Document:

Exhibit 10.1

 

[Momenta Pharmaceuticals, Inc.
Letterhead]

 

October 26,
2005

 

Ram
Sasisekharan, Ph.D.

Massachusetts Institute of Technology

Center for Biomedical Engineering

16-561, 77 Massachusetts Avenue

Cambridge, MA 02139

 

Re:  Consulting Agreement – Renewal

 

Dear Mr. Sasisekharan:

 

Reference
is made to the Consulting Agreement effective dated August 16, 2001
between Momenta Pharmaceuticals, Inc. (formerly Mimeon, Inc.) (“Company”)
and you (“Consultant”), as extended and amended by letter agreements dated August 1,
2003, July 12, 2004, and March 15, 2005 (collectively, the “Agreement”).  Capitalized terms used herein and not
otherwise defined shall have the meanings given such terms in the
Agreement.  The parties hereby amend the
Agreement as follows:

 

1.  Pursuant to Section 4 of the Agreement,
Company and Consultant hereby agree to extend the Term of the Agreement for one
additional year, commencing effective as of August 16, 2005 and
terminating on August 15, 2006 (the “3rd Renewal Period”).

 

2.  Section 3.1 of the Agreement is hereby
amended by deleting the definition of “Field of Interest” and replacing it with
the following:  “The term ‘Field of
Interest’ shall mean the field of sequencing, chemical, enzymatic or biological
synthesis, production or modification of linear and branched sugars and
glycoconjugates.  Field of Interest shall
also include complex mixture-related activities in which Momenta is engaged
during the term of the Consulting Agreement.”

 

3.  Section 8 of the Agreement is hereby
amended by deleting the second sentence and replacing it with the
following:  “In addition, during the 3rd
Renewal Period and for a period of one (1) year thereafter, Consultant
shall not, without the prior written consent of the Chief Executive Officer of
Momenta, which shall not be unreasonably withheld, perform consulting services
in the Field of Interest for or on behalf of any business enterprise.”

 

4.  Consultant hereby represents that Consultant
has not been debarred, and to the best of Consultant’s knowledge, is not under
consideration to be debarred, by the Food and Drug Administration from working
in or providing services to any pharmaceutical or biotechnology company under
the Generic Enforcement Act of 1992.

 

5.  Except as otherwise agreed to in this Letter
Agreement, the same terms and conditions as are set forth in the Agreement,
including without limitation those governing compensation, shall remain in full
force and effect during the 3rd Renewal Period.

 

 

If the
foregoing is in conformity with your understanding, please sign both copies of
this letter agreement and return to us for counter-signature, attention Lisa
Carron Shmerling, Deputy General Counsel. 
This letter agreement shall be deemed to be binding and effective, upon
the terms specified herein, as of the date of the final signature below.

 

Very truly
yours,

 

MOMENTA
PHARMACEUTICALS, INC.

 

 

	
  By:

  	
  /s/ Alan
  L. Crane

  	
   

  
	
   

  	
  Alan L.
  Crane

  
	
   

  	
  Chairman
  and Chief Executive Officer

  

 

 

Date: November 8,
2005

 

 

	
   

  	
  Agreed
  and accepted:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ram
  Sasisekharan

  	
   

  
	
   

  	
   

  	
  Ram
  Sasisekharan

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Date: November 7,
  2005

  

 

2Exhibit
4.1

 

EXECUTION
COPY

 

 

 

PG&E
ENERGY RECOVERY FUNDING LLC,

 

Issuer

 

and

 

DEUTSCHE BANK
NATIONAL TRUST COMPANY

 

Trustee

 

 

 

INDENTURE

 

Dated as of November 9,
2005

 

 

ENERGY
RECOVERY BONDS

 

SERIES 2005-2

 

 

 

 

Reconciliation and Tie between Trust Indenture Act of
1939 and Indenture, dated as of November 9, 2005.

