, the
Company shall pay to the Trustee or any such Paying Agent, as the case may be,
such amount in cash as, together with the net proceeds from such sale, shall
equal the cost of the Investment Securities so sold, and if such sale shall
produce a net sum greater than the cost of the Investment Securities so sold,
the Trustee or any such Paying Agent, as the case may be, shall promptly pay
over to the Company an amount in cash equal to such excess, free and clear of
any Lien. In no event shall the Trustee be liable for any loss incurred in
connection with the performance or the sale of any Investment Security pursuant
to this Section. If no Investment Securities are designated by the Company,
such cash held by the Trustee shall remain uninvested.

Notwithstanding the foregoing, if an Event of Default
shall have occurred and be continuing, interest on Investment Securities and
any gain upon the sale thereof shall be held as part of the Mortgaged Property
until such Event of Default shall have been cured or waived, whereupon such
interest and gain shall be promptly paid over to the Company free and clear of
any Lien.

Section 116            Force Majeure.

In no event shall the Trustee be responsible or liable
for any failure or delay in the performance of its obligations hereunder
arising out of or caused by, directly or indirectly, forces beyond its control,
including, without limitation, strikes, work stoppages, accidents, acts of war
or terrorism, civil or military disturbances, nuclear or natural catastrophes
or acts of God, and interruptions, loss or malfunctions of utilities,
communications or computer (software and hardware) service affecting the
banking industry generally; it being understood that the Trustee shall use
reasonable efforts which are consistent with accepted practices in the banking
industry to resume performance as soon as practicable under the circumstances.

Article Two

First Mortgage Bond Forms

Section 201 Forms Generally.

The definitive First Mortgage Bonds of each series,
including the Initial Series Bonds, shall be in substantially the form or
forms thereof established in the Supplemental Indenture establishing such
series or in a Board Resolution establishing such series, or in an Officers’
Certificate pursuant to such a Supplemental Indenture or Board Resolution or,
with respect to the Initial Series Bonds, the First Supplemental
Indenture, in each case with such appropriate insertions, omissions, legends,
substitutions and other variations as are required or permitted by this
Mortgage, and may have such letters, numbers or other marks of identification
and such 

 29
 

 

legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or as may,
consistently herewith, be determined by the officers executing such First
Mortgage Bonds, as evidenced by their execution thereof. If the form or forms
of First Mortgage Bonds of any series are established in a Board Resolution or
in an Officers’ Certificate pursuant to a Supplemental Mortgage or a Board
Resolution, such Board Resolution and Officers’ Certificate, if any, shall be
delivered to the Trustee at or prior to the delivery of the Company Order
contemplated by Section 303 for the authentication and delivery of such
First Mortgage Bonds.

Unless otherwise specified as contemplated by Section 301,
the First Mortgage Bonds of each series shall be issuable in registered form
without coupons. The definitive First Mortgage Bonds shall be produced in such
manner as shall be determined by the officers executing such First Mortgage
Bonds, as evidenced by their execution thereof.

Section 202            Form of Trustee’s Certificate of Authentication.

The Trustee’s certificate of authentication shall be
in substantially the form set forth below:

This is one of the First Mortgage Bonds of the series
designated therein referred to in the within-mentioned Mortgage.

The Bank of New York Trust Company, N.A.,

as Trustee

By:                                            

Authorized Signatory

Dated:                                           

Article Three

The First Mortgage Bonds

Section 301            Issuable in Series.

The First Mortgage Bonds may be issued in one or more
series. Subject to the last paragraph of this Section, prior to the
authentication and delivery of First Mortgage Bonds of any series (other than
the Initial Series Bonds, as to which specific provision is made in the
First Supplemental Indenture) there shall be established by specification in a
Supplemental Indenture or in a Board Resolution or in an Officers’ Certificate
pursuant to a Supplemental Indenture or a Board Resolution:

(a)           the
title of the First Mortgage Bonds of such series (which shall distinguish the
First Mortgage Bonds of such series from First Mortgage Bonds of all other
series);

(b)           any
limit upon the aggregate principal amount of the First Mortgage Bonds of such
series which may be authenticated and delivered under this Mortgage (except for
First 

 30
 

 

Mortgage Bonds authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other First
Mortgage Bonds of such series pursuant to Section 304, 305, 306, 506 or
1306 and except for any First Mortgage Bonds which, pursuant to Section 303,
are deemed never to have been authenticated and delivered hereunder);

(c)           the
Person or Persons (without specific identification) to whom any interest on
First Mortgage Bonds of such series, or any Tranche thereof, shall be payable,
if other than the Person in whose name that First Mortgage Bond (or one or more
Predecessor First Mortgage Bonds) is registered at the close of business on the
Regular Record Date for such interest;

(d)           the
date or dates on which the principal of the First Mortgage Bonds of such series
or any Tranche thereof, is payable or any formulary or other method or other
means by which such date or dates shall be determined, by reference to an index
or other fact or event ascertainable outside of this Mortgage or otherwise
(without regard to any provisions for redemption, prepayment, acceleration,
purchase or extension); and the right, if any, to extend the Maturity of the
First Mortgage Bonds of such series, or any Tranche thereof, and the duration
of any such extension;

(e)           the
rate or rates at which the First Mortgage Bonds of such series, or any Tranche
thereof, shall bear interest, if any (including the rate or rates at which
overdue principal shall bear interest after Maturity if different from the rate
or rates at which such First Mortgage Bonds shall bear interest prior to
Maturity, and, if applicable, the rate or rates at which overdue premium or
interest shall bear interest, if any), or any formulary or other method or
other means by which such rate or rates shall be determined by reference to an
index or other fact or event ascertainable outside of this Mortgage or
otherwise, the date or dates from which such interest shall accrue; the
Interest Payment Dates and the Regular Record Dates, if any, for the interest
payable on such First Mortgage Bonds on any Interest Payment Date; and the
basis of computation of interest, if other than as provided in Section 310;
and the right, if any, to extend the interest payment periods and the duration
of any such extension;

(f)            the
place or places at which and/or methods (if other than as provided elsewhere in
this Mortgage) by which (i) the principal of and premium, if any, and
interest, if any, on First Mortgage Bonds of such series, or any Tranche
thereof, shall be payable, (ii) registration of transfer of First Mortgage
Bonds of such series, or any Tranche thereof, may be effected, (iii) exchanges
of First Mortgage Bonds of such series, or any Tranche thereof, may be effected
and (iv) notices and demands to or upon the Company in respect of the
First Mortgage Bonds of such series, or any Tranche thereof, and this Mortgage
may be served; the Security Registrar and any Paying Agent or Agents for such
series or Tranche; and, if such is the case, that the principal of such First
Mortgage Bonds shall be payable without the presentment or surrender thereof;

(g)           the
period or periods within which, or the date or dates on which, the price or
prices at which and the terms and conditions upon which the First Mortgage
Bonds of such series, or any Tranche thereof, may be redeemed, in whole or in
part, at the option of the Company and any restrictions on such redemptions;
including but not limited to a restriction on a partial redemption by the
Company of the First Mortgage Bonds of any series, or any Tranche thereof,
resulting in delisting of such First Mortgage Bonds from any national exchange;

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(h)           the
obligation or obligations, if any, of the Company to redeem or purchase or
repay the First Mortgage Bonds of such series, or any Tranche thereof, pursuant
to any sinking fund or other mandatory redemption provisions or at the option
of a Holder thereof and the period or periods within which or the date or dates
on which, the price or prices at which and the terms and conditions upon which
such First Mortgage Bonds shall be redeemed or purchased or repaid, in whole or
in part, pursuant to such obligation and applicable exceptions to the
requirements of Section 504 in the case of mandatory redemption or
redemption or repayment at the option of the Holder;

(i)            the
denominations in which First Mortgage Bonds of such series, or any Tranche
thereof, shall be issuable if other than denominations of $1,000 and any
integral multiple thereof;

(j)            if
the principal of or premium, if any, or interest, if any, on the First Mortgage
Bonds of such series, or any Tranche thereof, are to be payable, at the
election of the Company or a Holder thereof, in a coin or currency other than
that in which the First Mortgage Bonds are stated to be payable, the period or
periods within which, and the terms and conditions upon which, such election
may be made and the manner in which the amount of such coin or currency payable
is to be determined;

(k)           the
currency or currencies, including composite currencies, in which payment of the
principal of and premium, if any, and interest, if any, on the First Mortgage
Bonds of such series, or any Tranche thereof, shall be payable (if other than
Dollars) and the manner in which the equivalent of the principal amount thereof
in Dollars is to be determined for any purpose, including for the purpose of
determining the principal amount deemed to be Outstanding at any time;

(l)            if
the principal of or premium, if any, or interest, if any, on the First Mortgage
Bonds of such series, or any Tranche thereof, are to be payable, or are to be
payable at the election of the Company or a Holder thereof, in securities or
other property, the type and amount of such securities or other property, or
the formulary or other method or other means by which such amount shall be
determined, and the period or periods within which, and the terms and
conditions upon which, any such election may be made;

(m)          if
the amount payable in respect of principal of or premium, if any, or interest,
if any, on the First Mortgage Bonds of such series, or any Tranche thereof, may
be determined with reference to an index or other fact or event ascertainable
outside this Mortgage, the manner in which such amounts shall be determined to
the extent not established pursuant to clause (e) of this paragraph;

(n)           if
other than the entire principal amount thereof, the portion of the principal
amount of First Mortgage Bonds of such series, or any Tranche thereof, which
shall be payable upon declaration of acceleration of the Maturity thereof
pursuant to Section 902;

(o)           any
Events of Default, in addition to those specified in Section 901, or any
exceptions to those specified in Section 901, with respect to the First
Mortgage Bonds of such series, and any covenants of the Company for the benefit
of the Holders of the First Mortgage 

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Bonds of such series, or any Tranche thereof, in
addition to those set forth in Article Seven, or any exceptions to those
set forth in Article Seven;

(p)           the
terms, if any, pursuant to which the First Mortgage Bonds of such series, or
any Tranche thereof, may be converted into or exchanged for shares of capital
stock or other securities of the Company or any other Person;

(q)           the
obligations or instruments, if any, which shall be considered to be Eligible
Obligations in respect of the First Mortgage Bonds of such series, or any
Tranche thereof, denominated in a currency other than Dollars or in a composite
currency, whether Eligible Obligations include Investment Securities with
respect to First Mortgage Bonds of such series, and any provisions for
satisfaction and discharge of First Mortgage Bonds of any series, in addition
to those set forth in Article Eight, or any exceptions to those set forth
in Article Eight;

(r)            if
the First Mortgage Bonds of such series, or any Tranche thereof, are to be
issued in global form, (i) any limitations on the rights of the Holder or
Holders of such First Mortgage Bonds to transfer or exchange the same or to
obtain the registration of transfer thereof, (ii) any limitations on the
rights of the Holder or Holders thereof to obtain certificates therefor in
definitive form in lieu of global form and (iii) any other matters
incidental to such First Mortgage Bonds;

(s)           to
the extent not established pursuant to clause (r) of this paragraph, any
limitations on the rights of the Holders of the First Mortgage Bonds of such
series, or any Tranche thereof, to transfer or exchange such First Mortgage
Bonds or to obtain the registration of transfer thereof; and if a service
charge will be made for the registration of transfer or exchange of First
Mortgage Bonds of such series, or any Tranche thereof, the amount or terms
thereof;

(t)            any
exceptions to Section 114, or variation in the definition of Business Day,
with respect to the First Mortgage Bonds of such series, or any Tranche
thereof; and

(u)           any
other terms of the First Mortgage Bonds of such series, or any Tranche thereof,
that the Company may elect to specify.

With respect to First Mortgage Bonds of a series
subject to a Periodic Offering, the Supplemental Indenture or the Board
Resolution which establishes such series, or the Officers’ Certificate pursuant
to such Supplemental Indenture or Board Resolution, as the case may be, may
provide general terms or parameters for First Mortgage Bonds of such series and
provide either that the specific terms of First Mortgage Bonds of such series,
or any Tranche thereof, shall be specified in a Company Order or that such
terms shall be determined by the Company or its agents in accordance with
procedures specified in a Company Order as contemplated in clause (b) of Section 303.

Unless otherwise provided with respect to a series of
First Mortgage Bonds as contemplated in clause (b) of this Section 301,
the aggregate principal amount of a series of First Mortgage Bonds may be
increased and additional First Mortgage Bonds of such series may be issued up
to the maximum aggregate principal amount authorized with respect to such
series as increased.

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Section 302            Denominations.

Unless otherwise provided as contemplated by Section 301
with respect to any series of First Mortgage Bonds, or any Tranche thereof, the
First Mortgage Bonds of each series shall be issuable in denominations of
$1,000 and any integral multiple thereof.

Section 303            Execution, Authentication, Delivery and Dating.

Unless otherwise provided as contemplated by Section 301
with respect to any series of First Mortgage Bonds or any Tranche thereof,
First Mortgage Bonds shall be executed on behalf of the Company by an
Authorized Officer, and may (but need not) have a corporate seal of the Company
affixed thereto or reproduced thereon attested by any other Authorized Officer
or by the Secretary or an Assistant Secretary of the Company. The signature of
any or all of these officers on the First Mortgage Bonds may be manual or
facsimile.

First Mortgage Bonds bearing the manual or facsimile
signatures of individuals who were at the time of execution Authorized Officers
or the Secretary or an Assistant Secretary of the Company shall bind the
Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such First
Mortgage Bonds or did not hold such offices at the date of such First Mortgage
Bonds.

The Trustee shall authenticate and deliver First
Mortgage Bonds of a series for original issue, at one time or from time to time
in accordance with the Company Order referred to below, upon receipt by the
Trustee of:

(a)           the
instrument or instruments establishing the form or forms and terms of the First
Mortgage Bonds of such series, as provided in Sections 201 and 301;

(b)           a
Company Order requesting the authentication and delivery of such First Mortgage
Bonds and, to the extent that the terms of such First Mortgage Bonds shall not
have been established in a Supplemental Indenture or in a Board Resolution, or
in an Officers’ Certificate pursuant to a Supplemental Indenture or Board
Resolution, all as contemplated by Section 301, either (i) establishing
such terms or (ii) in the case of First Mortgage Bonds of a series subject
to a Periodic Offering, specifying procedures, acceptable to the Trustee, by
which such terms are to be established (which procedures may provide, to the
extent acceptable to the Trustee, for authentication and delivery pursuant to
oral or electronic instructions from the Company or any agent or agents
thereof, which oral instructions are to be promptly confirmed electronically or
in writing), in either case in accordance with the instrument or instruments
establishing the terms of the First Mortgage Bonds of such series delivered
pursuant to clause (a) above;

(c)           any
opinions, certificates, documents and instruments required by Article Four;

(d)           First
Mortgage Bonds of such series, each executed on behalf of the Company by an
Authorized Officer of the Company;

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(e)           an
Officers’ Certificate (i) which shall comply with the requirements of Section 104
of this Mortgage and (ii) which states that no Event of Default under this
Mortgage has occurred and is occurring;

(f)            an
Opinion of Counsel which shall comply with the requirements of Section 104
of this Mortgage and that states that:

(i)               the form or
forms of such First Mortgage Bonds have been duly authorized by the Company and
have been established in conformity with the provisions of this Mortgage;

(ii)              the terms of
such First Mortgage Bonds have been duly authorized by the Company and have
been established in conformity with the provisions of this Mortgage; and

(iii)             when such First
Mortgage Bonds shall have been authenticated and delivered by the Trustee and
issued and delivered by the Company in the manner and subject to any conditions
specified in such Opinion of Counsel, such First Mortgage Bonds will have been
duly issued under this Mortgage, and will constitute valid and legally binding
obligations of the Company, entitled to the benefits provided by this Mortgage,
and enforceable in accordance with their terms, subject, as to enforcement, to
laws relating to or affecting generally the enforcement of mortgagees’ and
other creditors’ rights, including, without limitation, bankruptcy, insolvency,
reorganization, receivership, moratorium and other laws affecting the rights
and remedies of creditors and mortgagees generally, general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law) and an implied covenant of good faith, fair dealing and
reasonableness and any other customary exceptions made by such counsel based on
the law of the relevant state made in opinions of this type and scope.

With respect to First Mortgage Bonds of a series
subject to a Periodic Offering, the Trustee may conclusively rely, as to the
authorization by the Company of any of such First Mortgage Bonds, the forms and
terms thereof and the legality, validity, binding effect and enforceability
thereof, and compliance of the authentication and delivery thereof with the
terms and conditions of this Mortgage, upon the Opinion of Counsel and other
documents delivered pursuant to Sections 201 and 301 and this Section, as
applicable, at or prior to the time of the authentication of First Mortgage
Bonds of such series, unless and until such opinion or other documents have
been superseded or revoked or expire by their terms. In connection with the
authentication and delivery of First Mortgage Bonds of a series, pursuant to a
Periodic Offering, the Trustee shall be entitled to assume that the Company’s
instructions to authenticate and deliver such First Mortgage Bonds do not
violate any applicable law or any applicable rule, regulation or order of any
Governmental Authority having jurisdiction over the Company.

If the forms or terms of the First Mortgage Bonds of
any series have been established by or pursuant to a Board Resolution or an
Officers’ Certificate as permitted by Sections 201 or 301, the Trustee shall
not be required to authenticate such First Mortgage Bonds if the issuance of 

 35
 

 

such First Mortgage Bonds pursuant to this Mortgage
will materially and adversely affect the Trustee’s own rights, duties or
immunities under the First Mortgage Bonds and this Mortgage.

Except as otherwise specified as contemplated by Section 301
with respect to any series of First Mortgage Bonds, or any Tranche thereof,
each First Mortgage Bond shall be dated the date of its authentication.

Except as otherwise specified as contemplated by Section 301
with respect to any series of First Mortgage Bonds, or any Tranche thereof, no
First Mortgage Bond shall be entitled to any benefit under this Mortgage or be
valid or obligatory for any purpose unless there appears on such First Mortgage
Bond a certificate of authentication substantially in the form provided for
herein executed by the Trustee or its agent by manual signature of an
authorized officer thereof, and such certificate upon any First Mortgage Bond
shall be conclusive evidence, and the only evidence, that such First Mortgage
Bond has been duly authenticated and delivered hereunder and is entitled to the
benefits of this Mortgage.

Section 304            Temporary First Mortgage Bonds.

Pending the preparation of definitive First Mortgage
Bonds of any series, or any Tranche thereof, the Company may execute, and upon
Company Order the Trustee shall authenticate and deliver, temporary First
Mortgage Bonds which are printed, lithographed, typewritten, mimeographed or
otherwise produced, in any authorized denomination, substantially of the tenor
of the definitive First Mortgage Bonds in lieu of which they are issued, with
such appropriate insertions, omissions, substitutions and other variations as
any officer executing such First Mortgage Bonds may determine, as evidenced by
such officer’s execution of such First Mortgage Bonds; provided, however, that
temporary First Mortgage Bonds need not recite specific redemption, sinking
fund, conversion or exchange provisions.

Unless otherwise specified as contemplated by Section 301
with respect to the First Mortgage Bonds of any series, or any Tranche thereof,
after the preparation of definitive First Mortgage Bonds of such series or
Tranche, the temporary First Mortgage Bonds of such series or Tranche shall be
exchangeable, without charge to the Holder thereof, for definitive First
Mortgage Bonds of such series or Tranche upon surrender of such temporary First
Mortgage Bonds at the office or agency of the Company maintained pursuant to Section 702
in a Place of Payment for such First Mortgage Bonds. Upon such surrender of
temporary First Mortgage Bonds for such exchange, the Company shall, except as
aforesaid, execute and the Trustee shall authenticate and deliver in exchange
therefor definitive First Mortgage Bonds of the same series and Tranche of
authorized denominations and of like tenor and aggregate principal amount.

Until exchanged in full as hereinabove provided,
temporary First Mortgage Bonds shall in all respects be entitled to the same
benefits under this Mortgage as definitive First Mortgage Bonds of the same
series and Tranche and of like tenor authenticated and delivered hereunder.

Section 305            Registration, Registration of Transfer and Exchange.

The Company shall cause
to be kept in each office designated pursuant to Section 702, with respect
to the First Mortgage Bonds of each series, a register (all registers kept in
accordance with this Section being collectively referred to as the “Security Register”) in which, 

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subject to such reasonable regulations as it may
prescribe, the Company shall provide for the registration of First Mortgage
Bonds of such series, or any Tranche thereof, and the registration of transfer
thereof. The Company shall designate one Person to maintain the Security
Register for the First Mortgage Bonds of each series on a consolidated basis,
and such Person is referred to herein, with respect to such series, as the “Security Registrar.” Anything herein to the contrary
notwithstanding, the Company may designate one or more of its offices as an
office in which a register with respect to the First Mortgage Bonds of one or
more series shall be maintained, and the Company may designate itself the
Security Registrar with respect to one or more of such series. The Security
Register shall be open for inspection by the Trustee and the Company at all
reasonable times.

Except as otherwise specified as contemplated by Section 301
with respect to the First Mortgage Bonds of any series, or any Tranche thereof,
upon surrender for registration of transfer of any First Mortgage Bond of such
series or Tranche at the office or agency of the Company maintained pursuant to
Section 702 in a Place of Payment for such series or Tranche, the Company
shall execute, and the Trustee shall authenticate and deliver, in the name of
the designated transferee or transferees, one or more new First Mortgage Bonds
of the same series and Tranche, of authorized denominations and of like tenor
and aggregate principal amount.

Except as otherwise specified as contemplated by Section 301
with respect to the First Mortgage Bonds of any series, or any Tranche thereof,
any First Mortgage Bond of such series or Tranche, other than a Global Bond,
may be exchanged at the option of the Holder for one or more new First Mortgage
Bonds of the same series and Tranche, of authorized denominations and of like
tenor and aggregate principal amount, upon surrender of the First Mortgage
Bonds to be exchanged at any such office or agency. Whenever any First Mortgage
Bonds are so surrendered for exchange, the Company shall execute, and the Trustee
shall authenticate and deliver, the First Mortgage Bonds, which the Holder
making the exchange is entitled to receive.

All First Mortgage Bonds delivered upon any
registration of transfer or exchange of First Mortgage Bonds shall be valid
obligations of the Company, evidencing the same obligation, and entitled to the
same benefits under this Mortgage, as the First Mortgage Bonds surrendered upon
such registration of transfer or exchange.

Every First Mortgage Bond presented or surrendered for
registration of transfer or for exchange shall (if so required by the Company,
the Trustee or the Security Registrar) be duly endorsed or shall be accompanied
by a written instrument of transfer in form attached hereto as Exhibit I,
duly executed by the Holder thereof or his attorney duly authorized in writing.

Unless otherwise specified as contemplated by Section 301,
with respect to First Mortgage Bonds of any series, or any Tranche thereof, no
service charge shall be made for any registration of transfer or exchange of
First Mortgage Bonds, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of First Mortgage Bonds, other
than exchanges pursuant to Section 304, 506 or 1306 not involving any
transfer.

The Company shall not be required to execute or to
provide for the registration of transfer of or the exchange of (a) First
Mortgage Bonds of any series, or any Tranche thereof, during a 

 37
 

 

period of 15 days immediately preceding the date
notice is to be given identifying the serial numbers of the First Mortgage
Bonds of such series or Tranche called for redemption or (b) any First
Mortgage Bond so selected for redemption in whole or in part, except the
unredeemed portion of any First Mortgage Bond being redeemed in part.

The provisions of this Section 305 are, with
respect to any Global Bond, subject to Section 314 hereof.

Section 306            Mutilated, Destroyed, Lost and Stolen First Mortgage
Bonds.

If any mutilated First Mortgage Bond is surrendered to
the Trustee, the Company shall execute and the Trustee shall authenticate and
deliver in exchange therefor a new First Mortgage Bond of the same series and
Tranche, and of like tenor and principal amount, bearing a number not
contemporaneously outstanding.

If there shall be delivered to the Company and the
Trustee (a) evidence to their satisfaction of the ownership of and the
destruction, loss or theft of any First Mortgage Bond and (b) such
security or indemnity as may be reasonably required by them to save each of
them and any agent of any of them harmless, then, in the absence of notice to
the Company or the Trustee that such First Mortgage Bond has been acquired by a
bona fide purchaser, the Company shall execute and the Trustee shall
authenticate and deliver, in lieu of any such destroyed, lost or stolen First
Mortgage Bond, a new First Mortgage Bond of the same series and Tranche, and of
like tenor and principal amount, bearing a number not contemporaneously
outstanding.

Notwithstanding the foregoing, in case any such
mutilated, destroyed, lost or stolen First Mortgage Bond has become or is about
to become due and payable, the Company in its discretion may, instead of
issuing a new First Mortgage Bond, pay such First Mortgage Bond.

Upon the issuance of any new First Mortgage Bond under
this Section, the Company may require the payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in relation thereto
and any other reasonable expenses (including the fees and expenses of the
Trustee) in connection therewith.

Every new First Mortgage Bond of any series issued
pursuant to this Section in lieu of any destroyed, lost or stolen First
Mortgage Bond shall constitute an original additional contractual obligation of
the Company, whether or not the destroyed, lost or stolen First Mortgage Bond
shall be at any time enforceable by anyone other than the Holder of such new
First Mortgage Bond, and any such new First Mortgage Bond shall be entitled to
all the benefits of this Mortgage equally and proportionately with any and all
other First Mortgage Bonds of such series duly issued hereunder.

Section 307            Payment of Interest; Interest Rights Preserved.

Unless otherwise specified as contemplated by Section 301
with respect to the First Mortgage Bonds of any series, or any Tranche thereof,
interest on any First Mortgage Bond which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name that First Mortgage Bond (or one or more Predecessor First 

 38
 

 

Mortgage Bonds) is registered at the close of business
on the Regular Record Date for such interest.

Any interest on any First Mortgage Bond of any series
which is payable, but is not punctually paid or duly provided for, on any
Interest Payment Date (herein called “Defaulted Interest”)
shall forthwith cease to be payable to the Holder on the related Regular Record
Date by virtue of having been such Holder, and such Defaulted Interest may be
paid by the Company, at its election, as provided in clause (a) or (b) below:

(a)           The
Company may elect to make payment of any Defaulted Interest to the Persons in
whose names the First Mortgage Bonds of such series (or their respective Predecessor
First Mortgage Bonds) are registered at the close of business on a date (a “Special Record Date”) for the payment of
such Defaulted Interest, which shall be fixed in the following manner. The
Company shall notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each First Mortgage Bond of such series and the date of
the proposed payment, and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be paid in
respect of such Defaulted Interest or shall make arrangements satisfactory to
the Trustee for such deposit prior to the date of the proposed payment, such
money when deposited to be held in trust for the benefit of the Persons
entitled to such Defaulted Interest as in this clause provided. Thereupon the
Trustee shall fix a Special Record Date for the payment of such Defaulted
Interest which shall be not more than 15 days and not less than 10 days prior
to the date of the proposed payment and not less than 10 days after the receipt
by the Trustee of the notice of the proposed payment. The Trustee shall
promptly notify the Company of such Special Record Date and, in the name and at
the expense of the Company shall promptly cause notice of the proposed payment
of such Defaulted Interest and the Special Record Date therefor to be mailed,
first-class postage prepaid, to each Holder of First Mortgage Bonds of such
series at the address of such Holder as it appears in the Security Register,
not less than 10 days prior to such Special Record Date. Notice of the proposed
payment of such Defaulted Interest and the Special Record Date therefor having
been so mailed, such Defaulted Interest shall be paid to the Persons in whose
names the First Mortgage Bonds of such series (or their respective Predecessor
First Mortgage Bonds) are registered at the close of business on such Special
Record Date. No interest, other than said Defaulted Interest, shall be payable
to such holders with respect to any such amounts so deposited by the Company
with the Trustee.

(b)           The
Company may make payment of any Defaulted Interest on the First Mortgage Bonds
of any series in any other lawful manner not inconsistent with the requirements
of any securities exchange on which such First Mortgage Bonds may be listed,
and upon such notice as may be required by such exchange, if, after notice
given by the Company to the Trustee of the proposed payment pursuant to this
clause, such manner of payment shall be deemed practicable by the Trustee.

Subject to the foregoing provisions of this Section and
Section 305, each First Mortgage Bond delivered under this Mortgage upon
registration of transfer of or in exchange for or in lieu of any other First
Mortgage Bond shall carry the rights to interest accrued and unpaid, and to
accrue, which were carried by such other First Mortgage Bond.

 39
 

 

Section 308            Persons Deemed Owners.

Prior to due presentment of a First Mortgage Bond for
registration of transfer, the Company, the Trustee and any agent of the Company
or the Trustee may treat the Person in whose name such First Mortgage Bond is
registered as the absolute owner of such First Mortgage Bond for the purpose of
receiving payment of principal of and premium, if any, and (subject to Sections
305 and 307) interest, if any, on such First Mortgage Bond and for all other
purposes whatsoever, whether or not such First Mortgage Bond be overdue, and
none of the Company, the Trustee or any agent of the Company or the Trustee
shall be affected by notice to the contrary.

No holder of any beneficial interest in any Global
Bond held on its behalf by a Depositary shall have any rights under this
Indenture with respect to such Global Bond, and such Depositary may be treated
by the Company, the Trustee, and any agent of the Company or the Trustee as the
owner of such Global Bond for all purposes whatsoever. Notwithstanding the
foregoing, nothing herein shall impair, as between a Depositary and such
holders of beneficial interests, the operation of customary practices governing
the exercise of the rights of the Depositary as holder of any First Mortgage
Bond.

Section 309            Cancellation.

All First Mortgage Bonds surrendered for payment,
redemption, registration of transfer or exchange or for credit against any
sinking fund payment shall, if surrendered to any Person other than the
Security Registrar, be delivered to the Security Registrar and, if not
theretofore canceled, shall be promptly canceled by the Security Registrar. The
Company may at any time deliver to the Security Registrar for cancellation any
First Mortgage Bonds previously authenticated and delivered hereunder which the
Company may have acquired in any manner whatsoever or which the Company shall
not have issued and sold, and all First Mortgage Bonds so delivered shall be promptly
canceled by the Security Registrar. No First Mortgage Bonds shall be
authenticated in lieu of or in exchange for any First Mortgage Bonds canceled
as provided in this Section, except as expressly permitted by this Mortgage. All
canceled First Mortgage Bonds held by the Security Registrar shall be disposed
of in accordance with the customary practices of the Security Registrar at the
time in effect, and the Security Registrar shall not be required to destroy any
such certificates. The Security Registrar shall promptly deliver evidence of
any cancellation of a First Mortgage Bond if requested in accordance with this Section 309
to the Trustee and the Company.

Section 310            Computation of Interest.

Except as otherwise specified as contemplated by Section 301
for First Mortgage Bonds of any series, or Tranche thereof, interest on the
First Mortgage Bonds of each series shall be computed on the basis of a 360-day
year consisting of 12 30-day months, and with respect to any period less
than a full month, on the basis of the actual number of days elapsed during
such period. For example, the interest for a period running from the 15th day
of one month to the 15th day of the next month would be calculated on the basis
of one 30-day month.

 40
 

 

Section 311            Payment to be in Proper Currency.

In the case of any First Mortgage Bond denominated in
any currency other than Dollars or in a composite currency (the “Required Currency”), except as otherwise specified with
respect to such First Mortgage Bond as contemplated by Section 301, the
obligation of the Company to make any payment of the principal thereof, or the
premium or interest thereon, shall not be discharged or satisfied by any tender
by the Company, or recovery by the Trustee, in any currency other than the
Required Currency, except to the extent that such tender or recovery shall
result in the Trustee timely holding the full amount of the Required Currency
then due and payable. If any such tender or recovery is in a currency other
than the Required Currency, the Trustee may take such actions as it considers
appropriate to exchange such currency for the Required Currency. The costs and
risks of any such exchange, including without limitation the risks of delay and
exchange rate fluctuation, shall be borne by the Company, the Company shall
remain fully liable for any shortfall or delinquency in the full amount of
Required Currency then due and payable, and in no circumstances shall the
Trustee be liable therefor except in the case of its negligence or willful
misconduct.

Section 312            Extension of Interest Payment.

The Company shall have the right at any time, to
extend interest payment periods on all the First Mortgage Bonds of any series
hereunder, if so specified as contemplated by Section 301 with respect to
such First Mortgage Bonds and upon such terms as may be specified as
contemplated by Section 301 with respect to such First Mortgage Bonds.

Section 313            CUSIP Numbers.

The Company in issuing the First Mortgage Bonds may
use “CUSIP” or “ISIN” or other similar numbers (if then generally in use), and,
if so, the Company, the Trustee or the Security Registrar may use “CUSIP” or “ISIN”
or such other numbers in notices or redemption as a convenience to Holders;
provided that any such notice may state that no representation is made as to
the correctness of such numbers either as printed on the First Mortgage Bonds
or as contained in any notice of a redemption and that reliance may be placed
only on the other identification numbers printed on the First Mortgage Bonds,
in which case none of the Company or, as the case may be, the Trustee or the
Security Registrar, or any agent of any of them, shall have any liability in
respect of any “CUSIP” or “ISIN” or other number used on any such notice, and
any such redemption shall not be affected by any defect in or omission of such
numbers.

Section 314            Global Bonds.

If the Company establishes pursuant to Section 301
hereof that the First Mortgage Bonds of a particular series are to be issued in
the form of a Global Bond, then the Company shall execute and the Trustee
shall, in accordance with Section 303 hereof, authenticate and deliver, a
Global Bond or First Mortgage Bond which (i) shall represent, and shall be
denominated in an aggregate amount equal to the aggregate principal amount of
all of the Outstanding First Mortgage Bonds of such series, (ii) shall be
registered in the name of the Depositary or its nominee, (iii) shall be
deposited with the Trustee as custodian for the Depositary and (iv) shall
bear a legend substantially to the following effect:

 41
 

 

“This First Mortgage Bond is a Global Bond within the meaning of the
Indenture hereinafter referred to and is registered in the name of a Depositary
or a nominee of a Depositary. This First Mortgage Bond is exchangeable for
First Mortgage Bonds registered in the name of a person other than the
Depositary or its nominee only in the limited circumstances described in the
Mortgage, and no transfer of this First Mortgage Bond (other than a transfer of
this First Mortgage Bond as a whole by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary) may be registered except in limited circumstances.

Unless this Global Bond is presented by an authorized representative of
the Depositary to the Company or its agent for registration of transfer,
exchange or payment, and any definitive First Mortgage Bond is issued in the
name of Cede & Co. or in such other name as is requested by an
authorized representative of the Depositary (and any payment is made to Cede &
Co. or to such other entity as is requested by an authorized representative of
the Depositary), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL in as much as the registered owner
hereof, Cede & Co., has an interest herein.”

Notwithstanding the provisions of Section 305
hereof, the Global Bond of a series may be transferred, in whole but not in
part and in the manner provided in Section 305 hereof, only to another
nominee of the Depositary for such series, or to a successor Depositary for
such series selected or approved by the Company or to a nominee of such
successor Depositary.

If (i) at any time the Depositary for a series of
First Mortgage Bonds notifies the Company that it is unwilling or unable to
continue as Depositary for such series or if at any time the Depositary for
such series shall no longer be registered or in good standing under the
Exchange Act, or other applicable statute or regulation and a successor Depositary
for such series is not appointed by the Company within 90 days after the
Company receives such notice or becomes aware of such condition, as the case
may be or (ii) there shall have occurred and be continuing after any
applicable grace periods an Event of Default with respect to the First Mortgage
Bonds for a series, then in each such case, this Section 314 shall no
longer be applicable to the First Mortgage Bonds of such series and the Company
will execute, and subject to Section 305 hereof the Trustee will
authenticate and deliver First Mortgage Bonds of such series in definitive
registered form without coupons, in authorized denominations, and in an
aggregate principal amount equal to the principal amount of the Global Bonds of
such series in exchange for such Global Bonds. In addition, the Company may at
any time determine that the First Mortgage Bonds of any series shall no longer
be represented by Global Bonds and that the provisions of this Section 314
shall no longer apply to the First Mortgage Bonds of such series. In such event
the Company will execute and subject to Section 305 hereof, the Trustee,
upon receipt of an Officers’ Certificate evidencing such determination by the
Company, will authenticate and deliver First Mortgage Bonds of such series in
definitive registered form without coupons, in authorized denominations, and in
an aggregate principal amount equal to the principal amount of the Global Bonds
of such series in exchange for such Global Bonds. Upon the exchange of the
Global Bonds for such First Mortgage Bonds in definitive registered form
without coupons, in authorized denominations, the Global Bonds shall be
canceled by the 

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Trustee. Such First Mortgage Bonds in definitive
registered form issued in exchange for the Global Bonds pursuant to this Section 314,
shall be registered in such names and in such authorized denominations as the
Depositary, pursuant to the instructions from its direct or indirect
participants or otherwise, shall instruct the Trustee. The Trustee shall deliver
First Mortgage Bonds to the Depositary for delivery to the persons in whose
names such First Mortgage Bonds are so registered.

Article Four

Issuance of First Mortgage Bonds

Section 401            Issuance of the Initial Series Bonds.

At any time on or after the execution and delivery of this Mortgage,
upon the application of the Company, the Trustee shall authenticate and deliver
up to $55,000,000 in aggregate principal amount of the Initial Series Bonds,
upon compliance with the provisions of Section 303. The Initial Series Bonds
shall be in the form, have the terms, and shall be subject to the further
covenants set forth in the First Supplemental Indenture.

Section 402            Issuance of First Mortgage Bonds other than the Initial Series Bonds.

(a)           First
Mortgage Bonds of any one or more series (other than the Initial Series Bonds)
may be authenticated and delivered in any aggregate principal amount so long
as, after immediately giving effect thereto, to the concurrent redemption or
payment of First Mortgage Bonds and Prior Lien Debt and any other transactions
contemplated therewith (including the acquisition of Property Additions), the
aggregate principal amount of all First Mortgage Bonds (excluding the Initial Series Bonds
and any First Mortgage Bonds issued to refinance in whole or in part the
Initial Series Bonds; provided that, in no event shall the amount so
excluded exceed $55,000,000) and Prior Lien Debt, in each case then
Outstanding, will not exceed 75% of the sum of (i) the then Cost or Fair
Value, whichever is less, of all Property Additions (after making any
deductions pursuant to Section 102(b)) and (ii) all Available Cash
then held by, or deposited with, the Trustee.

(b)           First
Mortgage Bonds of any series (other than the Initial Series Bonds) shall
be authenticated and delivered by the Trustee upon receipt by the Trustee of:

(i)             the documents with
respect to the First Mortgage Bonds of such series specified in Section 303;

(ii)            an Experts’
Certificate dated as of a date not more than 90 days prior to the first day of
the month in which the Company Order referring to it is delivered to the
Trustee,

(1)           setting forth the aggregate amount of
Property Additions then owned by the Company, such amount to be computed by
reference to the Company’s financial statements, on a Dollar basis, and stating
the Cost of such Property Additions;

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(2)           stating that all such property
reflected in clause (1) above constitutes Property Additions;

(3)           stating that such Property Additions
are desirable for use in the conduct of the business of the Company;

(4)           stating what part, if any, of such
Property Additions includes property which had not been included in a previous
Experts’ Certificate and which within six months prior to the date of
acquisition thereof by the Company had been used or operated by others than the
Company in a business similar to that in which it has been or is to be used or
operated by the Company and stating whether or not, in the judgment of the
signers, the Fair Value of such Property Additions to the Company, as of the
date of such certificate, is more than $25,000 and more than 1% of the
aggregate principal amount of First Mortgage Bonds then Outstanding;

(5)           stating, in the judgment of the
signers, the Fair Value to the Company, as of the date of such certificate, of
such Property Additions, except any thereof with respect to the Fair Value to
the Company of which a statement is to be made in an Independent Experts’
Certificate pursuant to clause (iii) below;

(6)           stating the lower of the Cost or the
Fair Value to the Company of such Property Additions;

(7)           stating the aggregate principal
amount of First Mortgage Bonds and Prior Lien Debt to be Outstanding
immediately prior to the issuance of the First Mortgage Bonds to be then
authenticated and delivered;

(8)           stating the principal amount of First
Mortgage Bonds to be then authenticated and delivered;

(9)           stating that, immediately after
giving effect to the issuance of the First Mortgage Bonds to be then
authenticated and delivered, to the concurrent redemption or payment of First
Mortgage Bonds and Prior Lien Debt and any other transactions contemplated
therewith (including the acquisition of Property Additions and the incurrence
or assumption by the Company of any Prior Lien), the aggregate principal amount
of all First Mortgage Bonds (excluding the Initial Series Bonds and any
First Mortgage Bonds issued to refinance in whole or in part the Initial Series Bonds;
provided that, in no event shall the amount so excluded exceed
$55,000,000) and Prior Lien Debt, in each case then Outstanding, will not
exceed 75% of the sum of (i) the amount set forth in clause (6) above,
and (ii) all Available Cash; and

(10)         stating that the Lien on the Company’s
interest in the Property Additions will be subject to no Lien thereon prior to
the Lien of this Mortgage except Permitted Liens (specifying any Prior Lien).

(iii)           in case any
Property Additions are shown by the Experts’ Certificate provided for in clause
(ii) above to include property which had not been included in a previous
Experts’ Certificate and which, within six months prior to the date 

 44
 

 

of acquisition thereof by
the Company, had been used or operated by others than the Company in a business
similar to that in which it has been or is to be used or operated by the
Company and such certificate does not show the Fair Value thereof to the
Company, as of the date of such certificate, to be less than $25,000 or less
than 1% of the aggregate principal amount of First Mortgage Bonds then
Outstanding, an Independent Experts’ Certificate stating, in the judgment of
the signer, the Fair Value to the Company, as of the date of such Independent
Experts’ Certificate, of (X) such Property Additions which have been so
used or operated and (at the option of the Company) as to any other Property
Additions included in the Experts’ Certificate provided for in clause (ii) above
and (Y) in case such Independent Experts’ Certificate is being delivered
in connection with the authentication and delivery of First Mortgage Bonds, any
property so used or operated which has been subjected to the Lien of this
Mortgage since the commencement of the then current calendar year and as to
which an Independent Experts’ Certificate has not previously been furnished to
the Trustee;

(iv)           in case any
Property Additions are shown by the Experts’ Certificate provided for in clause
(ii) above to have not been included in a previous Experts’ Certificate
and to have been acquired, made or constructed in whole or in part through the
delivery of securities or other property, an Experts’ Certificate stating, in
the judgment of the signers, the Fair Value in cash of such securities or other
property at the time of delivery thereof in payment for or for the acquisition
of such Property Additions;

(v)            an Opinion of
Counsel to the effect that:

(1)           this Mortgage constitutes, or, upon
the delivery of, and/or the filing and/or recording in the proper places and
manner of, the instruments of conveyance, assignment or transfer, if any,
specified in said opinion, will constitute, a valid and effective mortgage
lien, subject only to Permitted Liens, upon the interest of the Company in the
Property Additions; and

(2)           the Company has corporate authority
to operate such Property Additions; and

(vi)           copies of the
instruments of conveyance, assignment and transfer, if any, specified in the
Opinion of Counsel provided for in clause (v) above.

Article Five

Redemption of First Mortgage Bonds

Section 501            Applicability of Article.

First Mortgage Bonds of any series, or any Tranche
thereof, which are redeemable before their Stated Maturity shall be redeemable
in accordance with their terms and (except as otherwise specified as
contemplated by Section 301 for First Mortgage Bonds of such series or
Tranche) in accordance with this Article.

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Section 502            Election to Redeem; Notice to Trustee.

The election of the Company to redeem any First
Mortgage Bonds shall be evidenced by a Board Resolution or an Officers’
Certificate. The Company shall, at least 35 days prior to the Redemption Date
fixed by the Company (unless a shorter notice shall be satisfactory to the
Trustee), notify the Trustee in writing of such Redemption Date and of the
principal amount of such First Mortgage Bonds to be redeemed and the Redemption
Price. In the case of any redemption of First Mortgage Bonds (a) prior to
the expiration of any restriction on such redemption provided in the terms of
such First Mortgage Bonds or elsewhere in this Mortgage or (b) pursuant to
an election of the Company which is subject to a condition specified in the
terms of such First Mortgage Bonds, the Company shall furnish the Trustee with
an Officers’ Certificate evidencing compliance with such restriction or
condition.

Section 503            Selection of First Mortgage Bonds to be Redeemed.

If less than all the First Mortgage Bonds of any
series, or any Tranche thereof, are to be redeemed, the particular First
Mortgage Bonds to be redeemed shall be selected by the Trustee from the
Outstanding First Mortgage Bonds of such series or Tranche not previously
called for redemption, by such method as shall be provided for such particular
series or Tranche, or in the absence of any such provision, by such method of
random selection as the Trustee shall deem fair and appropriate and which may,
in any case, provide for the selection for redemption of portions (equal to any
authorized denomination for First Mortgage Bonds of such series or Tranche) of
the principal amount of First Mortgage Bonds of such series or Tranche of a
denomination larger than the minimum authorized denomination for First Mortgage
Bonds of such series or Tranche; provided, however, that if, as indicated in an
Officers’ Certificate, the Company shall have offered to purchase all or any
principal amount of the First Mortgage Bonds then Outstanding of any series, or
any Tranche thereof, and less than all of such First Mortgage Bonds as to which
such offer was made shall have been tendered to the Company for such purchase,
the Trustee, if so directed by Company Order, shall select for redemption all
or any principal amount of such First Mortgage Bonds which have not been so
tendered.

The Trustee shall promptly notify the Company and the
Security Registrar in writing of the First Mortgage Bonds selected for
redemption and, in the case of any First Mortgage Bonds selected to be redeemed
in part, the principal amount thereof to be redeemed.

For all purposes of this Mortgage, unless the context
otherwise requires, all provisions relating to the redemption of First Mortgage
Bonds shall relate, in the case of any First Mortgage Bonds redeemed or to be
redeemed only in part, to the portion of the principal amount of such First
Mortgage Bonds which has been or is to be redeemed.

Section 504            Notice of Redemption.

Except as otherwise specified as contemplated by Section 301
for First Mortgage Bonds of any series, notice of redemption shall be given in
the manner provided in Section 107 to the Holders of the First Mortgage
Bonds to be redeemed not less than 30 days prior to the Redemption Date.

 46
 

 

Except as otherwise specified as contemplated by Section 301
for First Mortgage Bonds of any series, all notices of redemption shall state:

(a)           the
Redemption Date,

(b)           the
Redemption Price (if known),

(c)           if
less than all the First Mortgage Bonds of any series or Tranche are to be
redeemed, the identification of the particular First Mortgage Bonds to be
redeemed and the portion of the principal amount of any First Mortgage Bond to
be redeemed in part,

(d)           that
on the Redemption Date the Redemption Price, together with accrued interest, if
any, to the Redemption Date, will become due and payable upon each such First
Mortgage Bond to be redeemed and, if applicable, that interest thereon will
cease to accrue on and after said date,

(e)           the
place or places where such First Mortgage Bonds are to be surrendered for
payment of the Redemption Price and accrued interest, if any, unless it shall
have been specified as contemplated by Section 301 with respect to such
First Mortgage Bonds that such surrender shall not be required,

(f)            that
the redemption is for a sinking or other fund, if such is the case,

(g)           the
CUSIP, ISIN or other similar numbers, if any, assigned to such First Mortgage
Bonds; provided, however, that such notice may state that no representation is
made as to the correctness of CUSIP or ISIN numbers, in which case none of the
Company, the Trustee or any agent of the Company or the Trustee shall have any
liability in respect of the use of any CUSIP or ISIN number or numbers on such
notices, and the redemption of such First Mortgage Bonds shall not be affected
by any defect in or omission of such numbers, and

(h)           such
other matters as the Company shall deem desirable or appropriate.

Unless otherwise specified with respect to any First
Mortgage Bonds in accordance with Section 301, with respect to any notice
of redemption of First Mortgage Bonds at the election of the Company, unless,
upon the giving of such notice, such First Mortgage Bonds shall be deemed to
have been paid in accordance with Section 801, such notice may state that
such redemption shall be conditional upon the receipt by the Paying Agent or
Agents for such First Mortgage Bonds, on or prior to the date fixed for such
redemption, of money sufficient to pay the principal of and premium, if any,
and interest, if any, on such First Mortgage Bonds and that if such money shall
not have been so received such notice shall be of no force or effect and the
Company shall not be required to redeem such First Mortgage Bonds. In the event
that such notice of redemption contains such a condition and such money is not
so received, the redemption shall not be made and within a reasonable time
thereafter notice shall be given, in the manner in which the notice of
redemption was given, that such money was not so received and such redemption
was not required to be made. A failure by the Company to provide such moneys or
make provision for the payment thereof shall not constitute an Event of Default
under this Mortgage and the Paying Agent or Agents for the First Mortgage Bonds
otherwise to have 

 47
 

 

been redeemed shall promptly return to the Holders
thereof any of such First Mortgage Bonds which had been surrendered for payment
upon such redemption.

Notice of redemption of First Mortgage Bonds to be
redeemed at the election of the Company, and any notice of non-satisfaction of
a condition for redemption as aforesaid, shall be given by the Company or, at
the Company’s request, by the Security Registrar in the name and at the expense
of the Company. Notice of any mandatory redemption of First Mortgage Bonds
shall be given by the Security Registrar in the name and at the expense of the
Company.

The notice of redemption, if mailed in a manner herein
provided, shall be conclusively presumed to have been given, whether or not the
Holder receives such notice. In any case, failure to give such notice by mail
or any defect in the notice to the Holder of any First Mortgage Bonds
designated for redemption in whole or in part shall not affect the validity of
the proceedings for the redemption of any other First Mortgage Bonds.

Section 505            First Mortgage Bonds Payable on Redemption Date.

Notice of redemption having been given as aforesaid,
and the conditions, if any, set forth in such notice having been satisfied, the
First Mortgage Bonds or portions thereof so to be redeemed shall, on the
Redemption Date, become due and payable at the Redemption Price therein
specified, and from and after such date (unless, in the case of an
unconditional notice of redemption, the Company shall default in the payment of
the Redemption Price and accrued interest, if any) such First Mortgage Bonds or
portions thereof, if interest-bearing, shall cease to bear interest. Upon
surrender of any such First Mortgage Bond for redemption in accordance with
such notice, such First Mortgage Bond or portion thereof shall be paid by the
Company at the Redemption Price, together with accrued interest, if any, to the
Redemption Date; provided, however, that no such surrender shall be a condition
to such payment if so specified as contemplated by Section 301 with
respect to such First Mortgage Bond; and provided, further, that except as
otherwise specified as contemplated by Section 301 with respect to such
First Mortgage Bond, any installment of interest on any First Mortgage Bond the
Stated Maturity of which installment is on or prior to the Redemption Date
shall be payable to the Holder of such First Mortgage Bond, or one or more
Predecessor First Mortgage Bonds, registered as such at the close of business
on the related Regular Record Date according to the terms of such First
Mortgage Bond and subject to the provisions of Sections 305 and 307.

Section 506            First Mortgage Bonds Redeemed in Part.

Upon the surrender of any First Mortgage Bond which is
to be redeemed only in part at a Place of Payment therefor (with, if the
Company or the Trustee so requires, due endorsement by, or a written instrument
of transfer in form satisfactory to the Company and the Trustee duly executed
by, the Holder thereof or his attorney duly authorized in writing), the Company
shall execute, and the Trustee shall authenticate and deliver to the Holder of
such First Mortgage Bond, without service charge, a new First Mortgage Bond or
First Mortgage Bonds of the same series and Tranche, of any authorized
denomination requested by such Holder and of like tenor and in aggregate
principal amount equal to and in exchange for the unredeemed portion of the
principal of the First Mortgage Bond so surrendered.

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Article Six

Sinking Funds

Section 601            Applicability Of Article.

The provisions of this Article shall be
applicable to any sinking fund for the retirement of the First Mortgage Bonds
of any series, or any Tranche thereof, except as otherwise specified as contemplated
by Section 301 for First Mortgage Bonds of such series or Tranche.

The minimum amount of any sinking fund payment
provided for by the terms of First Mortgage Bonds of any series, or any Tranche
thereof, is herein referred to as a “mandatory sinking fund payment”, and any
payment in excess of such minimum amount provided for by the terms of First
Mortgage Bonds of any series, or any Tranche thereof, is herein referred to as
an “optional sinking fund payment”. If provided for by the terms of First Mortgage
Bonds of any series, or any Tranche thereof, the cash amount of any sinking
fund payment may be subject to reduction as provided in Section 602. Each
sinking fund payment shall be applied to the redemption of First Mortgage Bonds
of the series or Tranche in respect of which it was made as provided for by the
terms of such First Mortgage Bonds.

Section 602            Satisfaction of Sinking Fund Payments with First Mortgage
Bonds.

The Company (a) may deliver to the Trustee
Outstanding First Mortgage Bonds (other than any previously called for
redemption) of a series or Tranche in respect of which a mandatory sinking fund
payment is to be made and (b) may apply as a credit First Mortgage Bonds
of such series or Tranche which have been redeemed either at the election of
the Company pursuant to the terms of such First Mortgage Bonds, at the election
of the Holder thereof if applicable, or through the application of permitted
optional sinking fund payments pursuant to the terms of such First Mortgage
Bonds, in each case in satisfaction of all or any part of such mandatory
sinking fund payment with respect to the First Mortgage Bonds of such series;
provided, however, that no First Mortgage Bonds shall be applied in
satisfaction of a mandatory sinking fund payment if such First Mortgage Bonds
shall have been previously so applied. First Mortgage Bonds so applied shall be
received and credited for such purpose by the Trustee at the Redemption Price
specified in such First Mortgage Bonds for redemption through operation of the
sinking fund and the amount of such mandatory sinking fund payment shall be
reduced accordingly.

Section 603            Redemption of First Mortgage Bonds for Sinking Fund.

Not less than 40 days, or such shorter period as the
Trustee shall agree to, prior to each sinking fund payment date for the First
Mortgage Bonds of any series, or any Tranche thereof, the Company shall deliver
to the Trustee an Officers’ Certificate specifying:

(a)           the
amount of the next succeeding mandatory sinking fund payment for such series or
Tranche;

(b)           the
amount, if any, of the optional sinking fund payment to be made together with
such mandatory sinking fund payment;

 49
 

 

(c)           the
aggregate sinking fund payment;

(d)           the
portion, if any, of such aggregate sinking fund payment which is to be
satisfied by the payment of cash; and

(e)           the
portion, if any, of such aggregate sinking fund payment which is to be
satisfied by delivering and crediting First Mortgage Bonds of such series or
Tranche pursuant to Section 602 and stating the basis for such credit and
that such First Mortgage Bonds have not previously been so credited, and the
Company shall also deliver to the Trustee any First Mortgage Bonds to be so
delivered.

If the Company shall not deliver such Officers’
Certificate and, to the extent applicable, all such First Mortgage Bonds, the
next succeeding sinking fund payment for such series or Tranche shall be made
entirely in cash in the amount of the mandatory sinking fund payment. Not less
than 30 days before each such sinking fund payment date the Trustee shall
select the First Mortgage Bonds to be redeemed upon such sinking fund payment
date in the manner specified in Section 503 and cause notice of the
redemption thereof to be given in the name of and at the expense of the Company
in the manner provided in Section 504. Such notice having been duly given,
the redemption of such First Mortgage Bonds shall be made upon the terms and in
the manner stated in Sections 505 and 506.

Article Seven

Representations and Covenants

Section 701            Payment of First Mortgage Bonds; Lawful Possession.

(a)           The
Company shall pay the principal of and premium, if any, and interest, if any,
on the First Mortgage Bonds of each series in accordance with the terms of such
First Mortgage Bonds and this Mortgage.

(b)           The
Company is lawfully possessed of the Mortgaged Property and has sufficient
right and authority to mortgage and pledge the Mortgaged Property, as provided
in and by this Mortgage.

Section 702            Maintenance of Office or Agency.

The Company shall maintain in each Place of Payment
for the First Mortgage Bonds of each series, or any Tranche thereof, an office
or agency where payment of such First Mortgage Bonds shall be made, where the
registration of transfer or exchange of such First Mortgage Bonds may be effected
and where notices and demands to or upon the Company in respect of such First
Mortgage Bonds and this Mortgage may be served. The Company shall give prompt
written notice to the Trustee of the location, and any change in the location,
of each such office or agency and prompt notice to the Holders of any such
change in the manner specified in Section 107. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, then payment of such First
Mortgage Bonds shall be made, registration of transfer or exchange thereof may
be effected and notices and demands in respect of such First Mortgage Bonds and
this Mortgage may be served 

 50
 

 

at the Corporate Trust Office of the Trustee, and the
Company hereby appoints the Trustee as its agent for all such purposes in any
such event.

The Company may also from time to time designate one
or more other offices or agencies with respect to the First Mortgage Bonds of
one or more series, or any Tranche thereof, for any or all of the foregoing
purposes and may from time to time rescind such designations; provided,
however, that, unless otherwise specified as contemplated by Section 301
with respect to the First Mortgage Bonds of such series or Tranche, no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency for such purposes in each Place of
Payment for such First Mortgage Bonds in accordance with the requirements set
forth above. The Company shall give prompt written notice to the Trustee, and
prompt notice to the Holders in the manner specified in Section 107, of
any such designation or rescission and of any change in the location of any
such other office or agency.

Anything herein to the contrary notwithstanding, any
office or agency required by this Section may be maintained at an office
of the Company or an Affiliate of the Company, in which event the Company or
such Affiliate shall perform all functions to be performed at such office or
agency.

Section 703            Money for First Mortgage Bond Payments to be Held in
Trust.

If the Company shall at any time act as its own Paying
Agent with respect to the First Mortgage Bonds of any series, or any Tranche
thereof, it shall, on or before each due date of the principal of and premium,
if any, and interest, if any, on any of such First Mortgage Bonds, segregate
and hold in trust for the benefit of the Persons entitled thereto a sum
sufficient to pay the principal and premium or interest so becoming due until
such sums shall be paid to such Persons or otherwise disposed of as herein
provided. The Company shall promptly notify the Trustee of any failure by the
Company (or any other obligor on such First Mortgage Bonds) to make any payment
of principal of or premium, if any, or interest, if any, on such First Mortgage
Bonds.

Whenever the Company shall have one or more Paying
Agents for the First Mortgage Bonds of any series, or any Tranche thereof, it
shall, on or before 11:00 a.m (Central time) on each due date of the principal
of and premium, if any, and interest, if any, on such First Mortgage Bonds,
deposit with such Paying Agents sums sufficient (without duplication) to pay
the principal and premium or interest so becoming due, such sums to be held in
trust for the benefit of the Persons entitled to such principal, premium or
interest, and (unless such Paying Agent is the Trustee) the Company shall
promptly notify the Trustee of any failure by it so to act.

The Company shall cause each Paying Agent for the
First Mortgage Bonds of any series, or any Tranche thereof, other than the
Company or the Trustee, to execute and deliver to the Trustee an instrument in
which such Paying Agent shall agree with the Trustee, subject to the provisions
of this Section, that such Paying Agent shall:

(a)           hold
all sums held by it for the payment of the principal of and premium, if any, or
interest, if any, on such First Mortgage Bonds in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;

 51
 

 

(b)           give
the Trustee notice of any failure by the Company (or any other obligor upon
such First Mortgage Bonds) to make any payment of principal of or premium, if
any, or interest, if any, on such First Mortgage Bonds; and

(c)           at
any time during the continuance of any such failure, upon the written request
of the Trustee, forthwith pay to the Trustee all sums so held in trust by such
Paying Agent and furnish to the Trustee such information as it possesses
regarding the names and addresses of the Persons entitled to such sums.

The Company may at any time pay, or by Company Order
direct any Paying Agent to pay, to the Trustee all sums held in trust by the
Company or such Paying Agent, such sums to be held by the Trustee upon the same
trusts as those upon which such sums were held by the Company or such Paying
Agent and, if so stated in a Company Order delivered to the Trustee, in
accordance with the provisions of Article Eight; and, upon such payment by
any Paying Agent to the Trustee, such Paying Agent shall be released from all
further liability with respect to such money.

Any money deposited with the Trustee or any Paying
Agent, or then held by the Company, in trust for the payment of the principal
of and premium, if any, or interest, if any, on any First Mortgage Bond and
remaining unclaimed for two years after such principal and premium, if any, or
interest, if any, has become due and payable shall to the extent permitted by
law be paid to the Company on Company Request, or, if then held by the Company,
shall be discharged from such trust; and, upon such payment or discharge, the
Holder of such First Mortgage Bond shall, as an unsecured general creditor and
not as the Holder of an Outstanding First Mortgage Bond, look only to the
Company for payment of the amount so due and payable and remaining unpaid
unless the applicable law provides otherwise, and all liability of the Trustee
or such Paying Agent with respect to such trust money, and all liability of the
Company as trustee thereof, shall thereupon cease; provided, however, that the
Trustee or such Paying Agent, before being required to make any such payment to
the Company, may at the expense of the Company cause to be mailed, on one occasion
only, notice to such Holder that such money remains unclaimed and that, after a
date specified therein, which shall not be less than 30 days from the date of
such mailing, any unclaimed balance of such money then remaining will be paid
to the Company.