 

	
  Trust Indenture Act Section

  	
   

  	
  Indenture Section(s)

  
	
   

  	
   

  	
   

  
	
  Section 310

  	
  (a)(1)

  	
   

  	
  6.11

  
	
   

  	
  (a)(2)

  	
   

  	
  6.11

  
	
   

  	
  (a)(3)

  	
   

  	
  6.10(b)(i)

  
	
   

  	
  (a)(4)

  	
   

  	
  Not Applicable

  
	
   

  	
  (b)

  	
   

  	
  6.11

  
	
  Section 311

  	
  (a)

  	
   

  	
  6.12

  
	
   

  	
  (b)

  	
   

  	
  6.12

  
	
   

  	
  (c)

  	
   

  	
  Not Applicable

  
	
  Section 312

  	
  (a)

  	
   

  	
  7.01, 7.02

  
	
   

  	
  (b)

  	
   

  	
  7.02(b)

  
	
   

  	
  (c)

  	
   

  	
  7.02(c)

  
	
  Section 313

  	
  (a)

  	
   

  	
  7.04

  
	
   

  	
  (b)

  	
   

  	
  7.04

  
	
   

  	
  (c)

  	
   

  	
  7.04

  
	
   

  	
  (d)

  	
   

  	
  7.04

  
	
  Section 314

  	
  (a)

  	
   

  	
  7.03(a)(i), 7.03(a)(ii), 7.03(a)(iii), 3.09

  
	
   

  	
  (b)

  	
   

  	
  3.06

  
	
   

  	
  (c)(1)

  	
   

  	
  11.01

  
	
   

  	
  (c)(2)

  	
   

  	
  11.01

  
	
   

  	
  (c)(3)

  	
   

  	
  2.11, 4.01(a)(C), 8.05(b)

  
	
   

  	
  (d)(1)

  	
   

  	
  2.11, 11.01(b)

  
	
   

  	
  (d)(2)

  	
   

  	
  Not Applicable

  
	
   

  	
  (d)(3)

  	
   

  	
  Not Applicable

  
	
   

  	
  (e)

  	
   

  	
  11.01

  
	
  Section 315

  	
  (a)

  	
   

  	
  6.01(b)

  
	
   

  	
  (b)

  	
   

  	
  6.05

  
	
   

  	
  (c)

  	
   

  	
  6.01(a)

  
	
   

  	
  (d)(1)

  	
   

  	
  6.01(c)

  
	
   

  	
  (e)

  	
   

  	
  5.13

  
	
  Section 316

  	
  (a)(1)(A)

  	
   

  	
  5.11

  
	
   

  	
  (a)(1)(B)

  	
   

  	
  5.12

  
	
   

  	
  (a)(2)

  	
   

  	
  Not Applicable

  
	
   

  	
  (b)

  	
   

  	
  5.07

  
	
  Section 317

  	
  (a)

  	
   

  	
  5.03(f)

  
	
   

  	
  (b)

  	
   

  	
  3.03

  
	
  Section 318

  	
  (a)

  	
   

  	
  11.06

  
	
   

  	
  (c)

  	
   

  	
  11.06

  

 

 

TABLE OF
CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE I

  
	
  DEFINITIONS
  AND INCORPORATION BY REFERENCE

  
	
   

  	
   

  	
   

  
	
  SECTION 1.01.

  	
  Definitions

  	
  2

  
	
  SECTION 1.02.

  	
  Incorporation by Reference
  of Trust Indenture Act

  	
  12

  
	
  SECTION 1.03.

  	
  Rules of Construction

  	
  12

  
	
   

  	
   

  	
   

  
	
  ARTICLE II

  
	
  THE BONDS

  
	
   

  	
   

  	
   

  
	
  SECTION 2.01.

  	
  Form

  	
  13

  
	
  SECTION 2.02.

  	
  Designation; Denominations;
  Initial Principal Amount, Bond Interest Rate; Scheduled Maturity Date; Final
  Legal Maturity Date; Etc

  	
  13

  
	
  SECTION 2.03.

  	
  Execution, Authentication
  and Delivery

  	
  14

  
	
  SECTION 2.04.

  	
  Temporary Bonds

  	
  15

  
	
  SECTION 2.05.

  	
  Registration; Registration
  of Transfer and Exchange

  	
  15

  
	
  SECTION 2.06.

  	
  Mutilated, Destroyed, Lost
  or Stolen Bonds

  	
  16

  
	
  SECTION 2.07.

  	
  Persons Deemed Owner

  	
  17

  
	
  SECTION 2.08.

  	
  Payment of Principal,
  Premium, if any, and Interest; Principal, Premium, if any, and Interest
  Rights Preserved

  	
  17

  
	
  SECTION 2.09.

  	
  Cancellation

  	
  18

  
	
  SECTION 2.10.

  	
  Amount Issuable

  	
  19

  
	
  SECTION 2.11.

  	
  Release of Collateral

  	
  19

  
	
  SECTION 2.12.

  	
  Global Bonds

  	
  19

  
	
  SECTION 2.13.

  	
  Notices to Clearing Agency

  	
  20

  
	
  SECTION 2.14.