Section 704            Corporate Existence.

Subject to the rights of the Company under Article Twelve
and the Company’s ability to convert into a limited liability company, limited
partnership or limited liability partnership or other legal entity under
applicable law, the Company shall do or cause to be done all things necessary
to preserve and keep in full force and effect its legal existence as a
corporation. In connection with the conversion of the Company into a limited
liability company, limited partnership or limited liability partnership or
other legal entity under applicable law, (a) the Company will execute and
deliver to the Trustee a Supplemental Mortgage, in form and substance
reasonably satisfactory to the Trustee, evidencing such conversion and confirming
that all obligations and liabilities of the Company hereunder and under any
First Mortgage Bonds remain in full force and effect and will comply with the
provisions of Section 1201(a), (c) and (d) (with appropriate
modifications to reflect such conversion), and (b) subject to Article Twelve

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and this Section 704, the Company shall do or
cause to be done all things necessary to preserve and keep in full force and
effect its legal existence as a limited liability company, limited partnership
or limited liability partnership or other entity, as applicable.

Section 705            Annual Officers’ Certificate as to Compliance.

Not later than April 15 in each year, commencing April 15,
2007, the Company shall deliver to the Trustee an Officers’ Certificate which
need not comply with the requirements of Section 103, executed by the
principal executive officer, the principal financial officer or the principal
accounting officer of the Company and by any other Authorized Officer, as to
such officers’ knowledge of the Company’s compliance with all conditions and
covenants under this Mortgage, such compliance to be determined without regard
to any period of grace or requirement of notice under this Mortgage, and making
any other statements as may be required by the Trust Indenture Act.

Article Eight

Satisfaction and Discharge

Section 801            Satisfaction and Discharge of First Mortgage Bonds.

Any First Mortgage Bond or First Mortgage Bonds, or
any portion of the principal amount thereof, shall be deemed to have been paid
and no longer Outstanding for all purposes of this Mortgage, and the entire
indebtedness of the Company in respect thereof shall be deemed to have been
satisfied and discharged, if there shall have been irrevocably deposited with
the Trustee or any Paying Agent (other than the Company), in trust:

(a)           money
in an amount which shall be sufficient, or

(b)           in
the case of a deposit made prior to the Maturity of such First Mortgage Bonds
or portions thereof, Eligible Obligations, which shall not contain provisions
permitting the redemption or other prepayment thereof at the option of the
issuer thereof, the principal of and the interest on which when due, without
any regard to reinvestment thereof, will provide moneys which, together with
the money, if any, deposited with or held by the Trustee or such Paying Agent,
shall be sufficient, or

(c)           a
combination of (a) or (b) which shall be sufficient

to pay when
due the principal of and premium, if any, and interest, if any, due and to
become due on such First Mortgage Bonds or portions thereof on or prior to
Maturity; provided, however, that in the case of the provision for payment or
redemption of less than all the First Mortgage Bonds of any series or Tranche,
such First Mortgage Bonds or portions thereof shall have been selected by the
Trustee as provided herein and, in the case of a redemption, the notice
requisite to
the validity of such redemption shall have been given or irrevocable authority
shall have been given by the Company to the Trustee to give such notice, under
arrangements satisfactory to the Trustee; and provided, further, that the
Company shall have delivered to the Trustee and such Paying Agent:

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(x)            if
such deposit shall have been made prior to the Maturity of such First Mortgage
Bonds, a Company Order stating that the money and Eligible Obligations
deposited in accordance with this Section shall be held in trust, as
provided in Section 803;

(y)           if
Eligible Obligations shall have been deposited, an Officers’ Certificate to the
effect that such obligations constitute Eligible Obligations and do not contain
provisions permitting the redemption or other prepayment thereof at the option
of the issuer thereof, and a report of an Independent Accountant of nationally
recognized standing, selected by the Company, to the effect that the other
requirements set forth in clause (b) and (c) above have been
satisfied; and

(z)            if
such deposit shall have been made prior to the Maturity of such First Mortgage
Bonds, an Officers’ Certificate stating the Company’s intention that, upon
delivery of such Officers’ Certificate, its indebtedness in respect of such
First Mortgage Bonds or portions thereof will have been satisfied and
discharged as contemplated in this Section.

Upon the deposit of money or Eligible Obligations, or
both, in accordance with this Section, together with the documents required by
clauses (x), (y) and (z) above, the Trustee shall, upon receipt of a
Company Request, acknowledge in writing that the First Mortgage Bond or First
Mortgage Bonds or portions thereof with respect to which such deposit was made
are deemed to have been paid for all purposes of this Mortgage and that the
entire indebtedness of the Company in respect thereof has been satisfied and
discharged as contemplated in this Section. In the event that all of the
conditions set forth in the preceding paragraph shall have been satisfied in
respect of any First Mortgage Bonds or portions thereof except that, for any
reason, the Officers’ Certificate specified in clause (z) shall not have
been delivered, such First Mortgage Bonds or portions thereof shall
nevertheless be deemed to have been paid for all purposes of this Mortgage, and
the Holders of such First Mortgage Bonds or portions thereof shall nevertheless
be no longer entitled to the benefits provided by this Mortgage or of any of
the covenants of the Company under Article Seven (except the covenants
contained in Sections 702 and 703) or any other covenants made in respect of
such First Mortgage Bonds or portions thereof as contemplated by Section 301
or Section 1301(b), but the indebtedness of the Company in respect of such
First Mortgage Bonds or portions thereof shall not be deemed to have been
satisfied and discharged prior to Maturity for any other purpose and the
Holders of such First Mortgage Bonds or portions thereof shall continue to be
entitled to look to the Company for payment of the indebtedness represented
thereby; and, upon Company Request, the Trustee shall acknowledge in writing
that such First Mortgage Bonds or portions thereof are deemed to have been paid
for all purposes of this Mortgage.

If payment at Stated Maturity of less than all of the
First Mortgage Bonds of any series, or any Tranche thereof, is to be provided
for in the manner and with the effect provided in this Section, the Trustee
shall select such First Mortgage Bonds, or portions of principal amount
thereof, in the manner specified by Section 503 for selection for
redemption of less than all the First Mortgage Bonds of a series or Tranche.

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In the event that First Mortgage Bonds which shall be
deemed to have been paid for purposes of this Mortgage, and, if such is the
case, in respect of which the Company’s indebtedness shall have been satisfied
and discharged, all as provided in this Section, do not mature and are not to
be redeemed within the 60-day period commencing with the date of the
deposit of moneys or Eligible Obligations, as aforesaid, the Company shall, as
promptly as practicable, give a notice, in the same manner as a notice of
redemption with respect to such First Mortgage Bonds, to the Holders of such
First Mortgage Bonds to the effect that such deposit has been made and the
effect thereof.

Notwithstanding that any First Mortgage Bonds shall be
deemed to have been paid for purposes of this Mortgage, as aforesaid, the
obligations of the Company and the Trustee in respect of such First Mortgage
Bonds under Sections 304, 305, 306, 504, 702, 703, 1007 and 1015 and this Article shall
survive such satisfaction and discharge.

The Company shall pay, and shall indemnify the Trustee
or any Paying Agent with which Eligible Obligations shall have been deposited
as provided in this Section against, any tax, fee or other charge imposed
on or assessed against such Eligible Obligations or the principal or interest
received in respect of such Eligible Obligations, including, but not limited
to, any such tax payable by any entity deemed, for tax purposes, to have been
created as a result of such deposit.

Anything herein to the contrary notwithstanding, (a) if,
at any time after a First Mortgage Bond would be deemed to have been paid for
purposes of this Mortgage, and, if such is the case, the Company’s indebtedness
in respect thereof would be deemed to have been satisfied and discharged,
pursuant to this Section (without regard to the provisions of this
paragraph), the Trustee or any Paying Agent, as the case may be, (i) shall
be required to return the money or Eligible Obligations, or combination
thereof, deposited with it as aforesaid to the Company or its representative
under any applicable Federal or State bankruptcy, insolvency or other similar
law, or (ii) is unable to apply any money in accordance with this Article with
respect to any First Mortgage Bonds by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, such First Mortgage Bond shall thereupon be deemed
retroactively not to have been paid and any satisfaction and discharge of the
Company’s indebtedness in respect thereof shall retroactively be deemed not to
have been effected, and such First Mortgage Bond shall be deemed to remain
Outstanding and (b) any satisfaction and discharge of the Company’s
indebtedness in respect of any First Mortgage Bond shall be subject to the
provisions of the last paragraph of Section 703.

Section 802            Effective Time; Satisfaction and Discharge of Mortgage.

This Mortgage shall upon Company Request cease to be
of further effect (except as hereinafter expressly provided), and the Trustee,
at the expense of the Company, shall execute such instruments as the Company
shall reasonably request to evidence and acknowledge the satisfaction and
discharge of this Mortgage, when:

(i)            no First Mortgage Bonds remain
Outstanding hereunder; and

(ii)           the Company has paid or caused to be
paid all other sums payable hereunder by the Company;

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provided, however, that if, in accordance with the
last paragraph of Section 801, any First Mortgage Bond, previously deemed
to have been paid for purposes of this Mortgage, shall be deemed retroactively
not to have been so paid, this Mortgage shall thereupon be deemed retroactively
not to have been satisfied and discharged, as aforesaid, and to remain in full
force and effect, and the Company shall execute and deliver such instruments as
the Trustee shall reasonably request to evidence and acknowledge the same.

Notwithstanding the satisfaction and discharge of this
Mortgage as aforesaid, the obligations of the Company and the Trustee under
Sections 304, 305, 306, 504, 702, 703, 1007 and 1015 and this Article shall
survive such satisfaction and discharge.

Upon satisfaction and discharge of this Mortgage as
provided in this Section, the Trustee shall assign, transfer and turn over to
the Company, subject to the lien provided by Section 1007, any and all
money, securities and other property then held by the Trustee for the benefit
of the Holders of the First Mortgage Bonds (other than money and Eligible
Obligations held by the Trustee pursuant to Section 803) and shall execute
and deliver to the Company such instruments as, in the judgment of the Company,
shall be necessary, desirable or appropriate to effect or evidence the
satisfaction and discharge of this Mortgage.

Section 803            Application of Trust Money.

Neither the Eligible Obligations nor the money
deposited pursuant to Section 801, nor the principal or interest payments
on any such Eligible Obligations, shall be withdrawn or used for any purpose
other than, and shall be held in trust for, the payment of the principal of and
premium, if any, and interest, if any, on the First Mortgage Bonds or portions
of principal amount thereof in respect of which such deposit was made, all
subject, however, to the provisions of Section 703; provided, however,
that so long as there shall not have occurred and be continuing an Event of
Default, any cash received from such principal or interest payments on such
Eligible Obligations, if not then needed for such purpose, shall, to the extent
practicable and upon Company Request and delivery to the Trustee of the documents
referred to in clause (y) in the first paragraph of Section 801, be
invested in Eligible Obligations of the type described in clause (b) in
the first paragraph of Section 801 maturing at such times and in such
amounts as shall be sufficient, together with any other moneys and the proceeds
of any other Eligible Obligations then held by the Trustee, to pay when due the
principal of and premium, if any, and interest, if any, due and to become due
on such First Mortgage Bonds or portions thereof on and prior to the Maturity
thereof, and interest earned from such reinvestment shall be paid over to the
Company as received, free and clear of any trust, lien or pledge under this
Mortgage (except the lien provided by Section 1007); and provided,
further, that, so long as there shall not have occurred and be continuing an
Event of Default, any moneys held in accordance with this Section on the
Maturity of all such First Mortgage Bonds in excess of the amount required to
pay the principal of and premium, if any, and interest, if any, then due on
such First Mortgage Bonds shall be paid over to the Company free and clear of
any trust, lien or pledge under this Mortgage (except the lien provided by Section 1007);
and provided, further, that if an Event of Default shall have occurred and be
continuing, moneys to be paid over to the Company pursuant to this Section shall
be held until such Event of Default shall have been waived or cured.

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Article Nine

Events of Default; Remedies

Section 901            Events of Default.

Unless otherwise specified in the Supplemental
Indenture establishing such series or in a Board Resolution establishing such
series, “Event of Default”, wherever used herein
with respect to First Mortgage Bonds of any series, means any one of the
following events:

(a)           Failure
to pay any interest on any First Mortgage Bond when it becomes due and payable
and continuance of such default for a period of 30 days; or

(b)           Failure
to pay the principal of or premium, if any, on any First Mortgage Bond when it
becomes due and payable; or

(c)           Failure
to perform, or breach of, any covenant or warranty of the Company in this
Mortgage (other than a covenant or warranty a default in the performance of
which or breach of which is elsewhere in this Section specifically
addressed) and continuance of such default or breach for a period of 45 days
after there has been given, by registered or certified mail, to the Company by
the Trustee, or to the Company and the Trustee by the Holders of at least 33%
in aggregate principal amount of the Outstanding First Mortgage Bonds, a
written notice specifying such default or breach and requiring it to be
remedied and stating that such notice is a “Notice of Default” hereunder,
unless the Trustee, or the Trustee and the Holders of a principal amount of
First Mortgage Bonds not less than the principal amount of First Mortgage Bonds
the Holders of which gave such notice, as the case may be, shall agree in
writing to an extension of such period prior to its expiration; or

(d)           The
entry by a court having jurisdiction in the premises of (1) a decree or
order for relief in respect of the Company in an involuntary case or proceeding
under any applicable Federal or State bankruptcy, insolvency, reorganization or
other similar law or (2) a decree or order adjudging the Company a
bankrupt or insolvent, or approving as properly filed a petition by one or more
Persons other than the Company seeking reorganization, arrangement, adjustment
or composition of or in respect of the Company under any applicable Federal or
State bankruptcy, insolvency or similar law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar official
for the Company or for any substantial part of its property, or ordering the
winding up or liquidation of its affairs, and any such decree or order for
relief or any such other decree or order shall have remained unstayed and in
effect for a period of 90 consecutive days; or

(e)           The
commencement by the Company of a voluntary case or proceeding under any
applicable Federal or State bankruptcy, insolvency, reorganization or other
similar law or of any other case or proceeding to be adjudicated a bankrupt or
insolvent, or the consent by the Company to the entry of a decree or order for
relief in respect of the Company in a case or proceeding under any applicable
Federal or State bankruptcy, insolvency, reorganization or other similar law or
to the commencement of any bankruptcy or insolvency case or proceeding against
the Company, or the filing by the Company of a petition or answer or consent
seeking 

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reorganization or relief under any applicable Federal
or State bankruptcy, insolvency, reorganization or similar law, or the consent
by the Company to the filing of such petition or to the appointment of or
taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of the Company or of any substantial part of
its property, or the making by the Company of an assignment for the benefit of
creditors, or the admission by the Company in writing of its inability to pay
its debts generally as they become due, or the authorization of such action by
the Board of Directors of the Company; or

(f)            any
other Event of Default with respect to First Mortgage Bonds of such series as
shall have been specified in the terms thereof as contemplated by Section 301(o).

Section 902            Acceleration of Maturity; Rescission and Annulment.

If an Event of Default (other than an Event of Default
specified in Section 901(d) or 901(e)) shall have occurred and be
continuing, then the Trustee or the Holders of not less than 33% in principal
amount of the Outstanding First Mortgage Bonds may declare the principal amount
(or, if any of the First Mortgage Bonds of such series are Discount First
Mortgage Bonds, such portion of the principal amount of such First Mortgage
Bonds as may be specified in the terms thereof as contemplated by Section 301)
of all of the First Mortgage Bonds to be due and payable immediately, by a
notice in writing to the Company (and to the Trustee if given by Holders), and
upon receipt by the Company of notice of such declaration such principal amount
(or specified amount) together with premium, if any, and accrued and unpaid
interest shall become immediately due and payable. If an Event of Default
specified in Section 901(d) or 901(e) occurs, the principal of
and interest on all First Mortgage Bonds shall be immediately due and payable
without any declaration or other act on the part of the Trustee or any Holders.

At any time after such a declaration of acceleration
of the maturity of the First Mortgage Bonds then Outstanding shall have been
made, but before any sale of any of the Mortgaged Property has been made in
accordance with Section 903 and before a judgment or decree for payment of
the money due shall have been obtained by the Trustee as provided in this
Article, the Event or Events of Default giving rise to such declaration of
acceleration shall, without further act, be deemed to have been cured, and such
declaration and its consequences shall, without further act, be deemed to have
been rescinded and annulled, if

(a)           the
Company shall have paid or deposited with the Trustee a sum sufficient to pay

(i)            all overdue
interest, if any, on all First Mortgage Bonds then Outstanding;

(ii)           the principal of
and premium, if any, on any First Mortgage Bonds then Outstanding which have
become due otherwise than by such declaration of acceleration and interest thereon
at the rate or rates prescribed therefor in such First Mortgage Bonds;

(iii)          to the extent that
payment of such interest is lawful, interest upon overdue interest at the rate
or rates prescribed therefor in such First Mortgage Bonds;

(iv)         all amounts due to
the Trustee under Section 1007;

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and

(b)           all
Events of Default, other than the non-payment of the principal of First
Mortgage Bonds of such series which shall have become due solely by such
declaration of acceleration, shall have been cured or waived as provided in Section 913.

No such rescission shall affect any subsequent Event
of Default or impair any right consequent thereon.

Section 903            Collection of Indebtedness, Power of Sale, Foreclosure
and Suits for Enforcement by Trustee.

If an Event of Default described in clause (a) or
(b) of Section 901 shall have occurred, the Company shall, upon
demand of the Trustee, pay to it, for the benefit of the Holders of the First
Mortgage Bonds with respect to which such Event of Default shall have occurred,
the whole amount then due and payable on such First Mortgage Bonds for
principal and premium, if any, and interest, if any, and, to the extent
permitted by law, interest on premium, if any, and on any overdue principal and
interest, at the rate or rates prescribed therefor in such First Mortgage
Bonds, and, in addition thereto, such further amount as shall be sufficient to
cover any amounts due to the Trustee under Section 1007.

If the Company shall fail to pay such amounts
forthwith upon such demand, the Trustee, in its own name and as trustee of an
express trust, may institute a judicial proceeding for the collection of the
sums so due and unpaid, may prosecute such proceeding to judgment or final
decree and may enforce the same against the Company or any other obligor upon
such First Mortgage Bonds and collect the moneys adjudged or decreed to be
payable in the manner provided by law out of the property of the Company or any
other obligor upon such First Mortgage Bonds, wherever situated.

If an Event of Default shall have occurred and be
continuing, the Trustee may in its discretion proceed to protect and enforce
its rights and the rights of the Holders of First Mortgage Bonds by such
appropriate judicial proceedings as the Trustee shall deem necessary to protect
and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Mortgage or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy.

If an Event of Default
occurs, the Trustee may pursue its remedies under the Uniform Commercial Code
as adopted by the State of Missouri as to any of the Mortgaged Property which
is personal property or it may proceed against both the real and personal
property in accordance with the Trustee’s rights and remedies in respect of the
real property, in which case the provisions of the Uniform Commercial Code do
not apply. The Trustee is hereby authorized to direct the Deed of Trust Trustee
to foreclose the personal property in accordance with the Trustee’s rights and
remedies in respect of the real property as set forth herein.

If an Event of Default shall have occurred and be
continuing, the Company
hereby agrees that the Deed of Trust Trustee, at the direction of the Trustee,
may proceed to sell the Mortgaged Property and any and every part thereof, at
public vendue, at the customary place in the county in which the Mortgaged
Property is located, first giving the public notice required by law of the 

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time, terms and place of sale, and of the property to
be sold; and upon such sale shall execute and deliver a deed of conveyance of
the property sold to the purchaser or purchasers thereof, and any statement or
recital of fact in such deed in relation to the nonpayment of indebtedness
hereby secured, existence of the indebtedness so secured, notice of
advertisement, sale, receipt of money, and the happening of any of the events
whereby any successor trustee became successor as herein provided, shall be
prima facie evidence of the truth of such statement or recital; and the Deed of
Trust Trustee shall receive the proceeds of such sale, and the Deed of Trust
Trustee covenants faithfully to perform the trust herein created.

Section 904            Trustee May File Proofs of Claim.

In case of the pendency of any receivership,
insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment,
composition or other judicial proceeding relative to the Company or any other
obligor upon the First Mortgage Bonds or the property of the Company or of such
other obligor or their creditors, the Trustee (irrespective of whether the
principal of the First Mortgage Bonds shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the
Trustee shall have made any demand on the Company for the payment of overdue
principal or interest) shall be entitled and empowered, by intervention in such
proceeding or otherwise,

(a)           to
file and prove a claim for the whole amount of principal, premium, if any, and
interest, if any, owing and unpaid in respect of the First Mortgage Bonds and
to file such other papers or documents as may be necessary or advisable in
order to have the claims of the Trustee (including any claim for amounts due to
the Trustee under Section 1007) and of the Holders allowed in such
judicial proceeding, and

(b)           to
collect and receive any moneys or other property payable or deliverable on any
such claims and to distribute the same;

and any custodian, receiver, assignee, trustee,
liquidator, sequestrator or other similar official in any such judicial
proceeding is hereby authorized by each Holder to make such payments to the
Trustee and, in the event that the Trustee shall consent to the making of such
payments directly to the Holders, to pay to the Trustee any amounts due it under
Section 1007.

Nothing herein contained shall be deemed to authorize
the Trustee to authorize or consent to or accept or adopt on behalf of any
Holder any plan of reorganization, arrangement, adjustment or composition
affecting the First Mortgage Bonds or the rights of any Holder thereof or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.

Section 905            Trustee May Enforce Claims Without Possession of
First Mortgage Bonds.

All rights of action and claims under this Mortgage or
the First Mortgage Bonds may be prosecuted and enforced by the Trustee, without
the possession of any of the First Mortgage Bonds or the production thereof in
any proceeding relating thereto, and any such proceeding instituted by the
Trustee shall be brought in its own name as trustee of an express trust, and
any recovery of judgment shall, after provision for the payment of the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, be for the ratable benefit of the Holders in respect of
which such judgment has been recovered.

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Section 906            Application of Money Collected.

Any money collected by the Trustee pursuant to this Article shall
be applied in the following order, to the extent permitted by law, at the date
or dates fixed by the Trustee and, in case of the distribution of such money on
account of principal or premium, if any, or interest, if any, upon presentation
of the First Mortgage Bonds in respect of which or for the benefit of which such
money shall have been collected and the notation thereon of the payment if only
partially paid and upon surrender thereof if fully paid:

FIRST:  To the
payment of all amounts due the Trustee under Section 1007;

SECOND:  To the
payment of the amounts then due and unpaid upon the First Mortgage Bonds for
principal of and premium, if any, and interest, if any, in respect of which or
for the benefit of which such money has been collected, ratably, without
preference or priority of any kind, according to the amounts due and payable on
such First Mortgage Bonds for principal, premium, if any, and interest, if any,
respectively; and

THIRD:  To the
payment of the remainder, if any, to the Company or as a court of competent
jurisdiction may direct.

Section 907            Limitation on Suits.

No Holder shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Mortgage, or for the
appointment of a receiver or trustee, or for any other remedy hereunder,
unless:

(a)           such
Holder shall have previously given written notice to the Trustee of a
continuing Event of Default;

(b)           the
Holders of a majority in aggregate principal amount of the Outstanding First
Mortgage Bonds shall have made written request to the Trustee to institute
proceedings in respect of such Event of Default in its own name as Trustee
hereunder;

(c)           such
Holder or Holders shall have offered to the Trustee indemnity reasonably
satisfactory to it against the costs, expenses and liabilities to be incurred
in compliance with such request;

(d)           the
Trustee for 60 days after its receipt of such notice, request and offer of
indemnity shall have failed to institute any such proceeding; and

(e)           no
direction inconsistent with such written request shall have been given to the
Trustee during such 60-day period by the Holders of a majority in
aggregate principal amount of the Outstanding First Mortgage Bonds; it being
understood and intended that no one or more of the Holders of any First
Mortgage Bonds shall have any right in any manner whatever by virtue of, or by
availing of, any provision of this Mortgage to affect, disturb or prejudice the
rights of any other Holders or to obtain or to seek to obtain priority or
preference over any other Holders or to enforce any right under this Mortgage,
except in the manner herein provided and for the equal and ratable benefit of
all Holders.

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Section 908            Unconditional Right of Holders to Receive Principal,
Premium and Interest.

Notwithstanding any other provision in this Mortgage,
the Holder of any First Mortgage Bond shall have the right, which is absolute
and unconditional, to receive payment of the principal of and premium, if any,
and (subject to Section 307) interest, if any, on such First Mortgage Bond
on the Stated Maturity or Maturities expressed in such First Mortgage Bond (or,
in the case of redemption, subject to Section 504, on the Redemption Date)
and to institute suit for the enforcement of any such payment, and such rights
shall not be impaired without the consent of such Holder.

Section 909            Restoration of Rights and Remedies.

If the Trustee, the Deed of Trust Trustee or any
Holder has instituted any proceeding to enforce any right or remedy under this
Mortgage and such proceeding shall have been discontinued or abandoned for any
reason, or shall have been determined adversely to the Trustee, the Deed of
Trust Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee, the Deed of Trust
Trustee and such Holder shall be restored severally and respectively to their
former positions hereunder and thereafter all rights and remedies of the
Trustee and such Holder shall continue as though no such proceeding had been
instituted.

Section 910            Rights and Remedies Cumulative.

No right or remedy herein conferred upon or reserved
to the Trustee or to the Holders is intended to be exclusive of any other right
or remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent
the concurrent assertion or employment of any other appropriate right or
remedy.

Anything in this Article to the contrary
notwithstanding, the availability of the remedies set forth herein (on an
individual or cumulative basis) and the procedures set forth herein relating to
the exercise thereof shall be subject to the applicable law (including, for
purposes of this paragraph, general principles of equity) of any jurisdiction
wherein the Mortgaged Property or any part thereof is located to the extent
that such law is applicable.

Section 911            Delay or Omission Not Waiver.

No delay or omission of the Trustee or of any Holder
to exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Article or
by law to the Trustee or to the Holders may be exercised from time to time, and
as often as may be deemed expedient, by the Trustee or by the Holders, as the
case may be.

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Section 912            Control by Holders of First Mortgage Bonds.

If an Event of Default shall have occurred and be
continuing, the Holders of a majority in principal amount of the Outstanding
First Mortgage Bonds shall have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, with respect to such
First Mortgage Bonds; provided, however, that

(a)           such
direction shall not be in conflict with any rule of law or with this
Mortgage, and could not involve the Trustee in personal liability in
circumstances where indemnity would not, in the Trustee’s sole discretion, be
adequate, and

(b)           the
Trustee may take any other action deemed proper by the Trustee which is not
inconsistent with such direction.

Section 913            Waiver of Past Defaults.

The Holders of not less than a majority in principal
amount of the Outstanding First Mortgage Bonds may on behalf of the Holders of
all the First Mortgage Bonds waive any past default hereunder and its
consequences, except a default:

(a)           in
the payment of the principal of or premium, if any, or interest, if any, on any
Outstanding First Mortgage Bond, or

(b)           in
respect of a covenant or provision hereof which under Section 1302 cannot
be modified or amended without the consent of the Holder of each Outstanding
First Mortgage Bond of any series or Tranche affected.

Upon any such waiver, such default shall cease to
exist, and any and all Events of Default arising therefrom shall be deemed to
have been cured, for every purpose of this Mortgage; but no such waiver shall
extend to any subsequent or other default or impair any right consequent
thereon.

Section 914            Undertaking for Costs.

The Company and the Trustee agree, and each Holder by
his acceptance thereof shall be deemed to have agreed, that any court may in
its discretion require, in any suit for the enforcement of any right or remedy
under this Mortgage, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may
in its discretion assess reasonable costs, including reasonable attorneys’ fees
and expenses, against any party litigant in such suit, having due regard to the
merits and good faith of the claims or defenses made by such party litigant but
the provisions of this Section shall not apply to any suit instituted by
the Company, to any suit instituted by the Trustee, to any suit instituted by
any Holder, or group of Holders, holding in the aggregate more than 10% in
aggregate principal amount of the First Mortgage Bonds then Outstanding, or to
any suit instituted by any Holder for the enforcement of the payment of the
principal of or premium, if any, or interest, if any, on any First Mortgage 

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Bond on or after the Stated Maturity or Maturities
expressed in such First Mortgage Bond (or in the case of redemption, on or
after the Redemption Date).

Section 915            Waiver of Usury, Stay or Extension Laws.

The Company covenants (to the extent that it may
lawfully do so) that it will not at any time insist upon, or plead, or in any
manner whatsoever claim or take the benefit or advantage of, any usury, stay or
extension law wherever enacted, now or at any time hereafter in force, which
may affect the covenants or the performance of this Mortgage; and the Company
(to the extent that it may lawfully do so) hereby expressly waives all benefit
or advantage of any such law and covenants that it will not hinder, delay or
impede the execution of any power herein granted to the Trustee, but will
suffer and permit the execution of every such power as though no such law had
been enacted.

Section 916            Receiver and other Remedies.

If an Event of Default shall have occurred and, during
the continuance thereof, the Trustee shall have commenced judicial proceedings
to enforce any right under this Mortgage, the Trustee shall, to the extent
permitted by law, be entitled, as against the Company, to the appointment of a
receiver of the Mortgaged Property and whether or not any receiver is
appointed, the Trustee shall be entitled to retain possession and control of,
and to collect and receive the income from cash, securities and other personal
property held by the Trustee hereunder and to all other remedies available to
mortgagees and secured parties under the Uniform Commercial Code or any other
applicable law.

Article Ten

The Trustee

Section 1001          Certain Duties and Responsibilities.

(a)           The
Trustee shall have and be subject to all the duties and responsibilities
specified with respect to a Mortgage trustee in the Trust Indenture Act and no
implied covenants or obligations shall be read into this Mortgage against the
Trustee. For purposes of Sections 315(a) and 315(c) of the Trust
Indenture Act, the term “default” is hereby defined as an Event of Default
which has occurred and is continuing.

(b)           No
provision of this Mortgage shall require the Trustee to expend or risk its own
funds or otherwise incur any financial liability in the performance of any of
its duties hereunder, or in the exercise of any of its rights or powers, if it
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it.

(c)           Notwithstanding
anything contained in this Mortgage to the contrary, the duties and
responsibilities of the Trustee under this Mortgage shall be subject to the
protections, exculpations and limitations on liability afforded to a Mortgage
trustee under the provisions of the Trust Indenture Act. For the purposes of
Sections 315(b) and 315(d)(2) of the Trust Indenture Act, the term “responsible
officer” is hereby defined as a Responsible Officer.

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(d)           Whether
or not therein expressly so provided, every provision of this Mortgage relating
to the conduct or affecting the liability of or affording protection to the
Trustee shall be subject to the provisions of this Section.

Section 1002          Notice of Defaults.

The Trustee shall give notice of any default hereunder
known to the Trustee in the manner and to the extent required to do so by the
Trust Indenture Act or the provisions of any Supplemental Indenture or separate
agreement with the Holders, unless such default shall have been cured or waived.
For the purpose of this Section, the term “default” means any event which is,
or after notice or lapse of time, or both, would become, an Event of Default.

Section 1003          Certain Rights of Trustee.

Subject to the provisions of Section 1001 and to
the applicable provisions of the Trust Indenture Act:

(a)           the
Trustee may conclusively rely and shall be fully protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document believed by it
to be genuine and to have been signed or presented by the proper party or
parties;

(b)           any
request or direction of the Company mentioned herein shall be sufficiently
evidenced by a Company Request or Company Order, or as otherwise expressly
provided herein, and any resolution of the Board of Directors may be
sufficiently evidenced by a Board Resolution;

(c)           whenever
in the administration of this Mortgage the Trustee shall deem it desirable that
a matter be proved or established prior to taking, suffering or omitting any
action hereunder, the Trustee (unless other evidence be herein specifically
prescribed) may, in the absence of bad faith on its part, conclusively rely
upon an Officers’ Certificate;

(d)           the
Trustee may consult with counsel and the written advice of such counsel or any
Opinion of Counsel shall be full and complete authorization and protection in
respect of any action taken, suffered or omitted by it hereunder in good faith
and in reliance thereon;

(e)           the
Trustee shall be under no obligation to exercise any of the rights or powers
vested in it by this Mortgage at the request or direction of any Holder
pursuant to this Mortgage, unless such Holder shall have offered to the Trustee
security or indemnity reasonably satisfactory to it against the costs, expenses
and liabilities which might be incurred by it in compliance with such request
or direction;

(f)            the
Trustee shall not be bound to make any investigation into the facts or matters
stated in any resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document, but the Trustee, in its
discretion, may make such further inquiry or investigation into such facts or
matters as it may see fit, and, if the Trustee shall determine to make such
further 

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inquiry or investigation, it shall (subject to
applicable legal requirements) be entitled to examine, during normal business
hours and upon reasonable notice, the books, records and premises of the
Company, personally or by agent or attorney at the expense of the Company and
shall incur no liability of any kind by reason of such inquiry or
investigation;

(g)           the
Trustee may execute any of the trusts or powers hereunder or perform any duties
hereunder either directly or by or through agents or attorneys and the Trustee
shall not be responsible for any misconduct or negligence on the part of any
agent or attorney appointed with due care by it hereunder;

(h)           the
Trustee shall not be charged with knowledge of any default (as defined in Section 1002)
or Event of Default unless either (1) a Responsible Officer of the Trustee
shall have actual knowledge of such default or Event of Default or (2) written
notice of such default or Event of Default shall have been given to the Trustee
by the Company or any other obligor on such First Mortgage Bonds, or by any
Holder of such First Mortgage Bonds;

(i)            the
rights, privileges, protections, immunities and benefits given to the Trustee,
including, without limitation, its right to be indemnified, are extended to,
and shall be enforceable by, the Trustee in each of its capacities hereunder;

(j)            the
Trustee shall not be liable for any action taken, suffered or omitted to be
taken by it in good faith and reasonably believed by it to be authorized or
within the discretion or rights or powers conferred upon it by this Mortgage;
and

(k)           the
Trustee shall not be deemed to have notice of any Default or Event of Default
unless a Responsible Officer of the Trustee has actual knowledge thereof or
unless written notice of any event which is in fact such a default is received
by the Trustee at the Corporate Trust Office of the Trustee, and such notice
references the Securities and this Indenture.

Section 1004          Not Responsible for Recitals or Issuance of First Mortgage
Bonds.

The recitals contained herein and in the First
Mortgage Bonds (except the Trustee’s certificates of authentication) shall be
taken as the statements of the Company, and neither the Trustee nor any
Authenticating Agent assumes responsibility for their correctness. The Trustee
makes no representations as to the value or condition of the Mortgaged
Property, the title of the Company to the Mortgaged Property, the security
afforded by the Lien of this Mortgage, the validity or genuineness of any
securities deposited with the Trustee hereunder, or the validity or sufficiency
of this Mortgage or of the First Mortgage Bonds. Neither the Trustee nor any
Authenticating Agent shall be accountable for the use or application by the
Company of First Mortgage Bonds or the proceeds thereof or any money paid to
the Company hereunder.

Section 1005          May Hold First Mortgage Bonds.

Each of the Trustee, any Authenticating Agent, any Paying
Agent, any Security Registrar or any other agent of the Company, in its
individual or any other capacity, may become the owner or pledgee of First
Mortgage Bonds and, subject to Sections 1008 and 1013, may otherwise deal with
the Company with the same rights it would have if it were not the Trustee,
Authenticating Agent, Paying Agent, Security Registrar or such other agent.

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Section 1006          Money Held in Trust.

Money held by the Trustee in trust hereunder need not
be segregated from other funds, except to the extent required by law. The
Trustee shall be under no liability for interest on or investment of any money
received by it hereunder except as expressly provided herein or otherwise
agreed with, and for the sole benefit of, the Company.

Section 1007          Compensation, Reimbursement and Indemnity.

The Company shall

(a)           pay
to the Trustee from time to time reasonable compensation for all services
rendered by it hereunder in such amounts as the Company and the Trustee shall
agree in writing from time to time (which compensation shall not be limited by
any provision of law in regard to the compensation of a trustee of an express
trust);

(b)           except
as otherwise expressly provided herein, reimburse the Trustee upon its request
for all reasonable expenses, disbursements and advances reasonably incurred or
made by the Trustee in accordance with any provision of this Mortgage
(including the reasonable compensation and the expenses and disbursements of
its agents and counsel), except to the extent that any such expense,
disbursement or advance shall have been caused by the Trustee’s own negligence,
willful misconduct or bad faith; and

(c)           indemnify
the Trustee for, and hold it harmless from and against, any loss, liability,
claim, damage or expense reasonably incurred by it arising out of or in
connection with the acceptance or administration of the trust or trusts
hereunder or the performance of its duties hereunder, including the reasonable
costs and expenses of defending itself against any claim or liability in connection
with the exercise or performance of any of its powers or duties hereunder
except to the extent any such loss, liability or expense shall have been caused
by its own negligence, willful misconduct or bad faith.

As security for the performance of the obligations of
the Company under this Section, the Trustee shall have a lien prior to the
First Mortgage Bonds upon the Mortgaged Property and all property and funds
held or collected by the Trustee as such, other than property and funds held in
trust under Section 803 (except moneys payable to the Company as provided
in Section 803).

In addition and without prejudice to the rights
provided to the Trustee under any of the provisions of this Mortgage, when the
Trustee incurs expenses or renders services in connection with an Event of
Default specified in Section 901(d) or Section 901(e), the
expenses (including the reasonable charges and expenses of its counsel) and the
compensation for the services are intended to constitute expenses of
administration under any applicable Federal and State bankruptcy, insolvency or
other similar law.

The Company’s obligations under this Section 1007
and the Lien referred to in this Section 1007 shall survive the
resignation or removal of the Trustee, the discharge of the Company’s
obligations under Article Eight of this Mortgage and/or the termination of
this Mortgage.

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“Trustee” for
purposes of this Section 1007 shall include any predecessor Trustee;
provided, however, that the negligence, willful misconduct or bad faith of any
Trustee hereunder shall not affect the rights of any other Trustee hereunder.

Section 1008          Disqualification; Conflicting Interests.

If the Trustee shall have or acquire any conflicting
interest within the meaning of the Trust Indenture Act (whether or not the
Company is subject thereto), it shall either eliminate such conflicting
interest or resign to the extent, in the manner and with the effect, and
subject to the conditions, provided in the Trust Indenture Act and this
Mortgage. For purposes of Section 310(b)(1) of the Trust Indenture
Act and to the extent permitted thereby, the Trustee, in its capacity as
trustee in respect of the First Mortgage Bonds of any series, shall not be
deemed to have a conflicting interest arising from its capacity as trustee in
respect of the First Mortgage Bonds of any other series issued under this
Mortgage. At any time when the Company is subject to the Trust Indenture Act,
nothing herein shall prevent the Company or the Trustee from filing with the
Commission an application of the type referred to in clause (ii) of
paragraph (1) or in the second to last paragraph of Section 310(b) of
the Trust Indenture Act.

Section 1009          Corporate Trustee Required; Eligibility.

There shall at all times be a Trustee hereunder which
shall be

(a)           a
corporation or other Person organized and doing business under the laws of the
United States of America, any State thereof or the District of Columbia,
authorized under such laws to exercise corporate trust powers, having a
combined capital and surplus of at least $50,000,000 and subject to supervision
or examination by Federal, State or District of Columbia authority, or

(b)           if
and to the extent permitted by the Commission by rule, regulation or order upon
application, a corporation or other Person organized and doing business under
the laws of a foreign government, authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus of at least
$50,000,000 or the Dollar equivalent of the applicable foreign currency and
subject to supervision or examination by authority of such foreign government
or a political subdivision thereof substantially equivalent to supervision or
examination applicable to United States institutional trustees,

and, in either
case, qualified and eligible under this Article and the Trust Indenture
Act.

(c)           If
such corporation or other Person publishes reports of condition at least
annually, pursuant to law or to the requirements of such supervising or
examining authority, then for the purposes of this Section, the combined
capital and surplus of such corporation or other Person shall be deemed to be
its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time the Trustee shall cease to be eligible
in accordance with the provisions of this Section and the Trust Indenture
Act, it shall resign immediately in the manner and with the effect hereinafter
specified in this Article.

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Section 1010          Resignation and Removal; Appointment of Successor.

(a)           No
resignation or removal of the Trustee and no appointment of a successor Trustee
pursuant to this Article shall become effective until the acceptance of
appointment by the successor Trustee in accordance with the applicable
requirements of Section 1011.

(b)           The
Trustee may resign at any time by giving written notice thereof to the Company.
If the instrument of acceptance by a successor Trustee required by Section 1011
shall not have been delivered to the Trustee within 30 days after the giving of
such notice of resignation, the resigning Trustee may at the expense of the
Company petition any court of competent jurisdiction for the appointment of a
successor Trustee.

(c)           The
Trustee may be removed at any time by Act of the Holders of a majority in
principal amount of the Outstanding First Mortgage Bonds delivered to the
Trustee and the Company. If the instrument or record required by Section 105
shall not have been delivered to the Trustee within 30 days after the giving of
such notice of removal, the Trustee may at the expense of the Company petition
any court of competent jurisdiction for the appointment of a successor Trustee

(d)           If
at any time:

(i)            the Trustee shall
fail to comply with Section 1008 after written request therefor by the
Company or by any Holder who has been a bona fide Holder for at least 6 months,
or

(ii)           the Trustee shall
cease to be eligible under Section 1009 or Section 310(a) of the
Trust Indenture Act and shall fail to resign after written request therefor by
the Company or by any such Holder, or

(iii)          the Trustee shall
become incapable of acting or shall be adjudged a bankrupt or insolvent or a
receiver of the Trustee or of its property shall be appointed or any public
officer shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation,

then, in any such case, (x) the Company by Board
Resolutions may remove the Trustee with respect to all First Mortgage Bonds or (y) subject
to Section 914, any Holder who has been a bona fide Holder for at least
six months may, on behalf of such Holder and all others similarly situated,
petition any court of competent jurisdiction for the removal of the Trustee
with respect to all First Mortgage Bonds and the appointment of a successor
Trustee or Trustees.

(e)           If
the Trustee shall resign, be removed or become incapable of acting, or if a
vacancy shall occur in the office of Trustee for any cause (other than as
contemplated by clause (y) in subsection (d) of this Section), the
Company, by Board Resolutions, shall promptly appoint a successor Trustee or
Trustees and shall comply with the applicable requirements of Section 1011.
If, within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of
the Holders of a majority in principal amount of the Outstanding First Mortgage
Bonds delivered to the Company and the retiring Trustee, the successor Trustee
so appointed shall, forthwith upon its acceptance 

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of such appointment in accordance with the applicable
requirements of Section 1011, become the successor Trustee and to that
extent supersede the successor Trustee appointed by the Company. If no
successor Trustee shall have been so appointed by the Company or the Holders
and accepted appointment in the manner required by Section 1011, any
Holder who has been a bona fide Holder of a First Mortgage Bond of such series
for at least 6 months may, on behalf of such Holder and all others similarly
situated, petition any court of competent jurisdiction for the appointment of a
successor Trustee.

(f)            So
long as no event which is, or after notice or lapse of time, or both, would
become, an Event of Default shall have occurred and be continuing, and except
with respect to a Trustee appointed by Act of the Holders of a majority in
principal amount of the Outstanding First Mortgage Bonds pursuant to subsection
(e) of this Section, if the Company shall have delivered to the Trustee (i) Board
Resolutions appointing a successor Trustee, effective as of a date specified
therein, and (ii) an instrument of acceptance of such appointment,
effective as of such date, by such successor Trustee in accordance with Section 1011,
the Trustee shall be deemed to have resigned as contemplated in subsection (b) of
this Section, the successor Trustee shall be deemed to have been appointed by
the Company pursuant to subsection (e) of this Section and such
appointment shall be deemed to have been accepted as contemplated in Section 1011,
all as of such date, and all other provisions of this Section and Section 1011
shall be applicable to such resignation, appointment and acceptance except to
the extent inconsistent with this subsection (f).

(g)           The
Company shall give notice of each resignation and each removal of the Trustee
and each appointment of a successor Trustee to all Holders of First Mortgage
Bonds in the manner provided in Section 107. Each notice shall include the
name of the successor Trustee and the address of its Corporate Trust Office.

(h)           The
Trustee, at its option, may from time to time remove the Deed of Trust Trustee
and appoint a successor trustee to any Deed of Trust Trustee appointed
hereunder by an instrument recorded in the counties in which this Mortgage is
recorded. Without conveyance of the Mortgaged Property, the successor trustee
will succeed to all the title, power and duties conferred upon the Deed of
Trust Trustee herein and by applicable law.

Section 1011          Acceptance of Appointment by Successor.

(a)           In
case of the appointment hereunder of a successor Trustee, every such successor
Trustee so appointed shall execute, acknowledge and deliver to the Company and
to the retiring Trustee an instrument accepting such appointment, and thereupon
the resignation or removal of the retiring Trustee shall become effective and
such successor Trustee, without any further act, deed or conveyance, shall
become vested with all the rights, powers, trusts and duties of the retiring
Trustee; but, on the request of the Company or the successor Trustee, such
retiring Trustee shall, upon payment of all sums owed to it, execute and
deliver an instrument transferring to such successor Trustee all the rights,
powers and trusts of the retiring Trustee and shall duly assign, transfer and
deliver to such successor Trustee all property and money held by such retiring
Trustee hereunder, subject nevertheless to its Lien provided for in Section 1007.

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(b)           Upon
request of any such successor Trustee, the Company shall execute any
instruments for more fully and certainly vesting in and confirming to such
successor Trustee all such rights, powers and trusts referred to in subsection (a) of
this Section.

(c)           No
successor Trustee shall accept its appointment unless at the time of such
acceptance such successor Trustee shall be qualified and eligible under this
Article.

Section 1012          Merger, Conversion, Consolidation or Succession to
Business.

Any corporation into which the Trustee may be merged
or converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to all or substantially all the corporate
trust business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any First Mortgage Bonds shall have
been authenticated, but not delivered, by the Trustee then in office, any
successor by merger, conversion or consolidation to such authenticating Trustee
may adopt such authentication and deliver the First Mortgage Bonds so
authenticated with the same effect as if such successor Trustee had itself
authenticated such First Mortgage Bonds.

Section 1013          Preferential Collection of Claims Against Company.

If the Trustee shall be or become a creditor of the
Company or any other obligor upon the First Mortgage Bonds (other than by
reason of a relationship described in Section 311(b) of the Trust
Indenture Act), the Trustee shall be subject to any and all applicable
provisions of the Trust Indenture Act regarding the collection of claims
against the Company or such other obligor (regardless of whether the Company is
subject to the Trust Indenture Act). For purposes of Section 311(b) of
the Trust Indenture Act (a) the term “cash transaction” shall have the
meaning provided in Rule 11b-4 under the Trust Indenture Act, and (b) the
term “self-liquidating paper” shall have the meaning provided in Rule 11b-6
under the Trust Indenture Act.

Section 1014          Co-Trustee and Separate Trustees.

At any time or times, for the purpose of meeting the
legal requirements of any applicable jurisdiction, the Company and the Trustee
shall have power to appoint, and, upon the written request of the Trustee or of
the Holders of at least 33% in principal amount of the First Mortgage Bonds
then Outstanding, the Company shall for such purpose join with the Trustee in
the execution and delivery of all instruments and agreements necessary or
proper to appoint, one or more Persons approved by the Trustee either to act as
co-trustee, jointly with the Trustee, or to act as separate trustee, in either
case with such powers as may be provided in the instrument of appointment, and
to vest in such Person or Persons, in the capacity aforesaid, any property,
title, right or power deemed necessary or desirable, subject to the other
provisions of this Section. If the Company does not join in such appointment
within 15 days after the receipt by it of a request so to do, or if an Event of
Default shall have occurred and be continuing, the Trustee alone shall have
power to make such appointment.

Should any written instrument or instruments from the
Company be required by any co-trustee or separate trustee to more fully confirm
to such co-trustee or separate trustee such 

 71
 

 

property, title, right or power, any and all such
instruments shall, on request, be executed, acknowledged and delivered by the Company.

Every co-trustee or separate trustee shall, to the
extent permitted by law, but to such extent only, be appointed subject to the
following conditions:

(a)           the
First Mortgage Bonds shall be authenticated and delivered, and all rights,
powers, duties and obligations hereunder in respect of the custody of
securities, cash and other personal property held by, or required to be
deposited or pledged with, the Trustee hereunder, shall be exercised solely by
the Trustee;

(b)           the
rights, powers, duties and obligations hereby conferred or imposed upon the
Trustee in respect of any property covered by such appointment shall be
conferred or imposed upon and exercised or performed either by the Trustee or
by the Trustee and such co-trustee or separate trustee jointly, as shall be
provided in the instrument appointing such co-trustee or separate trustee,
except to the extent that under any law of any jurisdiction in which any
particular act is to be performed, the Trustee shall be incompetent or
unqualified to perform such act, in which event such rights, powers, duties and
obligations shall be exercised and performed by such co-trustee or separate
trustee.

(c)           the
Trustee at any time, by an instrument in writing executed by it, with the
concurrence of the Company, may accept the resignation of or remove any
co-trustee or separate trustee appointed under this Section, and, if an Event
of Default shall have occurred and be continuing, the Trustee shall have power
to accept the resignation of, or remove, any such co-trustee or separate
trustee without the concurrence of the Company. Upon the written request of the
Trustee, the Company shall join with the Trustee in the execution and delivery
of all instruments and agreements necessary or proper to effectuate such resignation
or removal. A successor to any co-trustee or separate trustee so resigned or
removed may be appointed in the manner provided in this Section;

(d)           no
co-trustee or separate trustee hereunder shall be personally liable by reason
of any act or omission of the Trustee, or any other such trustee hereunder, and
the Trustee shall not be personally liable by reason of any act or omission of
any such co-trustee or separate trustee; and

(e)           any
Act of Holders delivered to the Trustee shall be deemed to have been delivered
to each such co-trustee and separate trustee.

Section 1015          Appointment of Authenticating Agent.

The Trustee may appoint an Authenticating Agent or
Agents with respect to the First Mortgage Bonds of one or more series, or any
Tranche thereof, which shall be authorized to act on behalf of the Trustee to
authenticate First Mortgage Bonds of such series or Tranche issued upon
original issuance, exchange, registration of transfer or partial redemption
thereof or pursuant to Section 506, and First Mortgage Bonds so
authenticated shall be entitled to the benefits of this Mortgage and shall be
valid and obligatory for all purposes as if authenticated by the Trustee
hereunder. Wherever reference is made in this Mortgage to the authentication
and delivery of First Mortgage Bonds by the Trustee or the Trustee’s
certificate of authentication, 

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such reference shall be deemed to include
authentication and delivery on behalf of the Trustee by an Authenticating Agent
and a certificate of authentication executed on behalf of the Trustee by an
Authenticating Agent. Each Authenticating Agent shall be acceptable to the
Company and shall at all times be a corporation or other Person (not an
individual, trust or unincorporated organization) organized and doing business
under the laws of the United States of America, any State or territory thereof
or the District of Columbia or the Commonwealth of Puerto Rico, authorized
under such laws to act as Authenticating Agent, having a combined capital and
surplus of not less than $50,000,000 and subject to supervision or examination
by Federal or State authority. If such Authenticating Agent publishes reports
of condition at least annually, pursuant to law or to the requirements of said
supervising or examining authority, then for the purposes of this Section, the
combined capital and surplus of such Authenticating Agent shall be deemed to be
its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time an Authenticating Agent shall cease to
be eligible in accordance with the provisions of this Section, such
Authenticating Agent shall resign immediately in the manner and with the effect
specified in this Section.

Any corporation or other Person into which an
Authenticating Agent may be merged or converted or with which it may be
consolidated, or any corporation or other Person resulting from any merger,
conversion or consolidation to which such Authenticating Agent shall be a
party, or any corporation or other Person succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation or other Person shall be
otherwise eligible under this Section, without the execution or filing of any paper
or any further act on the part of the Trustee or the Authenticating Agent.

An Authenticating Agent may resign at any time by
giving written notice thereof to the Trustee and the Company. The Trustee may
at any time terminate the agency of an Authenticating Agent by giving written
notice thereof to such Authenticating Agent and the Company. Upon receiving
such a notice of resignation or upon such a termination, or in case at any time
such Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company. Any successor Authenticating
Agent upon acceptance of its appointment hereunder shall become vested with all
the rights, powers and duties of its predecessor hereunder, with like effect as
if originally named as an Authenticating Agent. No successor Authenticating
Agent shall be appointed unless eligible under the provisions of this Section.

The Company agrees to pay to each Authenticating Agent
from time to time reasonable compensation for its services under this Section as
agreed between the Company and each such Authentication Agent.

The provisions of Sections 308, 1004 and 1005 shall be
applicable to each Authenticating Agent.

If an appointment with respect to the First Mortgage
Bonds of one or more series, or any Tranche thereof, shall be made pursuant to
this Section, the First Mortgage Bonds of such series 

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or Tranche may have endorsed thereon, in addition to
the Trustee’s certificate of authentication, an alternate certificate of
authentication substantially in the following form:

This is one of the First Mortgage Bonds of the series
designated therein referred to in the within-mentioned Mortgage.

The Bank of New York Trust Company, N.A., Trustee,

By                                          

As Authenticating Agent

By                                          

Authorized Officer

If all of the First Mortgage Bonds of a series may not
be originally issued at one time, and if the Trustee does not have an office
capable of authenticating First Mortgage Bonds upon original issuance located
in a Place of Payment where the Company wishes to have First Mortgage Bonds of
such series authenticated upon original issuance, the Trustee, if so requested
by the Company in writing (which writing need not comply with Section 103
and need not be accompanied by an Opinion of Counsel), shall appoint, in
accordance with this Section and in accordance with such procedures as
shall be acceptable to the Trustee, an Authenticating Agent having an office in
a Place of Payment designated by the Company with respect to such series of
First Mortgage Bonds.

Article Eleven

Holders’ Lists and Reports by Trustee and Company

Section 1101          Lists of Holders.

Semiannually, not later than
June 1 and December 1 in each year, commencing December 1, 2006
and at such other times as the Trustee may request in writing, the Company
shall furnish or cause to be furnished to the Trustee information as to the
names and addresses of the Holders, and the Trustee shall preserve such
information and similar information received by it in any other capacity and
afford to the Holders access to information so preserved by it, all to such
extent, if any, and in such manner as shall be required by the Trust Indenture
Act; provided, however, that no such list need be furnished so long as the
Trustee shall be the Security Registrar.

Section 1102          Reports by Trustee and Company.

To the extent the Mortgage is qualified under and
subject to the Trust Indenture Act, not later than November 1 in each year, commencing with the year
2006, the Trustee shall transmit to the Holders, the Commission, if required by
law, and each securities exchange upon which any First Mortgage Bonds are
listed, a report, dated as of the next preceding September 15, with
respect to any events and other matters described in Section 313(a) of
the Trust Indenture Act, in such manner and to the extent required by the Trust
Indenture Act. The Trustee shall transmit to the Holders, the Commission, if
required, and each securities exchange upon which any First Mortgage Bonds are
listed, and the Company shall file with the Trustee (within 30 days after 

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filing with the Commission in the case of reports
which pursuant to the Trust Indenture Act must be filed with the Commission and
furnished to the Trustee, if any) and transmit to the Holders, such other
information, reports and other documents, if any, at such times and in such
manner, as shall be required by the Trust Indenture Act if the Company is then
subject thereto. The Company shall notify the Trustee of the listing of any
First Mortgage Bonds on any securities exchange.

Delivery of such reports, information and documents to
the Trustee is for informational purposes only, and the Trustee’s receipt of
such shall not constitute notice or constructive notice of any information
contained therein or determinable from information contained therein, including
the Company’s compliance with any of its covenants hereunder (as to which the
Trustee is entitled to rely exclusively on Officers’ Certificates).

The Company shall file with the Trustee (within 30
days after filing with the Commission in the case of reports that pursuant to
the Trust Indenture Act must be filed with the Commission and furnished to the
Trustee) and transmit to the Holders, such other information, reports and other
documents, if any, at such times and in such manner, as shall be required by
the Trust Indenture Act if the Company is then subject thereto.

Article Twelve

Consolidation, Merger, Conveyance, or Other Transfer

Section 1201          Company May Consolidate, Etc., Only on Certain Terms.

The Company shall not consolidate with or merge into
any other Person, or convey or otherwise transfer, or lease, as, or substantially
as, an entirety the Mortgaged Property to any Person, unless:

(a)           the
Person formed by such consolidation or into which the Company is merged or the
Person which acquires by conveyance or other transfer, or which leases, as or
substantially as an entirety such Mortgaged Property shall be a corporation,
limited liability company or other entity organized and existing under the laws
of the United States, any State or Territory thereof or the District of
Columbia (such entity being hereinafter sometimes called the “Successor Company”) and shall execute and
deliver to the Trustee a Mortgage supplemental hereto, in form recordable and
reasonably satisfactory to the Trustee, which:

(i)            in the case of a
consolidation, merger, conveyance or other transfer, or in the case of a lease
if the term thereof extends beyond the last Stated Maturity of the First
Mortgage Bonds then Outstanding, contains an express assumption by the
Successor Company of the due and punctual payment of the principal of and
premium, if any, and interest, if any, on all the First Mortgage Bonds then
Outstanding and the performance and observance of every covenant and condition
of this Mortgage to be performed or observed by the Company, and

(ii)           in the case of a
consolidation, merger, conveyance or other transfer contains a grant,
conveyance, transfer and mortgage by the Successor Company, of the same tenor
of the Granting Clauses herein,

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(A)          confirming
the Lien of this Mortgage on the Mortgaged Property (as constituted immediately
prior to the time such transaction became effective) and subjecting to the Lien
of this Mortgage all property, real, personal and mixed, thereafter acquired by
the Successor Company which shall constitute an improvement, extension or
addition to the Mortgaged Property (as so constituted) or a renewal,
replacement or substitution of or for any part thereof, and,

(B)           at
the election of the Successor Company, subjecting to the Lien of this Mortgage
such property, real, personal or mixed, in addition to the property described
in subclause (A) above, then owned or thereafter acquired by the Successor
Company as the Successor Company shall, in its sole discretion, specify or
describe therein,

and the Lien confirmed or created by such grant, conveyance, transfer
and mortgage shall have force, effect and standing similar to those which the
Lien of this Mortgage would have had if the Company had not been a party to
such consolidation, merger, conveyance or other transfer and had itself, after
the time such transaction became effective, purchased, constructed or otherwise
acquired the property subject to such grant, conveyance, transfer and mortgage;

(b)           in
the case of a lease, such lease shall be made expressly subject to termination
at any time during the continuance of an Event of Default, by (i) the
Company or the Trustee and (ii) the purchaser of the property so leased at
any sale thereof hereunder, whether such sale be made under the power of sale
hereby conferred or pursuant to judicial proceedings;

(c)           the
Company shall have delivered to the Trustee an Officers’ Certificate and an
Opinion of Counsel each of which shall state that such consolidation, merger,
conveyance or other transfer or lease, and such supplemental Mortgage, comply
with this Article and that all conditions precedent herein provided for
relating to such transaction have been complied with; and

(d)           immediately
after giving effect to such transaction (and treating any Debt that becomes an
obligation of the Successor Company as a result of such transaction as having
been incurred by the Successor Company at the time of such transaction), no
Event of Default shall have occurred and be continuing.

As used in this Article and in Section 1609(d),
the terms “improvement”, “extension” and “addition” shall be limited to (a) with
respect to real property subject to the Lien of this Mortgage, any item of
personal property which has been so affixed or attached to such real property
as to be regarded a part of such real property under applicable law and (b) with
respect to personal property subject to the Lien of this Mortgage, any
improvement, extension or addition to such personal property which (i) is
made to maintain, renew, repair or improve the function of such personal
property and (ii) is physically installed in or affixed to such personal
property.

Section 1202          Successor Company Substituted.

Upon any consolidation or merger or any conveyance or
other transfer of, as or substantially as an entirety the Mortgaged Property in
accordance with Section 1201, the 

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Successor Company shall succeed to, and be substituted
for, and may exercise every power and right of, the Company under this Mortgage
with the same effect as if such Successor Company had been named as the “Company”
herein. Without limiting the generality of the foregoing:

(a)           all
property of the Successor Company then subject to the Lien of this Mortgage, of
the character described in Section 102, shall constitute Property
Additions;

(b)           the
Successor Company may execute and deliver to the Trustee, and thereupon the
Trustee shall, subject to the provisions of Article Four, authenticate and
deliver, First Mortgage Bonds meeting the requirements of Article Four;
and

(c)           the
Successor Company may, subject to the applicable provisions of this Mortgage,
use Property Additions for any other purpose under the Mortgage.

All First Mortgage Bonds so executed by the Successor
Company, and authenticated and delivered by the Trustee, shall in all respects
be entitled to the benefit of the Lien of this Mortgage equally and ratably
with all First Mortgage Bonds executed, authenticated and delivered prior to
the time such consolidation, merger, conveyance or other transfer became
effective.

Section 1203          Extent of Lien Hereof on Property of Successor Company.

Unless, in the case of a consolidation, merger,
conveyance or other transfer contemplated by Section 1201, the Mortgage
supplemental hereto contemplated in Section 1201 or in Article Thirteen
expressly provides otherwise, neither this Mortgage nor such supplemental
Mortgage shall become or be, or be required to become or be, a Lien upon any of
the properties:

(a)           owned
by the Successor Company or any other party to such transaction (other than the
Company) immediately prior to the time of effectiveness of such transaction or

(b)           acquired
by the Successor Company at or after the time of effectiveness of such
transaction, except, in either case, properties acquired from the Company in or
as a result of such transaction and improvements, extensions and additions to
such properties and renewals, replacements and substitutions of or for any part
or parts thereof.

Section 1204          Release of Company Upon Conveyance or Other Transfer.

In the case of a conveyance or other transfer to any
Person or Persons as contemplated in Section 1201, upon the satisfaction
of all the conditions specified in Section 1201 the Company (such term
being used in this Section without giving effect to such transaction)
shall be released and discharged from all obligations and covenants under this
Mortgage and on and under all First Mortgage Bonds then Outstanding (unless the
Company shall have delivered to the Trustee an instrument in which it shall
waive such release and discharge) and, upon request by the Company, the Trustee
shall acknowledge in writing that the Company has been so released and
discharged.

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Section 1205          Merger
into Company; Extent of Lien Hereof.

(a)           Nothing
in this Mortgage shall be deemed to prevent or restrict any consolidation or
merger after the consummation of which the Company would be the surviving or
resulting corporation or any conveyance or other transfer, or lease, of any
part of the Mortgaged Property which does not constitute the entirety or
substantially the entirety of the Mortgaged Property.

(b)           Unless,
in the case of a consolidation or merger described in subsection (a) of
this Section, a Supplemental Indenture hereto shall otherwise provide, this
Mortgage shall not become or be, or be required to become or be, a Lien upon
any of the properties acquired by the Company in or as a result of such
transaction or any improvements, extensions or additions to such properties or
any renewals, replacements or substitutions of or for any part or parts
thereof.

Section 1206          Transfer of Less Than Substantially all the Mortgaged
Property.

This Article is not intended to limit the Company’s
conveyances, transfers or leases of less than the entirety or substantially the
entirety of the Mortgaged Property.

Article Thirteen

Supplemental
Mortgages

Section 1301          Supplemental Mortgages Without Consent of Holders.

Without the consent of any Holders, the Company and
the Trustee, at any time and from time to time, may enter into one or more
Mortgages supplemental hereto, in form satisfactory to the Trustee, for any of
the following purposes:

(a)           to
evidence the succession of another Person to the Company and the assumption by
any such successor of the covenants of the Company herein and in the First
Mortgage Bonds all as provided in Article Twelve; or

(b)           to
add one or more covenants of the Company or other provisions for the benefit of
the Holders of all or any series of First Mortgage Bonds, or any Tranche
thereof, or to surrender any right or power herein conferred upon the Company
(and if such covenants are to be for the benefit of less than all series of
First Mortgage Bonds, stating that such covenants are expressly being included
solely for the benefit of such series, or any Tranche thereof); or

(c)           to
add any additional Events of Default with respect to all or any series of First
Mortgage Bonds Outstanding hereunder (and if such additional Events of Default
are to be for the benefit of less than all series of First Mortgage Bonds,
stating that such additional Events of Default are expressly being included
solely for the benefit of such series); or

(d)           to
change or eliminate any provision of this Mortgage or to add any new provision
to this Mortgage; provided, however, that if such change, elimination or
addition shall adversely affect the interests of the Holders of First Mortgage
Bonds of any series or Tranche Outstanding on the date of such supplemental
Mortgage in any material respect, such change, elimination or addition shall
become effective with respect to such series or Tranche only pursuant to the 

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provisions of Section 1302 hereof or when no
First Mortgage Bond of such series or Tranche remains Outstanding; or

(e)           to
provide additional collateral security for the First Mortgage Bonds of any series;
or

(f)            to
establish the form or terms of First Mortgage Bonds of any series or Tranche as
contemplated by Sections 201 and 301; or

(g)           to
evidence and provide for the acceptance of appointment hereunder by a separate
or successor Trustee with respect to the First Mortgage Bonds of one or more
series and to add to or change any of the provisions of this Mortgage as shall
be necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, pursuant to the requirements of Section 1011(b);
or

(h)           to
provide for the procedures required to permit the Company to utilize, at its
option, a non-certificated system of registration for all, or any series or
Tranche of, the First Mortgage Bonds; or

(i)            to
change any place or places where (1) the principal of and premium, if any,
and interest, if any, on all or any series of First Mortgage Bonds, or any
Tranche thereof, shall be payable, (2) all or any series of First Mortgage
Bonds, or any Tranche thereof, may be surrendered for registration of transfer,
(3) all or any series of First Mortgage Bonds, or any Tranche thereof, may
be surrendered for exchange and (4) notices and demands to or upon the
Company in respect of all or any series of First Mortgage Bonds, or any Tranche
thereof, and this Mortgage may be served; or

(j)            to
amend and restate this Mortgage, as originally executed and delivered and as it
may have been subsequently amended, in its entirety, but with such additions,
deletions and other changes as shall not adversely affect the interests of the
Holders of the First Mortgage Bonds in any material respect; or

(k)           to
cure any ambiguity, to correct or supplement any provision herein which may be
defective or inconsistent with any other provision herein, or to make any other
changes to the provisions hereof or to add other provisions with respect to
matters or questions arising under this Mortgage, provided that such other
changes or additions shall not adversely affect the interests of the Holders of
First Mortgage Bonds of any series or Tranche in any material respect.

Without limiting the generality of the foregoing, if
the Trust Indenture Act as in effect at the date the Company becomes subject
thereto or at any time thereafter shall be amended and

(x)            if
any such amendment shall require one or more changes to any provisions hereof
or the inclusion herein of any additional provisions, or shall by operation of
law be deemed to effect such changes or incorporate such provisions by
reference or otherwise, this Mortgage shall be deemed to have been amended so
as to conform to such amendment to the Trust Indenture Act, and the Company and
the Trustee may, without the consent of any Holders, enter into an Mortgage
supplemental hereto to evidence such amendment hereof; or

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(y)           if
any such amendment shall permit one or more changes to, or the elimination of,
any provisions hereof which, at the date hereof or at any time thereafter, are
required by the Trust Indenture Act to be contained herein or are contained
herein to reflect any provision of the Trust Indenture Act as in effect at such
date, this Mortgage shall be deemed to have been amended to effect such changes
or elimination, and the Company and the Trustee may, without the consent of any
Holders, enter into an Mortgage supplemental hereto to effect such changes or
elimination or evidence such amendment.

Section 1302          Supplemental Mortgages with Consent of Holders.

Subject to the provisions of Section 1301, with
the consent of the Holders of not less than a majority in aggregate principal
amount of the First Mortgage Bonds of all series then Outstanding under this
Mortgage, considered as one class, by Act of said Holders delivered to the
Company and the Trustee, the Company, when authorized by a Board Resolution,
and the Trustee may enter into a Mortgage or Mortgages supplemental hereto for
the purpose of adding any provisions to, or changing in any manner or
eliminating any of the provisions of, this Mortgage or modifying in any manner
the rights of the Holders of First Mortgage Bonds of any series under this
Mortgage; provided, that if there shall be First Mortgage Bonds of more than
one series Outstanding hereunder and if a proposed Mortgage supplemental hereto
shall directly affect the rights of the Holders of First Mortgage Bonds of one
or more, but less than all, of such series, then the consent only of the
Holders of not less than a majority in aggregate principal amount of the
Outstanding First Mortgage Bonds of all series so directly affected, considered
as one class, shall be required; and provided, further, that if the First
Mortgage Bonds of any series shall have been issued in more than one Tranche
and if the proposed supplemental Mortgage shall directly affect the rights of
the Holders of First Mortgage Bonds of one or more, but less than all, of such
Tranches, then the consent only of the Holders of not less than a majority in
aggregate principal amount of the Outstanding First Mortgage Bonds of all
Tranches so directly affected, considered as one class, shall be required; and
provided, further, that no such supplemental Mortgage shall, without the
consent of the Holder of each Outstanding First Mortgage Bond of each series or
Tranche so directly affected,

(a)           change
the Stated Maturity of the principal of, or any installment of principal of or
interest on, any First Mortgage Bond (other than pursuant to the terms
thereof), or reduce the principal amount thereof or the rate of interest
thereon (or the amount of any installment of interest thereon) or change the method
of calculating such rate or reduce any premium payable upon the redemption
thereof, or reduce the amount of the principal of a Discount First Mortgage
Bond that would be due and payable upon a declaration of acceleration of the
Maturity thereof pursuant to Section 902, or change the coin or currency
(or other property), in which any First Mortgage Bond or any premium or the
interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity thereof (or, in
the case of redemption, on or after the Redemption Date);

(b)           except
as contemplated by Section 1601, deprive such Holder of the benefit of the
security of the Lien of this Mortgage;

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(c)           reduce
the percentage in principal amount of the Outstanding First Mortgage Bonds of
any series or any Tranche thereof, the consent of the Holders of which is
required for any such supplemental Mortgage, or the consent of the Holders of
which is required for any waiver of compliance with any provision of this
Mortgage or of any default hereunder and its consequences, or reduce the
requirements of Section 1404 for quorum or voting; or

(d)           modify
any of the provisions of this Section or Section 913 with respect to
the First Mortgage Bonds of any series, or any Tranche thereof, except to
increase the percentages in principal amount referred to in this Section or
such other Sections or to provide that other provisions of this Mortgage cannot
be modified or waived without the consent of the Holder of each Outstanding
First Mortgage Bond affected thereby; provided, however, that this clause shall
not be deemed to require the consent of any Holder with respect to changes in
the references to “the Trustee” and concomitant changes in this Section, or the
deletion of this proviso, in accordance with the requirements of Sections
1011(b), 1014 and 1301(g).

A supplemental Mortgage which (x) changes or
eliminates any covenant or other provision of this Mortgage which has expressly
been included solely for the benefit of the Holders of, or which is to remain
in effect only so long as there shall be Outstanding, First Mortgage Bonds of
one or more particular series, or one or more Tranches thereof, or (y) modifies
the rights of the Holders of First Mortgage Bonds of such series or Tranches
with respect to such covenant or other provision, shall be deemed not to affect
the rights under this Mortgage of the Holders of First Mortgage Bonds of any
other series or Tranche.

It shall not be necessary for any Act of Holders under
this Section to approve the particular form of any proposed supplemental
Mortgage, but it shall be sufficient if such Act shall approve the substance
thereof.

Section 1303          Execution of Supplemental Mortgages.

In executing, or accepting the additional trusts
created by, any supplemental Mortgage permitted by this Article or the
modifications thereby of the trusts created by this Mortgage, the Trustee shall
be provided with, and (subject to Section 1001) shall be fully protected
in relying upon, an Opinion of Counsel and an Officers’ Certificate stating
that the execution of such supplemental Mortgage is authorized or permitted by
this Mortgage and containing the statements required by Section 103. The
Trustee may, but shall not be obligated to, enter into any such supplemental
Mortgage which adversely affects the Trustee’s own rights, duties, immunities
or liabilities under this Mortgage or otherwise.

Section 1304          Effect of Supplemental Mortgages.

Upon the execution of any supplemental Mortgage under
this Article this Mortgage shall be modified in accordance therewith, and
such supplemental Mortgage shall form a part of this Mortgage for all purposes;
and every Holder of First Mortgage Bonds theretofore or thereafter
authenticated and delivered hereunder shall be bound thereby. Any supplemental
Mortgage permitted by this Article may restate this Mortgage in its
entirety, and, upon the execution and delivery thereof, any such restatement
shall supersede this Mortgage as theretofore in effect for all purposes.

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Section 1305          Conformity
with Trust Indenture Act.

Every supplemental Mortgage executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect if the
Company is then subject thereto.

Section 1306          Reference in First Mortgage Bonds to Supplemental
Mortgages.

First Mortgage Bonds of any series, or any Tranche
thereof, authenticated and delivered after the execution of any supplemental
Mortgage pursuant to this Article may bear a notation as to any matter
provided for in such supplemental Mortgage. If the Company shall so determine,
new First Mortgage Bonds of any series, or any Tranche thereof, so modified as
to conform, in the opinion of the Company, to any such supplemental Mortgage
may be prepared and executed by the Company, and authenticated and delivered by
the Trustee in exchange for Outstanding First Mortgage Bonds of such series or
Tranche.

Section 1307          Modification Without Supplemental Mortgage.

To the extent, if any, that the terms of any
particular series of First Mortgage Bonds shall have been established in or
pursuant to a Board Resolution or an Officers’ Certificate pursuant to a
supplemental Mortgage or Board Resolution as contemplated by Section 301,
and not in a Mortgage supplemental hereto, additions to, changes in or the
elimination of any of such terms may be effected by means of a supplemental
Board Resolution or Officers’ Certificate pursuant to a Board Resolution or a
supplemental Mortgage and complying with the requirements of Section 104,
as the case may be, delivered to, and accepted by, the Trustee in writing;
provided, however, that such supplemental Board Resolution or Officers’
Certificate shall not otherwise be effective unless all conditions set forth in
this Mortgage which would be required to be satisfied if such additions,
changes or elimination were contained in a supplemental Mortgage shall have
been appropriately satisfied. Upon the written acceptance thereof by the
Trustee, any such supplemental Board Resolution or Officers’ Certificate shall
be deemed to be effective and constitute part of the Mortgage and a
supplemental Mortgage hereunder, including for purposes of Section 1613. Such
acceptance shall be conveyed by a written instrument signed by a Responsible
Officer of the Trustee.

Article Fourteen

Meetings of
Holders; Action Without Meeting

Section 1401          Purposes For Which Meetings May Be Called.

A meeting of Holders of First Mortgage Bonds of one or
more, or all, series, or any Tranche or Tranches thereof, may be called at any time
and from time to time pursuant to this Article to make, give or take any
request, demand, authorization, direction, notice, consent, waiver or other
action provided by this Mortgage to be made, given or taken by Holders of First
Mortgage Bonds of such series or Tranches.

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Section 1402          Call,
Notice and Place of Meetings.

(a)           The
Trustee may at any time call a meeting of Holders of First Mortgage Bonds of
one or more, or all, series, or any Tranche or Tranches thereof, for any
purpose specified in Section 1401, to be held at such time and at such
place as the Trustee shall determine with the approval of the Company, with
such approval not to be unreasonably withheld. Notice of every such meeting,
setting forth the time and the place of such meeting and in general terms the
action proposed to be taken at such meeting, shall be given, in the manner
provided in Section 107, not less than 21 nor more than 180 days prior to
the date fixed for the meeting.

(b)           If
the Trustee shall have been requested to call a meeting of the Holders of First
Mortgage Bonds of one or more, or all, series, or any Tranche or Tranches
thereof, by the Company or by the Holders of 33% in aggregate principal amount
of all of such series and Tranches, considered as one class, for any purpose
specified in Section 1302, by written request setting forth in reasonable
detail the action proposed to be taken at the meeting, and the Trustee shall
not have given the notice of such meeting within 21 days after receipt of such
request or shall not thereafter proceed to cause the meeting to be held as
provided herein, then the Company or the Holders of First Mortgage Bonds of
such series and Tranches in the amount above specified, as the case may be, may
determine the time and the place in the city in which the Corporate Trust
Office is located, or in such other place as shall be determined or approved by
the Company, with such approval not to be unreasonably withheld, for such
meeting and may call such meeting for such purposes by giving notice thereof as
provided in subsection (a) of this Section.

(c)           Any
meeting of Holders of First Mortgage Bonds of one or more, or all, series, or
any Tranche or Tranches thereof, shall be valid without notice if the Holders
of all Outstanding First Mortgage Bonds of such series or Tranches are present
in person or by proxy and if representatives of the Company and the Trustee are
present, or if notice is waived in writing before or after the meeting by the
Holders of all Outstanding First Mortgage Bonds of such series, or any Tranche
or Tranches thereof or by such of them as are not present at the meeting in
person or by proxy, and by the Company and the Trustee.

Section 1403          Persons Entitled to Vote at Meetings.

To be entitled to vote at any meeting of Holders of
First Mortgage Bonds of one or more, or all, series, or any Tranche or Tranches
thereof, a Person shall be (a) a Holder of one or more Outstanding First
Mortgage Bonds of such series or Tranches, or (b) a Person appointed by an
instrument in writing as proxy for a Holder or Holders of one or more
Outstanding First Mortgage Bonds of such series or Tranches by such Holder or
Holders. The only Persons who shall be entitled to attend any meeting of
Holders of First Mortgage Bonds of any series or Tranche shall be the Persons
entitled to vote at such meeting and their counsel, any representatives of the
Trustee and its counsel and any representatives of the Company and its counsel.

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Section 1404          Quorum;
Action.

The Persons entitled to vote a majority in aggregate
principal amount of the Outstanding First Mortgage Bonds of the series and
Tranches with respect to which a meeting shall have been called as hereinbefore
provided, considered as one class, shall constitute a quorum for a meeting of
Holders of First Mortgage Bonds of such series and Tranches; provided, however,
that if any action is to be taken at such meeting which this Mortgage expressly
provides may be taken by the Holders of a specified percentage, which is less
than a majority, in principal amount of the Outstanding First Mortgage Bonds of
such series and Tranches, considered as one class, the Persons entitled to vote
such specified percentage in principal amount of the Outstanding First Mortgage
Bonds of such series and Tranches, considered as one class, shall constitute a
quorum. In the absence of a quorum within one hour of the time appointed for
any such meeting, the meeting shall, if convened at the request of Holders of
First Mortgage Bonds of such series and Tranches, be dissolved. In any other
case the meeting may be adjourned for such period as may be determined by the
chairman of the meeting prior to the adjournment of such meeting. In the
absence of a quorum at any such adjourned meeting, such adjourned meeting may
be further adjourned for such period as may be determined by the chairman of
the meeting prior to the adjournment of such adjourned meeting. Except as
provided by Section 1405(e), notice of the reconvening of any meeting
adjourned for more than 30 days shall be given as provided in Section 1402(a) not
less than ten days prior to the date on which the meeting is scheduled to be
reconvened. Notice of the reconvening of an adjourned meeting shall state
expressly the percentage, as provided above, of the principal amount of the
Outstanding First Mortgage Bonds of such series and Tranches which shall
constitute a quorum.

Except as limited by Section 1302, any resolution
presented to a meeting or adjourned meeting duly reconvened at which a quorum
is present as aforesaid may be adopted only by the affirmative vote of the
Holders of a majority in aggregate principal amount of the Outstanding First
Mortgage Bonds of the series and Tranches with respect to which such meeting
shall have been called, considered as one class; provided, however, that, except
as so limited, any resolution with respect to any action which this Mortgage
expressly provides may be taken by the Holders of a specified percentage, which
is less than a majority, in principal amount of the Outstanding First Mortgage
Bonds of such series and Tranches, considered as one class, may be adopted at a
meeting or an adjourned meeting duly reconvened and at which a quorum is
present as aforesaid by the affirmative vote of the Holders of such specified
percentage in principal amount of the Outstanding First Mortgage Bonds of such
series and Tranches, considered as one class.

Any resolution passed or decision taken at any meeting
of Holders of First Mortgage Bonds duly held in accordance with this Section shall
be binding on all the Holders of First Mortgage Bonds of the series and
Tranches with respect to which such meeting shall have been held, whether or
not present or represented at the meeting.

Section 1405          Attendance at Meetings; Determination of Voting Rights;
Conduct and Adjournment of Meetings.

(a)           Attendance
at meetings of Holders of First Mortgage Bonds may be in person or by proxy;
and, to the extent permitted by law, any such proxy shall remain in effect and
be binding upon any future Holder of the First Mortgage Bonds with respect to
which it was given 

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unless and until specifically revoked by the Holder or
future Holder of such First Mortgage Bonds before being voted.

(b)           Notwithstanding
any other provisions of this Mortgage, the Trustee may make such reasonable
regulations as it may deem advisable for any meeting of Holders of First
Mortgage Bonds in regard to proof of the holding of such First Mortgage Bonds
and of the appointment of proxies and in regard to the appointment and duties
of inspectors of votes, the submission and examination of proxies, certificates
and other evidence of the right to vote, and such other matters concerning the
conduct of the meeting as it shall deem appropriate. Except as otherwise
permitted or required by any such regulations, the holding of First Mortgage
Bonds shall be proved in the manner specified in Section 105 and the
appointment of any proxy shall be proved in the manner specified in Section 105.
Such regulations may provide that written instruments appointing proxies,
regular on their face, may be presumed valid and genuine without the proof
specified in Section 105 or other proof.

(c)           The
Trustee shall, by an instrument in writing, appoint a temporary chairman of the
meeting, unless the meeting shall have been called by the Company or by Holders
as provided in Section 1402(b), in which case the Company or the Holders
of First Mortgage Bonds of the series and Tranches calling the meeting, as the
case may be, shall in like manner appoint a temporary chairman. A permanent
chairman and a permanent secretary of the meeting shall be elected by vote of
the Persons entitled to vote a majority in aggregate principal amount of the
Outstanding First Mortgage Bonds of all series and Tranches represented in
person or by proxy at the meeting, considered as one class.

(d)           At
any meeting each Holder or proxy shall be entitled to one vote for each $1,000
principal amount of First Mortgage Bonds held or represented by him; provided,
however, that no vote shall be cast or counted at any meeting in respect of any
First Mortgage Bond challenged as not Outstanding and ruled by the chairman of
the meeting to be not Outstanding. The chairman of the meeting shall have no
right to vote, except as a Holder of a First Mortgage Bond or proxy.

(e)           Any
meeting duly called pursuant to Section 1402 at which a quorum is present
may be adjourned from time to time by Persons entitled to vote a majority in
aggregate principal amount of the Outstanding First Mortgage Bonds of all
series and Tranches represented at the meeting, considered as one class; and
the meeting may be held as so adjourned without further notice.

Section 1406          Counting Votes and Recording Action of Meetings.

The vote upon any resolution submitted to any meeting
of Holders shall be by written ballots on which shall be subscribed the
signatures of the Holders or of their representatives by proxy and the
principal amounts and serial numbers of the Outstanding First Mortgage Bonds,
of the series and Tranches with respect to which the meeting shall have been
called, held or represented by them. The permanent chairman of the meeting
shall appoint two inspectors of votes who shall count all votes cast at the
meeting for or against any resolution and who shall make and file with the
secretary of the meeting their verified written reports of all votes cast at
the meeting. A record, in duplicate, of the proceedings of each meeting of
Holders shall be 

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prepared by the secretary of the meeting and there
shall be attached to said record the original reports of the inspectors of votes
on any vote by ballot taken thereat and affidavits by one or more persons
having knowledge of the facts setting forth a copy of the notice of the meeting
and showing that said notice was given as provided in Section 1402 and, if
applicable, Section 1404. Each copy shall be signed and verified by the
affidavits of the permanent chairman and secretary of the meeting and one such
copy shall be delivered to the Company, and another to the Trustee to be
preserved by the Trustee, the latter to have attached thereto the ballots voted
at the meeting. Any record so signed and verified shall be conclusive evidence
of the matters therein stated.

Section 1407          Action Without Meeting.

In lieu of a vote of Holders at a meeting as
hereinbefore contemplated in this Article, any request, demand, authorization,
direction, notice, consent, waiver or other action may be made, given or taken
by Holders by one or more written instruments as provided in Section 105.

Article Fifteen

Immunity of
Incorporators, Shareholders, Officers and Directors

Section 1501          Liability Solely Corporate.

No recourse shall be had for the payment of the
principal of or premium, if any, or interest, if any, on any First Mortgage
Bonds or any part thereof, or for any claim based thereon or otherwise in
respect thereof, or of the indebtedness represented thereby, or upon any
obligation, covenant or agreement under this Mortgage, against any
incorporator, shareholder, member, limited partner, officer, manager, director
or employee, as such, past, present or future of the Company or of any
predecessor or successor of the Company (either directly or through the Company
or a predecessor or successor of the Company), whether by virtue of any
constitutional provision, statute or rule of law, or by the enforcement of
any assessment or penalty or otherwise; it being expressly agreed and
understood that this Mortgage and all the First Mortgage Bonds are solely
corporate obligations, and that no personal liability whatsoever shall attach
to, or be incurred by, any incorporator, shareholder, member, limited partner,
officer, manager, director or employee, past, present or future, of the Company
or of any predecessor or successor of the Company, either directly or
indirectly through the Company or any predecessor or successor of the Company,
because of the indebtedness hereby authorized or under or by reason of any of
the obligations, covenants or agreements contained in this Mortgage or in any
of the First Mortgage Bonds or to be implied herefrom or therefrom, and that
any such personal liability is hereby expressly waived and released as a
condition of, and as part of the consideration for, the execution of this
Mortgage and the issuance of the First Mortgage Bonds.

Article Sixteen

Possession, Use
and Release of Mortgaged Property

Section 1601          Quiet Enjoyment.

Unless one or more Events of Default shall have
occurred and be continuing, the Company shall be permitted to (i) possess,
lease (subject to the provisions hereof), use and enjoy 

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the Mortgaged Property (except, to the extent not
herein otherwise provided, such cash and securities as are expressly required
to be deposited with the Trustee); (ii) receive and use all tolls, rents,
revenues, earnings, interest, dividends, royalties, issues, income and profits
thereof; (iii) purchase, transmit, distribute, store, sell and otherwise
deal with and use gas, water, gas appliances and other products; (iv) use
and consume stock in trade, materials and supplies; (v) deal with choses
in action (other than pledged securities), leases and contracts and exercise,
release or amend the rights and powers conferred upon it thereby; and (vi) alter,
repair, maintain, replace, reconstruct, relocate, remove and operate any of its
buildings, plants, stations, structures, transmission and distribution, pipe
lines, pumps, conduits, mains, machinery, equipment, tools, dams, reservoirs
and other real property and tangible personal property, except that none of
such real property or tangible personal property may be relocated or removed so
as to impair the lien of this Mortgage thereon unless such property is sold,
abandoned or otherwise disposed of as permitted by Section 1602 or
released by the Trustee.

Section 1602          Dispositions Without Release.

Unless an Event of Default shall have occurred and be
continuing, the Company may at any time and from time to time, without any
release or consent by, or report to, the Trustee:

(a)           Sell
or otherwise dispose of, free from the Lien of this Mortgage, any machinery,
equipment, apparatus, pipe lines, cables, conduits, ducts, conductors, meters,
regulators, holders, tanks, retorts, purifiers, odorizers, compressors, valves,
pumps, mains, pipes, service pipes, fittings, connections, services, tools,
implements, or any other fixtures or personalty, then subject to the Lien
hereof, which shall have become old, inadequate, obsolete, worn out, unfit,
unadapted, unserviceable, undesirable or unnecessary for use in the operations
of the Company;

(b)           Cancel
or make changes or alterations in or substitutions for any and all easements,
servitudes, rights-of-way and similar rights and/or interests;

(c)           Abandon
any property, if in the opinion of the Company (i) the abandonment of such
property is desirable in the proper conduct of the business and in the
operation of the properties of the Company or is otherwise in the best
interests of the Company, and (ii) the value and utility generally of all
Mortgaged Property as an entirety and the security for the bonds will not
thereby be impaired;

(d)           Sell,
surrender, release, abandon or otherwise dispose of, either with or without
consideration (provided any consideration received by the Company shall,
subject to the provisions of Section 1603, be paid over to the Trustee to
be held by it as part of the Mortgaged Property), any easements, rights-of-way,
leases, licenses, authority or permits over private property for conduits,
pumps, pipe lines or mains, if such conduits, pumps, pipe lines or mains have
theretofore been sold by the Company or removed by the Company to other property
or taken by any municipality or other governmental subdivision by the exercise
of a power of eminent domain or similar right or power, and if in the opinion
of the Company the value and utility generally of all Mortgaged Property as an
entirety and the security for the bonds will not thereby be impaired;

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(e)           Grant,
free from the lien of this Mortgage, either with or without consideration,
easements, rights-of-way, leases, licenses, authority or permits, for fixed
periods of time or in perpetuity, over or with respect to any of the real
property constituting part of the Mortgaged Property, if in the opinion of the
Company (i) the granting of such easements, rights-of-way, leases,
licenses, authority or permits does not substantially impair the continued use
and enjoyment by the Company of the real property over or in respect of which
such easements, rights-of-way, leases, licenses, authority or permits are
granted for the purpose for which such property is used by the Company, and (ii) the
value and utility generally of all Mortgaged Property as an entirety and as the
security for the First Mortgage Bonds will not thereby be impaired; and

(f)            Upon
any such sale, transfer or other disposition of Mortgaged Property pursuant to
this Section 1602, the lien on such Mortgaged Property hereunder shall
automatically terminate and the Trustee shall, if requested to do so by the
Company, execute an instrument or instruments acknowledging such termination.

Section 1603          Release of Mortgaged Property.

Unless an Event of Default shall have occurred and be
continuing, the Company may obtain the release of any part of the Mortgaged
Property, or any interest therein, other than cash held by the Trustee, and the
Trustee shall release all its right, title and interest in and to the same from
the Lien hereof, upon receipt by the Trustee of:

(a)           A
Company Order requesting the release of such property and transmitting
therewith a form of instrument or instruments to effect such release;

(b)           An
Officers’ Certificate stating that, to the knowledge of the signers, no Event
of Default has occurred and is continuing;

(c)           An
Experts’ Certificate made and dated not more than 90 days prior to the first
day of the month in which such Company Order is delivered to the Trustee:

(i)            Describing the property to be
released;

(ii)           Stating the Fair Value, in the
judgment of the signers, of the property to be released;

(iii)          Stating the Cost of the property to be
released (or, if the Fair Value to the Company of such property at the time
such property was first included in an Experts’ Certificate was less than the
Cost thereof, then such Fair Value, in lieu of Cost);

(iv)          Stating that, in the judgment of the
signers, such release will not impair the security under this Mortgage in
contravention of the provisions hereof;

(v)           Stating the aggregate principal
amount of First Mortgage Bonds and Prior Lien Debt Outstanding on the date of
such Experts’ Certificate; and

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(vi)          Stating that, after giving effect to
the transactions contemplated thereby, including payment, from the proceeds
thereof, of any taxes and expenses incidental to any sale, exchange, dedication
or other disposition of the property to be released, the Company would be
permitted by the provisions of Section 402(a) to have authenticated
and delivered at least $1.00 of additional First Mortgage Bonds;

(d)           The
amount in cash, if any, then required to be deposited with the Trustee in order
to permit the Company to meet the requirement of clause (c)(vi) above; and

(e)           An
Opinion of Counsel to the effect that:

(i)            this Mortgage constitutes, or, upon
the delivery of, and/or the filing and/or recording in the proper places and
manner of, the instruments of conveyance, assignment or transfer, if any,
specified in said opinion, will constitute, a direct first mortgage lien,
subject only to Permitted Liens, upon the interest of the Company in the
Property Additions; and

(ii)           the Company has corporate authority
to operate such Property Additions.

Any cash deposited with the Trustee pursuant to the
provisions of this Section 1603 shall be held as part of the Mortgaged
Property and shall be withdrawn, released, used or applied in the manner, to
the extent and for the purposes, and subject to the conditions, provided in Section 1606.

Section 1604          Preservation of Lien.

The Company shall maintain and preserve the Lien of
this Mortgage so long as any First Mortgage Bonds shall remain Outstanding,
subject, however, to the provisions this Article Sixteen.

Section 1605          Release of Minor Properties.

Notwithstanding the provisions of Section 1603,
unless an Event of Default shall have occurred and be continuing, the Company
may obtain the release from the Lien hereof of any part of the Mortgaged
Property, or any interest therein, and the Trustee shall whenever from time to time
requested by the Company in a Company Order transmitting therewith a form of
instrument or instruments to effect such release, and without requiring
compliance with any of the provisions of Section 1603, release from the
Lien hereof all the right, title and interest of the Trustee in and to the same
provided that the lesser of the aggregate Cost or the aggregate Fair Value of
the property to be so released on any date in a given calendar year, together
with all other property theretofore released pursuant to this Section 1605
in such calendar year, shall not exceed the greater of (i) 11/2% of the sum of the aggregate principal
amount of all First Mortgage Bonds then Outstanding and (ii) $1,000,000. Prior
to the granting of any such release, there shall be delivered to the Trustee (x) an
Officers’ Certificate stating that, to the knowledge of the signers, no Event
of Default has occurred and is continuing and that such release is authorized
pursuant to this Section 1605 and (y) an Experts’ Certificate stating,
in the judgment of the signers, the Fair Value of the property to be released,
the aggregate Fair Value of all other 

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property theretofore released pursuant to this Section in
such calendar year, and that, in the judgment of the signers, the release
thereof will not impair the security under this Mortgage in contravention of
the provisions hereof.

Section 1606          Withdrawal or Other Application of Cash.

Except as hereafter in this Section provided,
unless an Event of Default shall have occurred and be continuing, any Available
Cash held by the Trustee, and any other cash which is required to be withdrawn,
used or applied as provided in this Section,

(a)           may
be withdrawn from time to time by the Company upon receipt by the Trustee
of:  (i) a Company Order requesting
the withdrawal, use or application of such cash and transmitting appropriate
instructions, (ii) an Officers’ Certificate stating that, to the knowledge
of the signer, no Event of Default has occurred and is continuing; (iii) an
Experts’ Certificate made and dated not more than 90 days prior to the first
day of the month in which such Company Order is delivered to the Trustee
stating the aggregate principal amount of First Mortgage Bonds and Prior Lien
Debt Outstanding on the date of such Experts’ Certificate, and stating that,
after giving effect to the transactions contemplated thereby, (A) the
Company would be permitted by the provisions of Section 402(b) to
have authenticated and delivered at least $1.00 of additional First Mortgage
Bonds or, (B) if the Company cannot meet this requirement, stating the
lesser amount of such cash which could be so withdrawn, used or applied by the
Company and still enable the Company to meet the requirements of subsection (A) of
this clause (a) of Section 1606, which lesser amount may be so
withdrawn; and (iv) an Opinion of Counsel to the effect that:  (1)  this Mortgage constitutes, or, upon
the delivery of, and/or the filing and/or recording in the proper places and
manner of, the instruments of conveyance, assignment or transfer, if any,
specified in said opinion, will constitute, a direct first mortgage lien,
subject only to Permitted Liens, upon the interest of the Company in the
Property Additions; and (2) the Company has corporate authority to operate
such Property Additions.

(b)           may,
upon the request of the Company, be used by the Trustee for the purchase of
First Mortgage Bonds in the manner, at the time or times, in the amount or
amounts, at the price or prices and otherwise as directed or approved by the
Company, all subject to the limitations hereafter in this Section set
forth; or

(c)           may,
upon the request of the Company, be applied by the Trustee to the payment (or
provision therefor pursuant to Article Eight) at Stated Maturity of any
First Mortgage Bonds or to the redemption (or similar provision therefor) of
any First Mortgage Bonds which are, by their terms, redeemable, in each case of
such series as may be designated by the Company, any such redemption to be in
the manner and as provided in Article Five, all subject to the limitations
hereafter in this Section set forth.

Notwithstanding the generality of clauses (b) and
(c) above, no cash to be applied pursuant to such clauses shall be applied
to the payment of an amount in excess of the principal amount of any First
Mortgage Bonds to be purchased, paid or redeemed except to the extent that the
aggregate principal amount of all First Mortgage Bonds theretofore, and of all
First Mortgage Bonds then to be, purchased, paid or redeemed pursuant to such clauses
is not less than the 

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aggregate cost for principal of, premium, if any, and
accrued interest, if any, on and brokerage commissions, if any, with respect
to, such First Mortgage Bonds.

Section 1607          Release of Property Taken by Eminent Domain, Etc.

Should any of the Mortgaged Property, or any interest
therein, be taken by exercise of the power of eminent domain or be sold to an
entity possessing the power of eminent domain in lieu of its exercise of the
same, and should the Company elect not to obtain the release of such property
pursuant to other provisions of this Article, the Trustee shall, upon request
of the Company evidenced by a Company Order transmitting therewith a form of
instrument or instruments to effect such release, release from the Lien hereof
all its right, title and interest in and to the property so taken or sold (or
with respect to an interest in property, subordinate the Lien hereof to such
interest), upon receiving (a) an Opinion of Counsel to the effect that
such property has been taken by exercise of the power of eminent domain or has
been sold to an entity possessing the power of eminent domain under threat of
an exercise of such power, (b) an Officers’ Certificate stating the amount
of net proceeds received or to be received for such property so taken or sold,
and the amount so stated shall be deemed to be the Fair Value of such property
for the purpose of any notice to the Holders of First Mortgage Bonds, (c) an
Experts’ Certificate stating the Cost thereof (or, if the Fair Value to the
Company of such portion of such property at the time the same was first
included in an Experts’ Certificate was less than the Cost thereof, then such
Fair Value, as so certified, in lieu of Cost) and (d) a deposit by the
Company of an amount in cash equal to the Cost or Fair Value stated in the
Experts’ Certificate delivered pursuant to clause (c) above; provided,
however, that the amount required to be so deposited shall not exceed the
portion of the net proceeds received or to be received for such property so
taken or sold which is allocable on a pro-rata or other reasonable basis to
such property. Any cash deposited with the Trustee under this Section may,
contemporaneously or thereafter, be withdrawn, used or applied in the manner,
to the extent and for the purposes, and subject to the conditions, provided in Section 1606.

Section 1608          Disclaimer or Quitclaim.

In case the Company has sold, exchanged, dedicated or
otherwise disposed of, or has agreed or intends to sell, exchange, dedicate or
otherwise dispose of, or a Governmental Authority has ordered the Company to
divest itself of, any Excepted Property or any other property not subject to
the Lien hereof, or the Company desires to disclaim or quitclaim title to
property to which the Company does not purport to have title, the Trustee
shall, from time to time, disclaim or quitclaim such property upon receipt by
the Trustee of the following:

(a)           A
Company Order requesting such disclaimer or quitclaim and transmitting
therewith a form of instrument to effect such disclaimer or quitclaim;

(b)           An
Officers’ Certificate describing the property to be disclaimed or quitclaimed;
and

(c)           An
Opinion of Counsel stating the signer’s opinion that such property is not
subject to the Lien hereof or required to be subject thereto by any of the
provisions hereof and complying with the requirements of Section 103 of
this Mortgage.

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Section 1609          Miscellaneous.

(a)           The
Experts’ Certificate as to the Fair Value of property to be released from the
Lien of this Mortgage in accordance with any provision of this Article, and as
to the nonimpairment, by reason of such release, of the security under this
Mortgage in contravention of the provisions hereof, shall be made by an
Independent Expert if the Fair Value of such property and of all other property
released since the commencement of the then current calendar year, as set forth
in the certificates required by this Mortgage, is 10% or more of the aggregate
principal amount of all First Mortgage Bonds then Outstanding; but such Experts’
Certificate shall not be required to be made by an Independent Expert in the
case of any release of property if the Fair Value thereof, as set forth in the
certificates required by this Mortgage, is less than $25,000 or less than 1% of
the aggregate principal amount of all First Mortgage Bonds then Outstanding. To
the extent that the Fair Value of any property to be released from the Lien of
this Mortgage shall be stated in an Independent Experts’ Certificate, such Fair
Value shall not be required to be stated in any other Experts’ Certificate
delivered in connection with such release.

(b)           No
release of property from the Lien of this Mortgage effected in accordance with
the provisions, and in compliance with the conditions, set forth in this Article and
in Sections 103 and 104 shall be deemed to impair the security of this Mortgage
in contravention of any provision hereof.

(c)           If
the Mortgaged Property shall be in the possession of a receiver or trustee,
lawfully appointed, the powers hereinbefore conferred upon the Company with
respect to the release of any part of the Mortgaged Property or any interest
therein or the withdrawal of cash may be exercised, with the approval of the
Trustee, by such receiver or trustee, notwithstanding that an Event of Default
may have occurred and be continuing, and any request, certificate, appointment
or approval made or signed by such receiver or trustee for such purposes shall
be as effective as if made by the Company or any of its officers or appointees
in the manner herein provided; and if the Trustee shall be in possession of the
Mortgaged Property under any provision of this Mortgage, then such powers may
be exercised by the Trustee in its discretion notwithstanding that an Event of
Default may have occurred and be continuing.

(d)           If
the Company shall retain any interest in any property released from the Lien of
this Mortgage as provided in Section 1603 or 1605, this Mortgage shall not
become or be, or be required to become or be, a Lien upon such property or such
interest therein or any improvements, extensions or additions to such property
or renewals, replacements or substitutions of or for such property or any part
or parts thereof unless the Company shall execute and deliver to the Trustee an
Mortgage supplemental hereto, in recordable form, containing a grant,
conveyance, transfer and mortgage thereof. As used in this subsection, the
terms “improvements”, “extensions” and “additions” shall be limited as set
forth in Section 1201.

(e)           No
purchaser or grantee of property purporting to have been released hereunder
shall be bound to ascertain the authority of the Trustee to execute the
instrument or instruments of release, or to inquire as to any facts required by
the provisions hereof for the exercise of such authority; nor shall any
purchaser or grantee of any property or rights permitted by this Article to
be sold, granted, exchanged, dedicated or otherwise disposed of, be under
obligation to ascertain 

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or inquire into the authority of the Company to make
any such sale, grant, exchange, dedication or other disposition.

Section 1610          Maintenance of Properties.

The Company shall cause (or, with respect to property
owned in common with others, make reasonable effort to cause) the Mortgaged
Property, considered as a whole, to be maintained and kept in good condition,
repair and working order and shall cause (or, with respect to property owned in
common with others, make reasonable effort to cause) to be made such repairs,
renewals, replacements, betterments and improvements thereof, as, in the
judgment of the Company, may be necessary in order that the operation of the
Mortgaged Property, considered as a whole, may be conducted in accordance with
common industry practice; provided, however, that nothing in this Section shall
prevent the Company from discontinuing, or causing the discontinuance of, the
operation and maintenance of any portion of the Mortgaged Property if such
discontinuance is in the judgment of the Company desirable in the conduct of
its business; and provided, further, that nothing in this Section shall
prevent the Company from selling, transferring or otherwise disposing of, or
causing the sale, transfer or other disposition of, any portion of the
Mortgaged Property in compliance with the other Articles of this Mortgage.

Section 1611          Payment of Taxes; Discharge of Liens.

The Company shall pay all taxes and assessments and
other governmental charges lawfully levied or assessed upon the Mortgaged
Property, or upon any part thereof, or upon the interest of the Trustee in the
Mortgaged Property, before the same shall become delinquent, and shall observe
and conform in all material respects to all valid requirements of any
Governmental Authority relative to the Mortgaged Property and all covenants,
terms and conditions upon or under which any of the Mortgaged Property is held;
and the Company shall not cause or voluntarily suffer any Lien to be created
upon the Mortgaged Property, or any part thereof, prior to the Lien hereof,
other than (a) Permitted Liens, and (b) in the case of property
hereafter acquired, Purchase Money Liens and any other Liens existing or placed
thereon at the time of the acquisition thereof; provided, however, that nothing
in this Section contained shall require the Company (i) to observe or
conform to any requirement of Governmental Authority or to cause to be paid or
discharged, or to make provision for, any such Lien, or to pay any such tax,
assessment or governmental charge so long as the validity thereof shall be
contested in good faith and by appropriate legal proceedings or the security
for the First Mortgage Bonds will not thereby be impaired, (ii) to pay,
discharge or make provisions for any tax, assessment or other governmental
charge, the validity of which shall not be so contested if adequate security
for the payment of such tax, assessment or other governmental charge and for
any penalties or interest which may reasonably be anticipated from failure to
pay the same shall be given to the Trustee or (iii) to pay, discharge or
make provisions for any Liens existing on the Mortgaged Property at the date
hereof; and provided, further, that nothing in this Section shall prohibit
the issuance or other incurrence of additional indebtedness, or the refunding
of outstanding indebtedness, secured by any Lien prior to the Lien hereof which
is permitted under this Section to continue to exist.

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Section 1612          Insurance.

(a)           The
Company shall (i) keep or cause to be kept all the property subject to the
Lien of this Mortgage insured against loss by fire, to the extent that property
of similar character is usually so insured by companies similarly situated and
operating like properties, to a reasonable amount, by reputable insurance
companies, the proceeds of such insurance (except as to any particular loss
less than the greater of (A) $5,000,000 and (B) 3% of the aggregate
principal amount of all First Mortgage Bonds Outstanding on the date of such
particular loss and, if such insurance also covers any Excepted Property,
except as to any loss of such Excepted Property)  to be made payable, subject to applicable
law, to the Trustee as the interest of the Trustee may appear, or to the
trustee or other holder of any other Lien prior hereto upon property subject to
the Lien hereof, if the terms thereof require such payment or (ii) in lieu
of or supplementing such insurance in whole or in part, adopt some other method
or plan of protection against loss by fire at least equal in protection to the
method or plan of protection against loss by fire of companies similarly
situated and operating properties subject to similar fire hazards or properties
on which an equal primary fire insurance rate has been set by reputable
insurance companies; and if the Company shall adopt such other method or plan
of protection, it shall, subject to applicable law (and except as to any
particular loss less than the greater of (x) $5,000,000 and (y) 3% of
the aggregate principal amount of all First Mortgage Bonds Outstanding on the
date of such particular loss and, if such other method or plan of protection
also covers any Excepted Property, except as to any loss of such Excepted
Property) pay to the Trustee on account of any loss covered by such method or
plan an amount in cash equal to the amount of such loss less any amounts
otherwise paid to the Trustee in respect of such loss or to the trustee or
other holder of any other Lien prior hereto upon property subject to the Lien
hereof in respect of such loss if the terms thereof require such payment. Any
cash so required to be paid by the Company pursuant to any such method or plan
shall for the purposes of this Mortgage be deemed to be proceeds of insurance. In
case of the adoption of such other method or plan of protection, the Company
shall furnish to the Trustee a certificate of an actuary or other qualified
person appointed by the Company with respect to the adequacy of such method or
plan.

Anything herein to the contrary notwithstanding, the
Company may have fire insurance policies with (i) a deductible provision
in a dollar amount per occurrence not exceeding the greater of (a) $5,000,000
and (b) 3% of the aggregate principal amount of all First Mortgage Bonds
Outstanding on the date such policy goes into effect, and/or (ii) co-insurance
or self insurance provisions with a dollar amount per occurrence not exceeding
30% of the loss proceeds otherwise payable; provided, however, that the dollar amount
described in clause (i) above may be exceeded to the extent such dollar
amount per occurrence is below the deductible amount in effect as to fire
insurance (x) on property of similar character insured by companies
similarly situated and operating like property or (y) on property as to
which an equal primary fire insurance rate has been set by reputable insurance
companies.

(b)           All
moneys paid to the Trustee by the Company in accordance with this Section or
received by the Trustee as proceeds of any insurance, in either case on account
of a loss on or with respect to Mortgaged Property, shall, subject to the
requirements of any Lien prior hereto upon property subject to the Lien hereof,
be held by the Trustee and, subject as aforesaid, shall be paid by it to the
Company to reimburse the Company for an equal amount expended or 

 94
 

 

committed for expenditure in the rebuilding, renewal
and/or replacement of or substitution for the property destroyed or damaged,
upon receipt by the Trustee of:

(i)            A Company Request requesting such
payment,

(ii)           An Experts’ Certificate:

(A)          Describing
the property so damaged or destroyed;

(B)           Stating
the Cost of such property (or, if the Fair Value to the Company of such
property was first included in an Experts’ Certificate was less than the Cost
thereof, then such Fair Value, as so certified, in lieu of Cost) or, if such
damage or destruction shall have affected only a portion of such property,
stating the allocable portion of such Cost or Fair Value;

(C)           Stating
the amounts so expended or committed for expenditure in the rebuilding,
renewal, replacement of and/or substitution for such property; and

(D)          Stating
the Fair Value to the Company of such property as rebuilt or renewed or as to
be rebuilt or renewed and/or of the replacement or substituted property, and if

(I)            Within
6 months prior to the date of acquisition thereof by the Company, such property
has been used or operated, by a person or persons other than the Company, in a
business similar to that in which it has been or is to be used or operated by
the Company, and

(II)           The
Fair Value to the Company of such property as set forth in such Experts’
Certificate is not less than $25,000 and not less than 1% of the aggregate
principal amount of all First Mortgage Bonds then Outstanding,

the Expert making the statement required by this
clause (D) shall be an Independent Expert, and

(iii)          an Opinion of Counsel stating that, in
the opinion of the signer, the property so rebuilt or renewed or to be rebuilt
or renewed, and/or the replacement property, is or will be subject to the Lien
hereof.

Any such moneys not so applied within 36 months after
its receipt by the Trustee, or in respect of which notice in writing of
intention to apply the same to the work of rebuilding, renewal, replacement or
substitution then in progress and uncompleted shall not have been given to the
Trustee by the Company within such 36 months, or which the Company shall at any
time notify the Trustee is not to be so applied, shall thereafter be withdrawn,
used or applied in the manner, to the extent and for the purposes, and subject
to the conditions, provided in Section 

 95
 

 

1606; provided, however, that if the amount of such
moneys shall exceed the amount stated pursuant to clause (B) in the
Experts’ Certificate referred to above, the amount of such excess shall not be
subject to Section 1606 and shall be remitted to or upon the order of the
Company upon the withdrawal, use or application of the balance of such moneys
pursuant to Section 1606.

(c)           Whenever
under the provisions of this Section the Company is required to deliver
moneys to the Trustee and at the same time shall have satisfied the conditions
set forth herein for payment of moneys by the Trustee to the Company, there
shall be paid to or retained by the Trustee or paid to the Company, as the case
may be, only the net amount.

Section 1613          Recording, Filing, Etc.

The Company shall cause this Mortgage and all
Mortgages and instruments supplemental hereto (or notices, memoranda or
financing statements as may be recorded or filed to place third parties on
notice thereof) to be promptly recorded and filed and re-recorded and re-filed
in such manner and in such places, as may be required by law in order fully to
preserve and protect the security of the Holders of the First Mortgage Bonds
and all rights of the Trustee, and shall furnish to the Trustee:

(a)           Promptly
after the execution and delivery of this Mortgage and of each Supplemental
Indenture, an Opinion of Counsel either stating that in the opinion of such counsel
this Mortgage or such Supplemental Indenture (or any other instrument,
resolution, certificate, notice, memorandum or financing statement in
connection therewith) has been properly recorded and filed, so as to create a
valid and effective mortgage lien, and reciting the details of such action, or
stating that in the opinion of such counsel no such action is necessary to make
such Lien effective. The Company shall be deemed to be in compliance with this
subsection (a) if (i) the Opinion of Counsel herein required to be
delivered to the Trustee shall state that this Mortgage or such Supplemental
Indenture (or any other instrument, resolution, certificate notice, memorandum
or financing statement in connection therewith), has been received for recording
or filing in each jurisdiction in which it is required to be recorded or filed
and that, in the opinion of such counsel (if such is the case), such receipt
for recording or filing makes effective the Lien intended to be created by this
Mortgage or such Supplemental Indenture, and (ii) such opinion is
delivered to the Trustee within such time, following the date of such
Supplemental Indenture, as shall be practicable having due regard to the number
and distance of the jurisdictions in which this Mortgage or such Supplemental
Indenture (or such other instrument, resolution, certificate, notice,
memorandum or financing statement in connection therewith) is required to be
recorded or filed; and

(b)           On
or before December 1
of each year, beginning December 1, 2007, an Opinion of Counsel
stating either (i) that in the opinion of such counsel such action has
been taken, since the date of the most recent Opinion of Counsel furnished
pursuant to this subsection (b) or the first Opinion of Counsel furnished
pursuant to subsection (a) of this Section, with respect to the recording,
filing, re-recording, and re-filing of this Mortgage and of each Supplemental
Indenture (or any other instrument, resolution, certificate, notice, memorandum
or financing statement in connection therewith), as is necessary to maintain
the effectiveness of the Lien hereof, and reciting such action, or (ii) that
in the opinion of such counsel no such action is necessary to maintain the
effectiveness of such Lien.

 96
 

 

The Company shall execute and deliver such
Supplemental Indenture or Indentures and such further instruments and do such
further acts as may be necessary or proper to carry out the purposes of this
Mortgage and to make subject to the Lien hereof any property hereafter
acquired, made or constructed and intended to be subject to the Lien hereof,
and to transfer to any new trustee or trustees or co-trustee or co-trustees,
the estate, powers, instruments or funds held in trust hereunder.

The Company hereby authorizes the Trustee at any time
and from time to time to file any initial financing statements, amendments
thereto and continuation statements as authorized by applicable law, required
by or deemed desirable by the Trustee to establish, evidence, provide notice of
or maintain the validity, perfection and priority of any security interests
granted in this Mortgage; provided, however, this authorization does not alter
the Company’s obligation to record or file any documents as described in this Section 1613.

The Company shall use commercially reasonable
efforts to obtain any consents of third parties relating to the properties,
assets, rights, leaseholds, easements, permits and franchises described in
clauses (xxiii) — (xxvi) of the definition of “Excepted Property” that are
necessary to subject any such property to the Lien of this Mortgage.

* * * * * * * * *
* * * * * * * * * * *

This instrument may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, but
all such counterparts shall together constitute but one and the same
instrument.

 97

 

 

IN WITNESS WHEREOF, the parties hereto have caused
this Mortgage to be duly executed as of the day and year first above written.

	
  

  	
   

  	
  THE EMPIRE DISTRICT GAS COMPANY

  
	
  Attest:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/ Laurie A.
  Delano

  	
   

  	
  By

  	
  /s/ Ronald F. Gatz

  
	
  Laurie A.
  Delano, Assistant Secretary

  	
   

  	
   

  	
  Ronald F. Gatz, Vice President

  
	
   

  	
   

  	
   

  
	
  Signed and
  delivered in the presence of:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/ Maria
  Macoubrie

  	
   

  	
  Printed Name:

  	
  Maria Macoubrie

  
	
   

  	
   

  	
   

  	
   

  
	
  /s/ Michael R.
  Humphrey

  	
   

  	
  Printed Name:

  	
  Michael R. Humphrey

  
					

 

 

 

	
  

  	
   

  	
  THE BANK OF NEW YORK TRUST

  COMPANY, N.A.   

  
	
   

  	
   

  	
   

  
	
  

  	
   

  	
  By

  	
  /s/ Steven D. Torgeson

  
	
   

  	
   

  	
  Printed Name:

  	
  Steven D. Torgeson

  
	
   

  	
   

  	
  Its: 

  	
  Vice President

  

 

 

 

	
  STATE OF MISSOURI

  	
  )

  
	
   

  	
  ) ss.

  
	
  COUNTY OF JACKSON

  	
  )

  

 

On this 24th day of May, 2006, before me, appeared Ronald F. Gatz, to me personally known, who
being by me duly sworn, did say that he is the Vice-President of The Empire
District Gas Company, a Kansas corporation, that said corporation has no seal,
that said instrument was signed on behalf of said corporation by authority of
its Board of Directors, and acknowledged said instrument to be the free act and
deed of said corporation.

IN WITNESS WHEREOF, I
have hereunto set my hand and affixed my notarial seal at my office in Kansas
City, Missouri, the day and year last above written.

	
  

  	
   

  	
  /s/ MARTISUA LAGER

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
       Martisua Lager

  
	
   

  	
   

  	
  Notary Public in
  and for

  
	
   

  	
   

  	
  said County and
  State

  
	
   

  	
   

  	
   

  
	
  My Commission Expires:

  	
   

  	
   

  
	
          10/14/07

  	
   

  	
   

  

(The Notary Public must
type or print his/her name immediately beneath his/her signature.)

 

 

	
  STATE OF ILLINOIS

  	
  )

  
	
   

  	
  ) ss.

  
	
  COUNTY OF COOK

  	
  )

  

 

On this 30th day of May, 2006, before me, appeared Steven
D. Torgeson, to me personally known, who being by me duly sworn, did say that
he/she is the Vice President of The Bank of New York Trust Company, N.A., a
national banking association, that the seal affixed to the foregoing instrument
is the corporate seal of the corporation, that said instrument was signed and
sealed on behalf of said corporation by authority of its Board of Directors,
and acknowledged said instrument to be the free act and deed of said
corporation.

IN WITNESS WHEREOF, I
have hereunto set my hand and affixed my notarial seal at my office in Chicago,
Illinois, the day and year last above written.

	
  

  	
   

  	
  /s/ MIKE COUNTRYMAN

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
       Mike Countryman

  
	
   

  	
   

  	
  Notary Public in
  and for

  
	
   

  	
   

  	
  said County and
  State

  
	
   

  	
   

  	
   

  
	
  My Commission Expires:

  	
   

  	
   

  
	
           [illegible]

  	
   

  	
   

  

(The Notary Public must
type or print his/her name immediately beneath his/her signature.)Exhibit 4.3

 

Space above reserved for Recorder of Deeds

This Instrument Grants a Security Interest by a Public
Utility and a Transmitting Utility

First Supplemental Indenture

Dated as of June 1,
2006

Indenture of Mortgage and Deed of Trust

Dated as of June 1,
2006

THE EMPIRE DISTRICT GAS COMPANY,

As Grantor,

to

SPENCER R. THOMSON, DEED OF TRUST TRUSTEE

for the benefit of

THE BANK
OF NEW YORK TRUST COMPANY, N.A., BOND TRUSTEE, as Grantee

with an address
of:

2 North LaSalle
Street, Suite 1020

Chicago, IL 60602

SECURING FIRST MORTGAGE BONDS

 

Legal Description:
See Annex I

 

THIS AGREEMENT
CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS.

 

TABLE OF
CONTENTS

	
  

  	
   

  	
   

  	
   

  	
  Page

  
	
  Article 1.   Form and Provisions of 6.82% Bonds
  Due 2036

  	
   

  	
  3

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 1.01

  	
   

  	
  Designation; Amount

  	
   

  	
  3

  
	
  Section 1.02

  	
   

  	
  Form of 6.82% bonds due 2036

  	
   

  	
  3

  
	
  Section 1.03

  	
   

  	
  Provisions of 6.82% bonds due 2036; Interest Accrual

  	
   

  	
  3

  
	
  Section 1.04

  	
   

  	
  Definitions

  	
   

  	
  4

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Article 2.   Certain Terms Applicable to the
  6.82% Bonds Due 2036

  	
   

  	
  5

  
	
   

  	
   

  	
   

  
	
  Section 2.01

  	
   

  	
  Redemption of 6.82% bonds due 2036

  	
   

  	
  5

  
	
  Section 2.02

  	
   

  	
  Exchangeability

  	
   

  	
  7

  
	
  Section 2.03

  	
   

  	
  Bond Purchase Agreement

  	
   

  	
  7

  
	
  Section 2.04

  	
   

  	
  Offer to Purchase the 6.82% bonds due 2036 in Event
  of a Change of Control

  	
   

  	
  7

  
	
  Section 2.05

  	
   

  	
  Incurrence of Debt.

  	
   

  	
  9

  
	
  Section 2.06

  	
   

  	
  Issuance of Additional First Mortgage Bonds

  	
   

  	
  10

  
	
  Section 2.07

  	
   

  	
  Application of Proceeds of Certain Releases under
  Article 16 of the Mortgage Indenture

  	
   

  	
  10

  
	
  Section 2.08

  	
   

  	
  Eligibility

  	
   

  	
  12

  
	
  Section 2.09

  	
   

  	
  Conditional Call

  	
   

  	
  13

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Article 3.   Events of Default

  	
   

  	
  13

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 3.01

  	
   

  	
  Events of Default

  	
   

  	
  13

  
	
  Section 3.02

  	
   

  	
  Additional Events of Default

  	
   

  	
  13

  
	
  Section 3.03

  	
   

  	
  Liquidated Damages Payable on Acceleration

  	
   

  	
  14

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Article 4.   Miscellaneous

  	
   

  	
  15

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 4.01

  	
   

  	
  Ratification

  	
   

  	
  15

  
	
  Section 4.02

  	
   

  	
  Successor and Assigns

  	
   

  	
  15

  
	
  Section 4.03

  	
   

  	
  Effect of Table of Contents and Headings

  	
   

  	
  15

  
	
  Section 4.04

  	
   

  	
  Counterparts

  	
   

  	
  15

  
	
  Section 4.05

  	
   

  	
  Governing Law

  	
   

  	
  15

  
							

 

 i

 

THIS FIRST
SUPPLEMENTAL INDENTURE SECURES
AMONG OTHER THINGS FUTURE ADVANCES AND OBLIGATIONS AND IS TO BE GOVERNED BY THE
PROVISIONS OF SECTION 443.055 OF THE MISSOURI REVISED STATUTES. THE TOTAL
PRINCIPAL AMOUNT OF OBLIGATIONS THAT MAY BE SECURED HEREUNDER IS $300,000,000.

FIRST SUPPLEMENTAL INDENTURE,
dated as of the 1st day of June, 2006 among THE EMPIRE DISTRICT
GAS COMPANY, a corporation organized and existing under the laws of the State
of Kansas (hereinafter called “Company”),
party of the first part, Spencer R. Thomson, Esq. a Missouri resident, as
deed of trust trustee hereunder (hereinafter called “Deed of
Trust Trustee”), for the benefit of The Bank of New York Trust
Company, N.A., as bond trustee and beneficiary under the deed of trust created
hereunder, a national banking
association organized and existing under the laws of the United States (hereinafter called “Trustee”),
party of the second part.

WHEREAS, the Company heretofore duly executed,
acknowledged and delivered to the Trustee a certain Indenture of Mortgage and
Deed of Trust dated as of June 1, 2006 (said Indenture of Mortgage and
Deed of Trust (i) being hereinafter generally called the “Mortgage Indenture,” and (ii) together with this First
Supplemental Indenture thereto, being hereinafter generally called the “Mortgage”), for the purpose of securing its First Mortgage
Bonds (of which none is outstanding at the date of this First Supplemental
Indenture), issued and to be issued for the purposes and in the manner therein
provided, of which Mortgage this First Supplemental Indenture is intended to be
made a part, as fully as if therein recited at length;

WHEREAS, the Company by appropriate and sufficient
corporate action in conformity with the provisions of the Mortgage has duly
determined to create a series of bonds under the Mortgage to be designated “First
Mortgage Bonds, 6.82% Series due 2036” (hereinafter generally referred to
as the “6.82% bonds due 2036”), to consist of fully registered bonds containing
terms and provisions duly fixed and determined by the Board of Directors of the
Company and expressed in this First Supplemental Indenture, such fully
registered bonds and the Trustee’s certificate of its authentication thereof to
be substantially in the forms thereof respectively set forth in Schedule A appended hereto and made a part hereof; and

WHEREAS, the execution and delivery of this First
Supplemental Indenture and the issue of not in excess of Fifty-Five Million
Dollars ($55,000,000) in aggregate principal amount of 6.82% bonds due 2036 and
other necessary actions have been duly authorized by the Board of Directors of
the Company; and

WHEREAS, the Company proposes to execute and deliver
this First Supplemental as permitted by Section 303 of the Mortgage
Indenture; and

WHEREAS, all acts and things necessary to constitute
this First Supplemental Indenture a valid, binding and legal instrument and to
make the 6.82% bonds due 2036, when executed by the Company and authenticated
by the Trustee valid, binding and legal obligations of the Company have been
authorized and performed;

NOW, THEREFORE, THIS
FIRST SUPPLEMENTAL INDENTURE WITNESSETH:

 1
 

 

That in order to secure
the payment of the principal of and interest and premium, if any, on all bonds
issued and to be issued under the Mortgage, according to their tenor and
effect, and according to the terms of the Mortgage Indenture and this First
Supplemental Indenture, and to secure the performance of the covenants and
obligations in said bonds and in the Mortgage Indenture and this First Supplemental
Indenture respectively contained, and for the better assuring and confirming
unto the Deed of Trust Trustee and the Trustee, their successors and assigns,
upon the trusts and for the purposes expressed in the Mortgage Indenture and
this First Supplemental Indenture, all and singular the hereditaments,
premises, estates and property of the Company thereby and hereby conveyed or
assigned or intended so to be, or which the Company may thereafter have become
bound to convey or assign to the Trustee, as security for said bonds (except
such hereditaments, premises, estates and property as shall have been disposed
of or released or withdrawn from the lien of the Mortgage Indenture and this
First Supplemental Indenture, in accordance with the provisions thereof and
subject to alterations, modifications and changes in said hereditaments,
premises, estates and property as permitted under the provisions thereof), the
Company, for and in consideration of the premises and the sum of One Dollar
($1.00) to it in hand paid by the Trustee, the receipt whereof is hereby
acknowledged, and of other valuable considerations, has granted, bargained,
sold, assigned, mortgaged, pledged, transferred, set over, aliened, released,
conveyed and confirmed, and by these presents does grant, bargain, sell,
assign, mortgage, pledge, transfer, set over, alien, release, convey and
confirm unto the Deed of Trust Trustee and the Trustee, and their successors
and assigns, all property, rights, privileges, easements and franchises
particularly described in the Mortgage Indenture (except and subject as
aforesaid), as fully as though described at length herein, and, in addition,
all the property, rights, privileges and franchises (if any) particularly
described in Annex I to this First Supplemental Indenture, which are hereby
made a part of hereof, and deemed to be described herein, as fully as though
described at length herein.

TOGETHER with all the revenues, income, earnings,
reversions, remainders, rents, issues, tolls, products, and profits of the
property subjected to or required to be subjected to the Lien of the Mortgage
and all the estate, right, title, interest, property, possession, claim and
demand whatsoever, as well in law as in equity, of the Company, of, in and to
the same and any and every part thereof, with the appurtenances belonging or
any anywise appertaining thereto.

TO HAVE AND TO HOLD all and singular the property,
rights, privileges, easements and franchises granted by the Mortgage or
mentioned or intended so to be unto the Trustee and its successors in the trust
hereby created and its and their assigns, forever, other than in every case
Excepted Property (as defined in the Mortgage).

IN TRUST, NEVERTHELESS, for the equal and
proportionate benefit and security of all present and future holders of the
bonds issued and to be issued under and secured by the Mortgage, and to secure
the payments of such bonds and the interest thereon when payable in accordance
with the provisions thereof or hereof, and to secure the performance of and
compliance with the covenants and conditions of the Mortgage without
preference, priority or distinction as to lien or otherwise of any one bond
over any other bond by reason of priority in the issue or negotiation thereof,
and under and subject to the provisions and conditions and for the uses and
purposes hereinafter set forth.

 2
 

 

And it is hereby covenanted that all such 6.82% bonds
due 2036 are to be issued, authenticated and delivered, and that the mortgaged
premises are to be held by the Trustee or the Deed of Trust Trustee, as
originally granted in the Mortgage Indenture, upon and subject to the trusts,
covenants, provisions and conditions and for the uses and purposes set forth in
the Mortgage Indenture and this First Supplemental Indenture and upon and
subject to the further covenants, provisions and conditions and for the uses
and purposes hereinafter set forth, as follows, to wit:

Article 1.     Form and
Provisions of 6.82% Bonds Due 2036

Section 1.01   Designation; Amount. The 6.82% bonds due 2036 shall be
designated “First Mortgage Bonds, 6.82% Series due 2036” and, subject to Section 306
of the Mortgage Indenture, shall not exceed Fifty-Five Million Dollars
($55,000,000) in aggregate principal amount at any one time outstanding. The
initial issue of the 6.82% bonds due 2036 may be effected upon compliance with
the applicable provisions of the Mortgage Indenture.

Section 1.02   Form of 6.82% bonds due 2036. The 6.82% bonds due 2036
shall be issued only in fully registered form without coupons in denominations
of One Thousand Dollars ($1,000) and multiples thereof. The 6.82% bonds due
2036 shall be numbered 2036-1 and consecutively upwards, or in any other
manner deemed appropriate by the Trustee.

The 6.82% bonds due 2036 and the certificate of the
Trustee upon said bonds shall be substantially in the forms thereof
respectively set forth in Schedule A
appended hereto.

Section 1.03   Provisions of 6.82% bonds due 2036; Interest Accrual. The
6.82% bonds due 2036 shall mature on June 1, 2036, and shall bear
interest, payable semiannually on the 1st day of June and
December of each year, commencing December 1, 2006 at the rate
specified in their title, until the Company’s obligation in respect of the
principal thereof shall be discharged. Interest on interest and principal which
is overdue shall bear interest at that rate of interest that is 2.00% per annum
above the rate of interest specified in the title of the 6.82% bonds due 2036
(the “Default Rate”). The 6.82% bonds due
2036 shall be callable for redemption in whole or in part according to the
terms and provisions herein in Article 2.

Each 6.82% bond due 2036 shall be dated as of June 1,
2006 and shall bear interest on the principal amount thereof from the interest
payment date next preceding the date of authentication thereof by the Trustee
to which interest has been paid on the 6.82% bonds due 2036, or if the date of
authentication thereof is prior to December 1, 2006, then from June 1,
2006, or if the date of authentication thereof be an interest payment date to
which interest is being paid or a date between the record date for any such
interest payment date and such interest payment date, then from such interest
payment date. Interest on the 6.82% bonds due 2036 shall be computed on the
basis of a 360-day year consisting of twelve 30-day months, and
with respect to any period less than a full calendar month, on the basis of the
actual number of days elapsed in such period.

The person in whose name any 6.82% bond due 2036 is
registered at the close of business on any record date (as hereinafter defined)
with respect to any interest payment date shall be entitled to receive the
interest payable on such interest payment date notwithstanding the cancellation
of such bond upon any registration of transfer or exchange thereof subsequent
to the

 3
 

 

record date and prior to such interest payment date,
except that if and to the extent the Company shall default in the payment of
the interest due on such interest payment date, then such defaulted interest
shall be paid to the person in whose name such bond is registered at the close
of business on the date before such payment. The term “record date”
as used in this Section with respect to any regular interest payment date
(i.e., June 1 or December 1) shall mean the May 31 or November 30,
as the case may be, next preceding such interest payment date, or if such May 31
or November 30 is not a Business Day, the next preceding Business Day.

Any payment of principal, Make-Whole Amount (as
defined below) or interest on any 6.82% bond due 2036 that is due on a date
other than a Business Day shall be made on the next succeeding Business Day
without including the additional days elapsed in the computation of the
interest payable on such next succeeding Business Day; provided that,
notwithstanding Section 114 of the Mortgage Indenture, if the maturity
date of any 6.82% bond due 2036 is a date other than a Business Day, the
payment otherwise due on such maturity date shall be made on the next
succeeding Business Day and shall include the additional days elapsed in the
computation of interest payable on such next succeeding Business Day.

Notwithstanding the otherwise applicable provisions of
the Mortgage, the principal and the Redemption Price (as defined below) of, and
interest on, the 6.82% bonds due 2036 shall be payable by Federal funds bank
wire transfer of immediately available funds so long as required by Section 13.1
of the Bond Purchase Agreement, dated June 1, 2006, between the Company
and the initial purchasers of the 6.82% bonds due 2036 (the “Bond Purchase Agreement”) or, in the event Section 13.1
shall no longer be applicable, in accordance with the provisions of the
Mortgage Indenture.

Section 1.04   Definitions. Terms initially capitalized but not defined
herein shall have the meanings ascribed to them in the Mortgage Indenture. So
long as any of the 6.82% bonds due 2036 remain outstanding, (a) clause “(b)”
of the definition of “Permitted Liens”
in the Mortgage Indenture shall be deemed to read as follows:

“(b)         as
to property acquired by the Company after the date hereof that becomes
Mortgaged Property, Liens existing or placed thereon at the time of the acquisition
thereof (including, but not limited to, any Prior Lien, provided,
that (i) no such Lien shall have been created or assumed in contemplation
of such acquisition of property, (ii) each such Lien shall extend solely
to the item or items of property so acquired and, if required by the terms of
the instrument originally creating such Lien, other property which is an
improvement to or is acquired for specific use in connection with such acquired
property; and (iii) at the time of such incurrence and after giving effect
thereto, no Event of Default would exist);”

and (b) the definition of “Purchase
Money Lien” in the Mortgage Indenture shall be deemed to read as
follows:

“Purchase
Money Lien” means a Lien incurred after the date hereof given to
secure the payment of the purchase price of property, or the cost of
construction or improvement of such property (other than accounts receivable or
inventory) useful or intended to be used in carrying on the business of the
Company, 

 4
 

 

including Liens existing on such property at
the time of acquisition or construction thereof or created contemporaneously
therewith, or Liens incurred within 270 days pf such acquisition and/or the
completion of such construction or improvement, provided
that (i) the Lien shall attach solely to the property acquired, purchased,
constructed or improved; (ii) at the time of acquisition, construction or
improvement of such property, the aggregate amount remaining unpaid on all Debt
secured by Liens on such property, whether or not assumed by the Company, shall
not exceed the lesser of (y) the cost to the Company of such acquisition,
construction or improvement or (z) the fair market value of such property
(as determined in good faith by one or more officers of the Company to whom
authority to enter into the transaction has been delegated by the board of
directors of the Company); and (iii) at the time of such incurrence and
after giving effect thereto, no Event of Default would exist.”;

and any reference in the Mortgage Indenture to “Permitted
Lien” or “Purchase Money Lien” shall be deemed to be a reference to such terms
as modified by the First Supplemental Indenture.

Article 2.     Certain
Terms Applicable to the 6.82% Bonds Due 2036

Section 2.01   Redemption of 6.82% bonds due 2036. The 6.82% bonds due 2036
are subject to redemption prior to maturity, as a whole at any time or in part
from time to time, in accordance with the provisions of the Mortgage, upon not
less than thirty (30) days nor more than sixty (60) days prior notice (which
notice may be made subject to the deposit of redemption moneys with the Trustee
before the date fixed for redemption) given by mail as provided in the
Mortgage, at the option of the Company, at a redemption price equal to the
principal amount of the bonds being redeemed plus accrued interest thereon to
the date of redemption plus the Make Whole Amount (the “Redemption
Price”). The Redemption Price and all components thereof shall be
calculated by the Company and not by the Trustee.

“Make-Whole Amount” means, with
respect to any Bond, an amount equal to the excess, if any, of the Discounted
Value of the Remaining Scheduled Payments with respect to the Called Principal
of such 6.82% bond due 2036 over the amount of such Called Principal, provided
that the Make-Whole Amount may in no event be less than zero. For the purposes
of determining the Make-Whole Amount, the following terms have the following
meanings:

“Called Principal” means, with
respect to any 6.82% bond due 2036, the principal of such 6.82% bond due 2036
that is to be prepaid.

“Discounted Value” means, with
respect to the Called Principal of any 6.82% bond due 2036, the amount obtained
by discounting all Remaining Scheduled Payments with respect to such Called
Principal from their respective scheduled due dates to the Settlement Date with
respect to such Called Principal, in accordance with accepted financial
practice and at a discount factor (applied on the same periodic basis as that
on which interest on the 6.82% bonds due 2036 is payable) equal to the
Reinvestment Yield with respect to such Called Principal.

“Reinvestment Yield” means, with
respect to the Called Principal of any 6.82% bond due 2036, 0.50% over the
yield to maturity implied by (i) the yields reported as of 10:00 a.m.

 5
 

 

(New York City time) on the second Business Day
preceding the Settlement Date with respect to such Called Principal, on the
display designated as “Page PX1”
(or such other display as may replace Page PX1 on Bloomberg Financial Markets
(“Bloomberg”) or, if Page PX1 (or
its successor screen on Bloomberg) is unavailable, the Telerate Access Service
screen which corresponds most closely to Page PX1 for the most recently
issued actively traded U.S. Treasury securities having a maturity equal to the
Remaining Average Life of such Called Principal as of such Settlement Date, or (ii) if
such yields are not reported as of such time or the yields reported as of such
time are not ascertainable (including by way of interpolation), the Treasury
Constant Maturity Series Yields reported, for the latest day for which
such yields have been so reported as of the second Business Day preceding the
Settlement Date with respect to such Called Principal, in Federal Reserve
Statistical Release H.15 (519) (or any comparable successor publication) for
actively traded U.S. Treasury securities having a constant maturity equal to
the Remaining Average Life of such Called Principal as of such Settlement Date.
Such implied yield will be determined, if necessary, by (a) converting
U.S. Treasury bill quotations to bond equivalent yields in accordance with
accepted financial practice and (b) interpolating linearly between (1) the
actively traded U.S. Treasury security with the maturity closest to and greater
than such Remaining Average Life and (2) the actively traded U.S. Treasury
security with the maturity closest to and less than such Remaining Average Life.
The Reinvestment Yield shall be rounded to the nearest one hundred-thousandth
of a percentage point.

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

“Remaining Scheduled Payments”
means, with respect to the Called Principal of any 6.82% bond due 2036, all
payments of such Called Principal and interest thereon that would be due after
the Settlement Date with respect to such Called Principal if no payment of such
Called Principal were made prior to its scheduled due date, provided that if
such Settlement Date is not a date on which interest payments are due to be
made under the terms of the 6.82% bonds due 2036, then the amount of the next
succeeding scheduled interest payment will be reduced by the amount of interest
accrued to such Settlement Date and required to be paid on such Settlement
Date.

“Settlement Date” means, with
respect to the Called Principal of any 6.82% bond due 2036, the date of
redemption.

Notwithstanding any provision in the Mortgage
Indenture to the contrary, in the case of each partial redemption of the 6.82%
bonds due 2036, the principal amount of the 6.82% bonds due 2036 to be redeemed
shall be allocated by the Trustee among all of the 6.82% bonds due 2036 at the
time outstanding in proportion, as nearly as practicable, to the respective
unpaid principal amounts thereof not theretofore called for redemption.

The 6.82% bonds due 2036 are not otherwise subject to
redemption.

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Section 2.02   Exchangeability. Subject to Section 305 of the Mortgage
Indenture, all 6.82% bonds due 2036 shall be fully interchangeable, and, upon
surrender at the office or agency of the Company in a Place of Payment
therefor, shall be exchangeable for other 6.82% bonds due 2036 of a different
authorized denomination or denominations, as requested by the Holder
surrendering the same. The Company will execute, and the Trustee shall
authenticate and deliver, 6.82% bonds due 2036 whenever the same are required
for any such exchange.

Section 2.03   Bond Purchase Agreement. Reference is made to
Sections 9, 10 and 13 of the Bond Purchase Agreement, such Sections
attached hereto as Schedule B,  for certain provisions governing the rights
and obligations of the Company, the Trustee and the Holders of the 6.82% bonds
due 2036. Such provisions are deemed to be incorporated in this Article 2
by reference as if set forth herein at length, so long as any of the 6.82%
bonds due 2036 remain outstanding.

Section 2.04   Offer to Purchase the 6.82% bonds due 2036 in Event of a Change of
Control.

(a)      Notice of
Change in Control or Control Event. So long as any of the 6.82%
bonds due 2036 remain Outstanding, the Company will, within five
Business Days after any Responsible Officer (as defined in the Bond Purchase
Agreement) becoming aware of the occurrence of any Change in Control (as
defined below) or Control Event (as defined below), give written notice of such
Change in Control or Control Event to the Trustee and to each holder of the
6.82% bonds due 2036. If a Change in Control has occurred, such notice shall
contain and constitute an offer to purchase the 6.82% bonds due 2036 as
described in Section 2.04(c) of
this First Supplemental Indenture and shall be accompanied by the
certificate described in Section 2.04(g) of
this First Supplemental Indenture.

(b)     Condition to Company Action. The Company will not take any action that consummates or
finalizes a Change in Control unless (1) at least 30 days prior to such
action it shall have given to the Trustee and to each holder of the 6.82% bonds
due 2036 written notice containing and constituting an offer to purchase the
6.82% bonds due 2036 as described in Section 2.04(c) of this First
Supplemental Indenture, accompanied by the certificate described in Section 2.04(g) of this First
Supplemental Indenture, and (2) contemporaneously with such action,
the Company purchases all the 6.82% bonds due 2036 required to be purchased in
accordance with this Section 2.04.

(c)      Offer to
Purchase the 6.82% bonds due 2036. The offer to purchase the 6.82% bonds due 2036
contemplated by Sections 2.04(a) and
(b) of this First Supplemental Indenture shall be an offer to
purchase, in accordance with and subject to this Section 2.04 all, but not less than all, 6.82% bonds due
2036 held by each holder (in this case, “holder” in respect of any 6.82% bond
due 2036 registered in the name of a nominee for a disclosed beneficial owner
shall mean such beneficial owner) on a date specified in such offer (the “Proposed Purchase Date”). If
such Proposed Purchase Date is in connection with an offer contemplated by Section 2.04(a) of this First
Supplemental Indenture, such date shall be not less than 30 days and not
more than 60 days after the date of such offer (if the Proposed Purchase Date
shall not be specified in such offer, the Proposed Purchase Date shall be the
30th day after the date of such offer).

 7
 

 

(d)     Rejection; Acceptance. A holder of 6.82% bonds due 2036 may
accept or reject the offer to purchase made pursuant to this Section 2.04 by causing a notice
of such acceptance or rejection to be delivered to the Company at least five
Business Days prior to the Proposed Purchase Date. A failure by a holder of
6.82% bonds due 2036 to so respond to an offer to purchase made pursuant to
this Section 2.04 shall
be deemed to constitute a rejection of such offer by such holder.

(e)      Purchase. Purchase of the 6.82% bonds due 2036 to
be purchased pursuant to this Section 2.04 shall be at 100% of the principal amount of
such 6.82% bonds due 2036, together with accrued and unpaid interest on such
6.82% bonds due 2036 accrued to the date of purchase, but without any premium. The
purchase shall be made on the Proposed Purchase Date, except as provided by Section 2.04(f).

(f)      Deferral Pending Change in Control. The obligation of the Company to purchase the 6.82% bonds
due 2036 pursuant to the offers required by Section 2.04(c) and
accepted in accordance with Section 2.04(d) is
subject to the occurrence of the Change in Control in respect of which such
offers and acceptances shall have been made. In the event that such Change in
Control does not occur on the Proposed Purchase Date in respect thereof, the
purchase shall be deferred until, and shall be made on the date on which, such
Change in Control occurs. The Company shall keep each holder of 6.82% bonds due
2036 reasonably and timely informed of (1) any such deferral of the date
of purchase, (2) the date on which such Change in Control and the purchase
are expected to occur and (3) any determination by the Company that efforts
to effect such Change in Control have ceased or been abandoned (in which case
the offers and acceptances made pursuant to this Section 2.04 in respect of such Change in Control
automatically shall be deemed rescinded without penalty or other liability).

(g)     Officer’s Certificate. Each
offer to purchase the 6.82% bonds due 2036 pursuant to this Section 2.04 shall be
accompanied by a certificate, executed by a Senior Financial Officer (as
defined in the Bond Purchase Agreement) and dated the date of such offer,
specifying (1) the Proposed Purchase Date, (2) that such offer is
made pursuant to this Section 2.04,
(3) the principal amount of each 6.82% bond due 2036 offered to be
purchased, (4) the interest that would be due on each 6.82% bond due 2036
offered to be purchased, accrued to the Proposed Purchase Date, (5) that
the conditions of this Section 2.04
have been fulfilled and (6) in reasonable detail, the nature and date of
the Change in Control.

(h)     “Change in Control” shall mean,
in respect of the Company or the Parent (as defined in the Bond Purchase
Agreement), if (1)(i) any person (as such term is used in Section 13(d) and
Section 14(d)(2) of the Securities Exchange Act of 1934, as in effect
on the date of the Closing (as defined in the Bond Purchase Agreement) (for
purposes of this Section 2.04, the “Exchange
Act”)) or related persons constituting a group (as such term is used
in Section 13d-5 under the Exchange Act), becomes the “beneficial
owners” (as such term is used in Rule 13d-3 under the Exchange Act),
directly or indirectly, of more than 50% of the total voting power of all
classes then outstanding of the voting stock of either the Company or the
Parent (which shall not be deemed to include the beneficial ownership by the
Parent or its subsidiaries of the voting stock of the Company) or (ii) either
the Company or the Parent sells, leases, transfers, conveys or otherwise
disposes of (including by way of merger or consolidation), in one or a series
of related transactions, all or substantially all of its assets to any 

 8
 

 

person (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) and (2) after giving effect to the
occurrence of any such event, the Company or the Parent, as applicable, or the
person (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) that has acquired all or substantially all of the assets of the
Company or the Parent, shall (i) have an unsecured (unenhanced) long-term
debt rating of (x) “BB+” or lower by Standard & Poor’s, a
division of The McGraw-Hill Companies, Inc. (“S&P”)
or (y) “Ba1” or lower by Moody’s Investors Service, Inc. (“Moody’s”) or (ii) be rated by neither S&P nor Moody’s.

(i)       “Control Event” shall mean (1) the execution by
either the Company or the Parent or any of their Subsidiaries (as defined in
the Bond Purchase Agreement) or Affiliates (as defined in the Bond Purchase
Agreement) of any agreement or letter of intent with respect to any proposed
transaction or event or series of transactions or events which, individually or
in the aggregate, may reasonably be expected to result in a Change in Control, (2) the
execution of any written agreement which, when fully performed by the parties
thereto, would result in a Change in Control or (3) the making of any
written offer by any person (as such term is used in Section 13(d) and
Section 14(d)(2) of the Exchange Act) or related persons constituting
a group (as such term is used in Section 13d-5 under the Exchange
Act) to the holders of the common stock of either the Company or the Parent or
of any of their Subsidiaries or Affiliates, which offer, if accepted by the
requisite number of holders, would result in a Change in Control.

Section 2.05   Incurrence of Debt.

(a)      So long as any  of
the 6.82% bonds due 2036 remain Outstanding, notwithstanding anything contained
in Section 402(b) of the Mortgage Indenture to the contrary, the
Company will not, and will not permit any Subsidiary to, directly or
indirectly, create, incur, assume, guarantee, or otherwise become directly or
indirectly liable with respect to, any Debt (including First Mortgage Bonds),
unless on the date the Company or such Subsidiary becomes liable with respect
to any such Debt, and immediately after giving effect thereto and to the
concurrent retirement of any other Debt, the Company shall have an Interest
Coverage Ratio of not less than 2.0 to 1; provided, however, that the
incurrence of Debt in the ordinary course of business under working capital
facilities having a term of less than one year providing for successive reborrowings
and repayments shall not be included in calculating “Debt” for purposes of this
Section 2.05.

(b)     “Interest Coverage Ratio” shall mean, as of
any time the same is to be determined, the ratio of (a) EBITDA for the
most recent four (4) fiscal quarters for which financial statements have
been delivered to (b) Interest Charges for such four (4) fiscal
quarters.

(c)      “EBITDA” means, with reference to any
period, Net Income for such period plus all amounts deducted in arriving at
such Net Income amount in respect of (a) Interest Charges for such period,
plus (b) foreign, federal, state and local income taxes of the Company,
and its Subsidiaries paid or accrued for such period, plus (c) all amounts
properly charged by the Company and its Subsidiaries for depreciation and
amortization of intangible assets during such period, plus (d) any non-cash deductions from Net
Income for such period due to the write-down of any assets or any non-recurring
event (other than any deductions which require or represent the accrual of a
reserve for the payment of cash charges in any future period or amortization of
a prepaid cash expense that was paid in a prior period).

 9
 

 

(d)     “Net Income” shall mean, with reference to
any period, the net income (or net loss) of the Company and its Subsidiaries
for such period as computed on a consolidated basis in accordance with
generally accepted accounting principles in the United States.

(e)      “Interest Charges” shall mean, with
reference to any period, the sum of all interest charges (including imputed
interest charges with respect to capitalized lease obligations, all
amortization of debt discount and expense) of the Company and its Subsidiaries
for such period determined on a consolidated basis in accordance with generally
accepted accounting principles in the United States.

Section 2.06   Issuance of Additional First Mortgage Bonds.  So long as any of the 6.82% bonds due 2036 remain
Outstanding, notwithstanding anything contained in Section 402(b) of
the Mortgage Indenture to the contrary, and subject to the provisions of Section 2.05
of this First Supplemental Indenture, First Mortgage Bonds of any one or more
series (other than the 6.82% bonds due 2036) may only be authenticated and
delivered under the Mortgage Indenture in a principal amount not to exceed 75%
of the Cost of Property Additions acquired after the date hereof that have not previously
been the subject of any application for the withdrawal, use or application of
cash under Section 2.07(e) and have not previously been included in
any Experts’ Certificate delivered pursuant to Section 402(b) of the
Mortgage to the extent of the principal amount of First Mortgage Bonds issued
on the basis of any such certificate. All of the
provisions of Section 102(c) of the Mortgage Indenture shall apply in
respect of any such Property Additions that consist of property owned by a
successor corporation immediately prior to the time it has become such, or used
or operated by others then the Company, except that the last sentence thereof
shall be deemed to be amended by deleting the balance of such sentence after
the word “apportioned”. In connection with any issuance of First Mortgage
Bonds, the Company shall be obligated to deliver to the Trustee the documents,
certificates and opinion specified in Section 402(b) of the Mortgage
Indenture, appropriately modified to reflect the provisions of this Section 2.06.

Section 2.07   Application of Proceeds of Certain Releases under Article 16 of
the Mortgage Indenture.  So long as any
of the 6.82% bonds due 2036 remain Outstanding, the provisions of Sections
1602(e), 1603, 1606(a) and 1606(b) of the Mortgage Indenture shall be
deemed to be modified as follows:

(a)      Any
consideration received by the Company for a grant of an easement, right-of-way,
lease, license, authority or permit permitted by Section 1602(e) aggregating
in excess of $250,000 to be received within any given calendar year shall be
paid over to the Trustee to be held by it as part of the Mortgaged Property,
subject to withdrawal as provided hereinafter in this Section 2.07;
provided, however, that the Company may alternatively treat any such grant as a
release to the extent allowed by Section 1605 of the Mortgage Indenture.

(b)     In
lieu of clauses (iii), (iv), (v) and (vi) of subsection (c), any
Experts’ Certificate required by Section 1603 of the Mortgage Indenture
shall state instead:

(i)      that the proceeds received or to be
received by the Company for the release of the Mortgaged Property that is the
subject of the application under Section 1603 of which such Experts’
Certificate is a part (before deductions for ordinary and 

 10
 

 

reasonable out-of-pocket
costs and expenses of sale actually incurred by the Company) is not less than
the Fair Value of such property as stated in clause (ii) of such Experts’
Certificate; and

(ii)     the amount of such net proceeds, after the
deductions described in clause (i) above, required to be deposited with
the Trustee; and

(iii)    that, in the judgment of the signers, such
release will not impair the security of the Mortgage in contravention of the
provisions thereof.

(c)      Subsection
(d) of Section 1603 of the Mortgage Indenture shall be deemed to be
deleted.

(d)     The
last paragraph of Section 1603 shall be deemed to read as follows:

“Cash in the amount of the net proceeds
specified in the Experts’ Certificate described above shall be deposited with
the Trustee, shall be held as part of the Mortgaged Property and shall be
withdrawn, released, used or applied in the manner, to the extent and for the
purposes, and subject to the conditions, provided in Section 1606.”

(e)      Subsection
(a) of Section 1606 shall be deemed to read as follows:

“may be withdrawn from time to time by the
Company upon receipt by the Trustee of: (i) a Company Order requesting the
withdrawal, use or application of such cash and transmitting appropriate
instructions, (ii) an Officers’ Certificate stating that, to the knowledge
of the signer, no Event of Default has occurred and is continuing; (iii) an
Experts’ Certificate made and dated not more than 90 days prior to the first
day of the month in which such Company Order is delivered to the Trustee
stating that (A) the Company has acquired Property Additions after June 1,
2006 and prior to the date of such Experts’ Certificate having a Cost equal to
the amount of cash requested to be withdrawn, used or applied, and describing
such Property Additions; and (B) that such Property Additions have not
previously been the subject of any other application for the withdrawal, use or
application of cash under this Section and have not previously been
included in any Experts’ Certificate delivered pursuant to Section 402(b) of
this Mortgage to the extent of the principal amount of First Mortgage Bonds
issued on the basis of any such certificate; and (iv) an Opinion of
Counsel to the effect that: (1) this Mortgage constitutes, or, upon the
delivery of, and/or the filing and/or recording in the proper places and manner
of, the instruments of conveyance, assignment or transfer, if any, specified in
said opinion, will constitute, a valid and direct mortgage lien, subject only
to Permitted Liens, upon the interest of the Company in such Property Additions;
and (2) the Company has corporate authority to operate such Property
Additions.”

(f)      Subsection
(b) of Section 1606 shall be deemed to read as follows:

 11
 

 

“may, upon the request of the Company, be
used by the Trustee for the purchase of First Mortgage Bonds in the manner, at
the time or times, in the amount or amounts, at the price or prices and
otherwise as directed or approved by the Company, all subject to the
limitations hereafter in this Section set forth; provided,
however, that, if the amount of any such
Available Cash held by the Trustee which is proposed to be applied by the
Company to the purchase of First Mortgage Bonds (the “Qualifying Proceeds”) in the then current
fiscal year is, in the aggregate, equal to 10% or less of the Qualifying
Property then the Company may, in its discretion, at any point in the then
current fiscal year, make an offer to purchase, at a price equal to 100% of the
principal amount thereof plus accrued interest thereon to the date of purchase,
the principal amount of 6.82% bonds due 2036 then Outstanding corresponding to
the amount of such Qualifying Proceeds; 
and provided, further, however, that if such
Qualifying Proceeds in the then current fiscal year is, in the aggregate, in
amount greater than 10% of the Qualifying Property, then the Company may, in
its discretion, at any point in the then current fiscal year make an offer to
purchase, at a price equal to 100% of the principal amount thereof plus accrued
interest thereon to the date of purchase plus the Make Whole Amount, a
principal amount of 6.82% bonds due 2036 then Outstanding corresponding to the
amount of such Qualifying Proceeds. “Qualifying
Property” means the amount of assets shown on the balance sheet of
the Company that constitute Property Additions at the end of the fiscal year
immediately preceding the year in which any offer is made pursuant to this Section 1606(b).
The Company shall provide written notice of any such offer to purchase to the
Trustee and the holders (in this case, “holder” in respect of any 6.82% bond
due 2036 registered in the name of a nominee for a disclosed beneficial owner
shall mean such beneficial owner) of the 6.82% bonds due 2036 then Outstanding.
A holder of the 6.82% bonds due 2036 may accept or reject any such offer to
purchase made pursuant to this Section 1606(b) by causing a notice of such acceptance
or rejection to be delivered to the Company no later than 30 days after the
date on which such holder first receives written notice of the Company’s offer
to purchase the 6.82% bonds due 2036 in accordance with this Section 1606(b).
A failure by a holder of a 6.82% bond due 2036 to so respond to any such offer
to purchase made pursuant to this Section 1606(b) shall be deemed to constitute a rejection of such
offer by such holder. In the event a holder of the  6.82% bonds due 2036 does not elect to
accept, or is deemed to reject, any such offer of purchase, the Qualifying
Proceeds shall, upon the request of the Company to the Trustee,  promptly be released to the Company provided
that no Event of Default shall have occurred and be continuing. In the event a
holder of the  6.82% bonds due 2036
accepts any such offer of purchase in accordance with the provisions of this Section 1606(b),
the Company shall promptly effect such purchase in accordance with the
provisions hereof.”

Section 2.08   Eligibility. So long as any of the 6.82% bonds due 2036
remain Outstanding, Section 1009(b) of the Mortgage Indenture shall
be deemed to be deleted.

 12

 

Section 2.09   Conditional Call. So long as any of the 6.82% bonds due 2036
remain Outstanding, the third paragraph of Section 504 of the Mortgage
Indenture shall not be applicable to any redemption of such bonds.

Article 3.     Events
of Default

Section 3.01   Events of Default. Notwithstanding Section 901(a) of
the Mortgage Indenture, failure to pay any interest, including interest on
overdue interest, on any 6.82% bond due 2036 when it becomes due and payable
and continuance of such default for a period of 5 Business Days shall
constitute an “Event of Default” under the Mortgage Indenture.

Section 3.02   Additional Events of Default. Pursuant to Section 901(f) of
the Mortgage Indenture, Section 901 of the Mortgage Indenture shall be
supplemented to include as “Events of Default” thereunder the occurrence of any
of the following events (each such event, together with those “Events of
Default” in Section 3.01 of this First Supplemental Indenture and in Section 901(b) —
(e) of the Mortgage Indenture, an “Event of Default”),
so long as any of the  6.82% bonds due
2036 remain outstanding:

(a)      any
representation or warranty made in writing by or on behalf of the Company or by
any officer of the Company in the Bond Purchase Agreement or in any writing
furnished in connection with the transactions contemplated by the Bond Purchase
Agreement proves to have been false or incorrect in any material respect on the
date as of which made or furnished, as the case may be;

(b)     (i) the
Company or any Subsidiary (as defined in the Bond Purchase Agreement) is in
default (as principal or as guarantor or other surety) in the payment of any
principal of or premium or make-whole amount or interest on any Indebtedness
(as defined in the Bond Purchase Agreement) that is outstanding in an aggregate
principal amount of at least $5,000,000 beyond any period of grace provided
with respect thereto, or (ii) the Company or any Subsidiary is in default
in the performance of or compliance with any term of any evidence of any
Indebtedness in an aggregate outstanding principal amount of at least  $5,000,000 or of any mortgage, indenture or
other agreement relating thereto or any other condition exists, and as a
consequence of such default or condition such Indebtedness has become, or has
been declared (or one or more Persons (as defined in the Bond Purchase
Agreement) are entitled to declare such Indebtedness to be), due and payable
before its stated maturity or before its regularly scheduled dates of payment,
or (iii) as a consequence of the occurrence or continuation of any event
or condition (other than the passage of time or the right of the holder of
Indebtedness to convert such Indebtedness into equity interests), (x) the
Company or any Subsidiary has become obligated to purchase or repay
Indebtedness before its regular maturity or before its regularly scheduled
dates of payment in an aggregate outstanding principal amount of at least
$5,000,000 or (y) one or more Persons have the right to require the
Company or any Subsidiary so to purchase or repay such Indebtedness;

(c)      a
final judgment or judgments for the payment of money aggregating in excess of
$5,000,000 are rendered against one or more of the Company or any Subsidiary
and such judgments are not, within 60 days after entry thereof, bonded,
discharged or stayed pending appeal, or are not discharged within 60 days after
the expiration of such stay;

 13
 

 

 

(d)     if
(i) any Plan (as defined in the Bond Purchase Agreement) shall fail to
satisfy the minimum funding standards of ERISA (as defined in the Bond Purchase
Agreement) or the Code (as defined in the Bond Purchase Agreement) for any plan
year or part thereof or a waiver of such standards or extension of any
amortization period is sought or granted under section 412 of the Code, (ii) a
notice of intent to terminate any Plan shall have been filed with the PBGC (as
defined in the Bond Purchase Agreement) or the PBGC shall have instituted
proceedings under ERISA section 4042 to terminate or appoint a trustee to
administer any Plan or the PBGC shall have notified the Company or any ERISA
Affiliate (as defined in the Bond Purchase Agreement) that a Plan may become a
subject of any such proceedings, (iii) the Company or any ERISA Affiliate
shall have incurred or is reasonably expected to incur any liability pursuant
to Title I or IV of ERISA or the penalty or excise tax provisions of the Code
relating to employee benefit plans, (iv) the Company or any ERISA
Affiliate withdraws from any Multiemployer Plan (as defined in the Bond
Purchase Agreement), or (v) the Company establishes or amends any employee
welfare benefit plan that provides post-employment welfare benefits in a manner
that would increase the liability of the Company thereunder; and any such event
or events described in clauses (i) through (v) above, either
individually or together with any other such event or events, could reasonably
be expected to have a Material Adverse Effect (as defined in the Bond Purchase
Agreement). As used in this Section 3.01(d), the terms “employee benefit
plan” and “employee welfare benefit plan” shall have the respective meanings
assigned to such terms in Section 3 of ERISA;

(e)      the
Company defaults in the performance of or compliance with any term contained in
Sections 7.1(d), 7.1(e), 7.1(f), 7.1(g) or 9.7 of the Bond Purchase
Agreement or Sections 2.04, 2.05, 2.06 or 2.07 of this First Supplemental
Indenture;

(f)      the
Company defaults in the performance of or compliance with any term contained in
the Bond Purchase Agreement (other than those referred to in the other
subsections of this Section) and such default is not remedied within 30 days
after the earlier of (i) a Responsible Officer (as defined in the Bond
Purchase Agreement) obtaining actual knowledge of such default and (ii) the
Company receiving written notice of such default from any Holder of a 6.82%
bond due 2036 (any such written notice to be identified as a “notice of default”
and to refer specifically to this subsection); or

(g)     the
Company fails to apply for a rating within the time specified in Section 9.8
of the Bond Purchase Agreement or to receive such rating within 150 days
following the date of application therefor.

Section 3.03   Liquidated Damages Payable on Acceleration. So long as any
of the 6.82% bonds due 2036 remain outstanding, upon any of the 6.82% bonds due 2036
becoming due and payable, whether automatically or by declaration, then,
notwithstanding anything in Article Nine of the Mortgage Indenture to the
contrary, the Company shall (to the full
extent permitted by applicable law) pay to the holders of the Outstanding 6.82%
bonds due 2036, in addition to all other amounts payable pursuant to said Article Nine
(without duplication), an amount of liquidated
damages equal to the entire unpaid principal amount of such 6.82% bonds
due 2036, plus (x) all accrued and unpaid
interest thereon (including, but not limited to, interest accrued thereon at
the Default Rate) and (y) the Make-Whole Amount determined in respect of
such principal amount, and the registered owners of the 6.82% bonds due
2036 shall (to the full 

 14
 

 

extent permitted by applicable law)
have a claim (secured by the Lien of the Mortgage) against the Company for such
additional amount of liquidated damages.

The Company acknowledges that each Holder of a 6.82%
bond due 2036 has the right to maintain its investment in the 6.82% bonds due
2036 free from repayment by the Company (except as herein specifically provided
for) and that the provision for payment of a Make-Whole Amount by the Company
in the event that the 6.82% bonds due 2036 are prepaid or are accelerated as a
result of an Event of Default, is intended to provide compensation for the
deprivation of such right under such circumstances.

Article 4.     Miscellaneous

Section 4.01   Ratification. The provisions of this First Supplemental
Indenture shall be effective from and after the execution hereof; and the
Mortgage, as hereby supplemented, shall remain in full force and effect.

Section 4.02   Successor and Assigns. All covenants, provisions,
stipulations and agreements in this First Supplemental Indenture contained are
and shall be for the sole and exclusive benefit of the parties hereto, their
successors and assigns, and (subject to the provisions of the Bond Purchase
Agreement) of the Holders and registered owners from time to time of the 6.82%
bonds due 2036).

Section 4.03   Effect of Table of Contents and Headings. The description
headings of the several Articles and Sections of this First Supplemental
Indenture are inserted for convenience of reference only and are not to be
taken to be any part of this First Supplemental Indenture or to control or
affect the meaning, construction or effect of the same.

Section 4.04   Counterparts. For the purpose of facilitating the recording
hereof, this First Supplemental Indenture may be executed in any number of
counterparts, each of which shall be and shall be taken to be an original and
all collectively but one instrument.

Section 4.05   Governing Law. This First Supplemental Indenture and the
6.82% bonds due 2036 shall be governed by and construed in accordance with the
law of the State of Missouri, except to the extent that the Trust Indenture Act
shall be applicable and except to the extent that the laws of any other state
where the Company then owns Mortgaged Property shall govern the Mortgage Lien
and related provisions of the Mortgage with respect to property in such state;
provided however that the rights and obligations of the Trustee shall be
governed by the laws of the state of New York.

 15

 

IN WITNESS WHEREOF, the
parties hereto have caused this First Supplemental Indenture to be duly
executed as of the day and year first above written.

	
  

  	
   

  	
  THE EMPIRE DISTRICT GAS COMPANY

  
	
   

  	
   

  	
   

  
	
  Attest:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/ Laurie A.
  Delano

  	
   

  	
  By  /s/ Ronald
  F. Gatz

  
	
  Laurie A.
  Delano, Assistant Secretary

  	
   

  	
   

  	
  Ronald F. Gatz, Vice
  President

  
	
   

  	
   

  	
   

  
	
  Signed and
  delivered in the presence of:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/ Maria
  Macoubrie

  	
   

  	
  Printed Name: 

  	
  Maria Macoubrie

  
	
   

  	
   

  	
   

  	
   

  
	
  /s/ Michael R.
  Humphrey

  	
   

  	
  Printed Name: 

  	
  Michael R. Humphrey

  
					

 

 

	
  

  	
   

  	
  THE BANK OF NEW YORK TRUST COMPANY, N.A.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By

  	
  /s/ Steven D. Torgeson

  
	
   

  	
   

  	
  Printed Name: 

  	
  Steven D. Torgeson

  
	
   

  	
   

  	
  Its: 

  	
  Vice President

  

 

 

 

	
  STATE OF MISSOURI

  	
  )

  
	
   

  	
  ) ss.

  
	
  COUNTY OF JACKSON

  	
  )

  

 

On this 24th day of May, 2006, before me, appeared Ronald F. Gatz, to me personally
known, who being by me duly sworn, did say that he is the Vice-President of The
Empire District Gas Company, a Kansas corporation, that said corporation has no
seal, that said instrument was signed on behalf of said corporation by
authority of its Board of Directors, and acknowledged said instrument to be the
free act and deed of said corporation.

IN WITNESS WHEREOF, I
have hereunto set my hand and affixed my notarial seal at my office in Kansas
City, Missouri, the day and year last above written.

	
  

  	
   

  	
  /s/ Martisua
  Lager

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Martisua Lager

  
	
   

  	
   

  	
  Notary Public in
  and for

  
	
   

  	
   

  	
  said County and
  State

  
	
   

  	
   

  	
   

  
	
  My Commission Expires:

  	
   

  	
   

  
	
  10/14/07

  	
   

  	
   

  

(The Notary Public must
type or print his/her name immediately beneath his/her signature.)

 

 

	
  STATE OF ILLINOIS

  	
  )

  
	
   

  	
  ) ss.

  
	
  COUNTY OF COOK

  	
  )

  

 

On this 30th day of May, 2006, before me, appeared Steven
D. Torgeson, to me personally known, who being by me duly sworn, did say that
he/she is the Vice President of The Bank of New York Trust Company, N.A., a
national banking association, that the seal affixed to the foregoing instrument
is the corporate seal of the corporation, that said instrument was signed and
sealed on behalf of said corporation by authority of its Board of Directors,
and acknowledged said instrument to be the free act and deed of said
corporation.

IN WITNESS WHEREOF, I
have hereunto set my hand and affixed my notarial seal at my office in Chicago,
Illinois, the day and year last above written.

	
  

  	
   

  	
  /s/ Mike
  Countryman

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Mike Countryman

  
	
   

  	
   

  	
  Notary Public in
  and for

  
	
   

  	
   

  	
  said County and
  State

  
	
   

  	
   

  	
   

  
	
  My Commission Expires:

  	
   

  	
   

  
	
  [illegible]

  	
   

  	
   

  

(The Notary Public must
type or print his/her name immediately beneath his/her signature.)

SCHEDULE A

[FORM OF 6.82% BOND DUE 2036]

THIS
SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT
FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES ACT”), AND THIS SECURITY MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE
EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT
THE SELLER OF THIS SECURITY MAY BE RELYING ON AN EXEMPTION FROM THE
REGISTRATION PROVISIONS OF THE SECURITIES ACT. THE HOLDER OF THIS SECURITY
AGREES FOR THE BENEFIT OF THE EMPIRE DISTRICT GAS COMPANY (THE “COMPANY”) THAT (A) THIS
SECURITY MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (I) TO
A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER
(AS DEFINED IN RULE 144A PROMULGATED UNDER THE SECURITIES ACT) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A, (II) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE), OR ANY OTHER AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT, SUBJECT TO THE COMPANY’S AND THE TRUSTEE’S RIGHT PRIOR TO ANY
SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (II) TO REQUIRE THE
DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION
SATISFACTORY TO EACH OF THEM, (III) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR (IV) TO THE COMPANY OR ANY OF ITS
SUBSIDIARIES, IN EACH OF CASES (I) THROUGH (IV) IN ACCORDANCE WITH
ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE
HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY SUBSEQUENT
PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.

THE
HOLDER OF THIS BOND, BY VIRTUE OF ITS ACQUISITION HEREOF, AGREES TO BE
BOUND BY THE TERMS OF THE MORTGAGE AND THE BOND PURCHASE AGREEMENT (EACH AS
DEFINED IN THIS BOND) TO THE EXTENT APPLICABLE, AND ACKNOWLEDGES THAT THE
MORTGAGE AND THE BOND PURCHASE AGREEMENT EACH CONTAIN A FURTHER DESCRIPTION OF
THE RESPECTIVE RIGHTS AND OBLIGATIONS OF THE HOLDER OF THIS BOND, THE COMPANY
AND THE TRUSTEE, AND THE TERMS APPLICABLE TO THIS BOND.

 

 

	
  No. 2036-[                     ]

  	
   

  	
  PPN: 29164# AA 5

  

$

THE EMPIRE DISTRICT GAS COMPANY

Incorporated under
the Laws of the State of Kansas

FIRST MORTGAGE
BONDS, 6.82% SERIES DUE 2036

PRINCIPAL DUE June 1,
2036

FOR VALUE RECEIVED, THE EMPIRE DISTRICT GAS COMPANY, a
corporation organized and existing under the laws of the State of Kansas
(hereinafter called the Company), hereby promises to pay to [          ],
or registered assigns, the principal sum of [           ]
dollars, on the 1st day of June, 2036 and to pay interest on said sum,
semiannually on the 1st day of June and December in each
year, commencing December 1, 2006 until the Company’s obligation with
respect to said principal sum shall be discharged, at the rate per annum
specified in the title of this bond from the interest payment date next preceding
the date of authentication hereof to which interest has been paid on the bonds
of this series, or if the date of authentication hereof is prior to December 1,
2006,  then from June 1, 2006, or if
the date of authentication hereof is an interest payment date to which interest
is being paid or a date between the record date for any such interest payment
date and such interest payment date, then from such interest payment date. Interest
on interest and principal which is overdue shall bear interest at that rate of
interest that is 2.00% per annum above the rate of interest specified in the
title of the 6.82% bonds due 2036.

The principal and the Redemption Price (as defined
below) of, and interest on, this bond shall be payable by Federal funds bank
wire transfer of immediately available funds so long as required by Section 13.1
of the Bond Purchase Agreement, dated June 1, 2006, between the Company
and the initial purchasers of the 6.82% bonds due 2036 (the “Bond Purchase Agreement”) or, in the event Section 13.1
shall no longer be applicable, in accordance with the provisions of the
Mortgage Indenture.

This bond is one of a duly authorized issue of First
Mortgage Bonds of the Company designated as its “First Mortgage Bonds” (herein
called the “bonds”), issued and to be issued
in one or more series under, and all equally and ratably secured by, an
Indenture of Mortgage and Deed of Trust dated as of June 1, 2006 (said
Indenture of Mortgage and Deed of Trust (i) being hereinafter generally
called the “Mortgage Indenture,” and (ii) together
with the First Supplemental  Indenture
(the “First Supplemental Indenture”) thereto,
being hereinafter generally called the “Mortgage”)
between the Company and The Bank of New York Trust Company, N.A., as bond
trustee (herein called the “Trustee”). Reference
is hereby made to the Mortgage for a description of the properties thereby
mortgaged, pledged and assigned, the nature and extent of the security, the
respective rights thereunder of the holders of the bonds, the Trustee and the
Company, and terms upon which the bonds are, and are to be, authenticated and
delivered. Reference is made also to the Bond Purchase Agreement for 

 2
 

 

a further description of the respective rights of the
Holder of this bond, the Company and the Trustee, and the terms applicable to
this bond.

As provided in the Mortgage, the bonds are issuable in
series which may vary as in the Mortgage provided or permitted. This bond is
one of the series specified in its title.

Interest on this bond shall be computed on the basis
of a 360-day year consisting of twelve 30-day months, and with
respect to any period less than a full calendar month, on the basis of the
actual number of days elapsed for such period.

The person in whose name any 6.82% bond due 2036 is
registered at the close of business on any record date (as hereinafter defined)
with respect to any interest payment date shall be entitled to receive the
interest payable on such interest payment date notwithstanding the cancellation
of such bond upon any registration of transfer or exchange thereof subsequent
to the record date and prior to such interest payment date, except that if and
to the extent the Company shall default in the payment of the interest due on
such interest payment date, then such defaulted interest shall be paid to the
person in whose name such bond is registered at the close of business on the
date before such payment. The term “record date” as
used with respect to any regular interest payment date (i.e., June 1 or December 1)
shall mean the May 31 or November 30, as the case may be, next
preceding such interest payment date, or if such May 31 or November 30
is not a Business Day, the next preceding Business Day.

Any payment of principal, Make-Whole Amount (as
defined below) or interest on any 6.82% bond due 2036 that is due on a date
other than a Business Day shall be made on the next succeeding Business Day
without including the additional days elapsed in the computation of the
interest payable on such next succeeding Business Day; provided that,
notwithstanding Section 114 of the Mortgage Indenture if the maturity date
of any 6.82% bond due 2036 is a date other than a Business Day, the payment
otherwise due on such maturity date shall be made on the next succeeding
Business Day and shall include the additional days elapsed in the computation
of interest payable on such next succeeding Business Day.

Reference is hereby made to the further provisions of
this bond set forth on the reverse hereof, including without limitation
provisions in regard to the call and redemption and the registration of
transfer and exchangeability of this bond, and such further provisions shall
for all purposes have the same effect as though fully set forth in this place.

This bond shall not become or be valid or obligatory
until the certificate of authentication hereon shall have been signed by The
Bank of New York Trust Company, N.A. and hereinafter with its successors as
defined in the Mortgage, generally called the Trustee, or by such a successor.

 3
 

 

IN WITNESS WHEREOF, The Empire District Gas Company
has caused this bond to be executed in its corporate name and on its behalf by
its Chief Financial Officer by his signature or a facsimile thereof, and
attested by the manual or facsimile signature of its Secretary.

	
  Dated
  as of June 1, 2006.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  

  	
   

  	
  THE EMPIRE DISTRICT GAS COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Name: Gregory A. Knapp

  
	
   

  	
   

  	
   

  	
  Title: Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Attest:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Name: Janet S. Watson

  
	
   

  	
   

  	
   

  	
  Title: Secretary

  
					

 

 4

 

[FORM OF TRUSTEE’S CERTIFICATE]

This is one of the First Mortgage Bonds of the series
designated therein referred to in the within-mentioned Mortgage.

The Bank of New York Trust Company, N.A.,
as Trustee

By: _____________________________

Authorized Signatory

Dated June 1, 2006

[FORM OF BOND]

[REVERSE]

FIRST MORTGAGE BONDS, 6.82% SERIES DUE 2036

This bond is one of an issue of bonds of the Company,
known as its First Mortgage Bonds, all issued or to be issued in one or more
series, and is one of a series of said bonds limited in principal amount to
Fifty-Five Million Dollars ($55,000,000), consisting only of registered bonds
without coupons and designated “First Mortgage Bonds, 6.82% Series due
2036”, all of which bonds are issued or are to be issued under, and equally and
ratably secured by, the Mortgage, as provided in the Mortgage to which
reference is made for a statement of the property mortgaged and pledged, the
nature and extent of the security, the rights of the holders of the bonds in
respect thereof and the terms and conditions upon which the bonds may be issued
and are secured; but neither the foregoing reference to the Mortgage nor any
provision of this bond or of the Mortgage shall affect or impair the obligation
of the Company, which is absolute, unconditional and unalterable, to pay at the
maturities herein provided the principal of and interest on this bond as herein
provided.

All bonds of this series are fully interchangeable,
and, upon surrender at the office or agency of the Company in a Place of
Payment thereof, shall be exchangeable for other bonds of this series of a
different authorized denomination or denominations, as requested by the Holder
surrendering the same.

Prior to due presentment for registration of transfer
of this bond the Company and the Trustee may deem and treat the registered
owner hereof as the absolute owner hereof, whether or not this bond be overdue,
for the purpose of receiving payment and for all other purposes, and neither
the Company nor the Trustee shall be affected by any notice to the contrary.

If an Event of Default, as defined in either the
Mortgage Indenture or the First Supplemental Indenture, occurs and is
continuing, the principal of this bond may become or be declared due and
payable in the manner, at the price and with the effect provided in the
Mortgage.

The 6.82% bonds due 2036 are subject to redemption
prior to maturity, as a whole at any time or in part from time to time, in
accordance with the provisions of the Mortgage, upon not less than thirty (30)
days nor more than sixty (60) days prior notice (which notice may be made
subject to the deposit of redemption moneys with the Trustee before the date
fixed for redemption) given by mail as provided in the Mortgage, at the option
of the Company, at a redemption price equal to the principal amount of the
bonds being redeemed plus accrued interest thereon to the date of redemption
plus the Make Whole Amount (the “Redemption Price”).
The Redemption Price and all components thereof shall be calculated by the
Company and not by the Trustee.

“Make-Whole Amount” means, with
respect to any Bond, an amount equal to the excess, if any, of the Discounted
Value of the Remaining Scheduled Payments with 

 

respect to the Called Principal of such 6.82% bond due
2036 over the amount of such Called Principal, provided that the Make-Whole
Amount may in no event be less than zero. For the purposes of determining the
Make-Whole Amount, the following terms have the following meanings:

“Called Principal” means, with
respect to any 6.82% bond due 2036, the principal of such 6.82% bond due 2036
that is to be prepaid.

“Discounted Value” means, with
respect to the Called Principal of any 6.82% bond due 2036, the amount obtained
by discounting all Remaining Scheduled Payments with respect to such Called
Principal from their respective scheduled due dates to the Settlement Date with
respect to such Called Principal, in accordance with accepted financial
practice and at a discount factor (applied on the same periodic basis as that
on which interest on the 6.82% bonds due 2036 is payable) equal to the
Reinvestment Yield with respect to such Called Principal.

“Reinvestment Yield” means, with
respect to the Called Principal of any 6.82% bond due 2036, 0.50% over the
yield to maturity implied by (i) the yields reported as of 10:00 a.m.
(New York City time) on the second Business Day preceding the Settlement Date
with respect to such Called Principal, on the display designated as “Page PX1” (or such other display as may replace Page PX1
on Bloomberg Financial Markets (“Bloomberg”) or,
if Page PX1 (or its successor screen on Bloomberg) is unavailable, the
Telerate Access Service screen which corresponds most closely to Page PX1
for the most recently issued actively traded U.S. Treasury securities having a
maturity equal to the Remaining Average Life of such Called Principal as of
such Settlement Date, or (ii) if such yields are not reported as of such
time or the yields reported as of such time are not ascertainable (including by
way of interpolation), the Treasury Constant Maturity Series Yields
reported, for the latest day for which such yields have been so reported as of
the second Business Day preceding the Settlement Date with respect to such
Called Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable
successor publication) for actively traded U.S. Treasury securities having a
constant maturity equal to the Remaining Average Life of such Called Principal
as of such Settlement Date. Such implied yield will be determined, if
necessary, by (a) converting U.S. Treasury bill quotations to bond
equivalent yields in accordance with accepted financial practice and (b) interpolating
linearly between (1) the actively traded U.S. Treasury security with the
maturity closest to and greater than such Remaining Average Life and (2) the
actively traded U.S. Treasury security with the maturity closest to and less
than such Remaining Average Life. The Reinvestment Yield shall be rounded to
the nearest one hundred-thousandth of a percentage point.

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

 2
 

 

 

“Remaining Scheduled Payments”
means, with respect to the Called Principal of any 6.82% bond due 2036, all
payments of such Called Principal and interest thereon that would be due after
the Settlement Date with respect to such Called Principal if no payment of such
Called Principal were made prior to its scheduled due date, provided that if
such Settlement Date is not a date on which interest payments are due to be
made under the terms of the 6.82% bonds due 2036, then the amount of the next
succeeding scheduled interest payment will be reduced by the amount of interest
accrued to such Settlement Date and required to be paid on such Settlement
Date.

“Settlement Date” means, with
respect to the Called Principal of any 6.82% bond due 2036, the date of
redemption.

The 6.82% bonds due 2036 are also subject to mandatory
repurchase by the Company under the circumstances provided in the First
Supplemental Indenture.

Notwithstanding any provision in the Mortgage
Indenture to the contrary, in the case of each partial redemption of the 6.82%
bonds due 2036, the principal amount of the 6.82% bonds due 2036 to be redeemed
shall be allocated by the Trustee among all of the 6.82% bonds due 2036 at the
time outstanding in proportion, as nearly as practicable, to the respective
unpaid principal amounts thereof not theretofore called for redemption.

No recourse shall be had for the payment of the
principal of or the interest on this bond, or any part thereof, or for any
claim based thereon or otherwise in respect thereof, to any incorporator,
shareholder, member, limited partner, officer, manager, director or employee,
as such, past, present or future of the Company, either directly or indirectly,
by virtue of any statute or by enforcement of any assessment or otherwise, and
any and all liability of the said incorporators, shareholders, members, limited
partners, officers, managers, directors or employees of the Company in respect
to this bond is hereby expressly waived and released by every holder hereof.

 

 3

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