  	
  Definitive Bonds

  	
  20

  
	
   

  	
   

  	
   

  
	
  ARTICLE III

  
	
  COVENANTS

  
	
   

  	
   

  	
   

  
	
  SECTION 3.01.

  	
  Payment of Principal,
  Premium, if any, and Interest

  	
  20

  
	
  SECTION 3.02.

  	
  Maintenance of Office or
  Agency

  	
  20

  
	
  SECTION 3.03.

  	
  Money for Payments To Be
  Held in Trust

  	
  21

  
	
  SECTION 3.04.

  	
  Existence

  	
  22

  
	
  SECTION 3.05.

  	
  Protection of Collateral

  	
  22

  
	
  SECTION 3.06.

  	
  Opinions as to Collateral

  	
  23

  
	
  SECTION 3.07.

  	
  Performance of Obligations;
  Servicing; SEC Filings

  	
  23

  
	
  SECTION 3.08.

  	
  Negative
  Covenants

  	
  25

  
	
  SECTION 3.09.

  	
  Annual
  Statement as to Compliance

  	
  26

  
	
  SECTION 3.10.

  	
  Issuer
  May Consolidate, etc., Only on Certain Terms

  	
  26

  
	
  SECTION 3.11.

  	
  Successor
  or Transferee

  	
  29

  
	
  SECTION 3.12.

  	
  No Other
  Business

  	
  29

  
	
  SECTION 3.13.

  	
  No
  Borrowing

  	
  29

  

 

i

 

TABLE OF CONTENTS

(continued)

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  SECTION 3.14.

  	
  Servicer’s
  Obligations

  	
  29

  
	
  SECTION 3.15.

  	
  Guarantees,
  Loans, Advances and Other Liabilities

  	
  29

  
	
  SECTION 3.16.

  	
  Capital
  Expenditures

  	
  29

  
	
  SECTION 3.17.

  	
  Restricted
  Payments

  	
  30

  
	
  SECTION 3.18.

  	
  Payment by
  Issuer is Nonrecourse

  	
  30

  
	
  SECTION 3.19.

  	
  Notice of
  Events of Default

  	
  30

  
	
  SECTION 3.20.

  	
  Further
  Instruments and Acts

  	
  30

  
	
  SECTION 3.21.

  	
  Representations
  and Warranties

  	
  30

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV

  
	
  SATISFACTION
  AND DISCHARGE; DEFEASANCE

  
	
   

  	
   

  	
   

  
	
  SECTION 4.01.

  	
  Satisfaction
  and Discharge of Indenture; Defeasance

  	
  31

  
	
  SECTION 4.02.

  	
  Conditions
  to Defeasance

  	
  32

  
	
  SECTION 4.03.

  	
  Application
  of Trust Money

  	
  33

  
	
  SECTION 4.04.

  	
  Repayment
  of Moneys Held by Paying Agent

  	
  34

  
	
   

  	
   

  	
   

  
	
  ARTICLE V

  
	
  REMEDIES

  
	
   

  	
   

  	
   

  
	
  SECTION 5.01.

  	
  Events of
  Default

  	
  34

  
	
  SECTION 5.02.

  	
  Acceleration
  of Maturity; Rescission and Annulment

  	
  35

  
	
  SECTION 5.03.

  	
  Collection
  of Indebtedness and Suits for Enforcement by Trustee

  	
  36

  
	
  SECTION 5.04.

  	
  Remedies;
  Priorities

  	
  38

  
	
  SECTION 5.05.

  	
  Optional
  Preservation of the Collateral

  	
  39

  
	
  SECTION 5.06.

  	
  Limitation
  of Suits

  	
  39

  
	
  SECTION 5.07.

  	
  Unconditional
  Rights of Bondholders To Receive Principal, Premium, if any, and Interest

  	
  40

  
	
  SECTION 5.08.

  	
  Restoration
  of Rights and Remedies

  	
  40

  
	
  SECTION 5.09.

  	
  Rights and
  Remedies Cumulative

  	
  40

  
	
  SECTION 5.10.

  	
  Delay or
  Omission Not a Waiver

  	
  40

  
	
  SECTION 5.11.

  	
  Control by
  Bondholders

  	
  40

  
	
  SECTION 5.12.

  	
  Waiver of
  Past Defaults

  	
  41

  
	
  SECTION 5.13.

  	
  Undertaking
  for Costs

  	
  41

  
	
  SECTION 5.14.

  	
  Waiver of
  Stay or Extension Laws

  	
  42

  
	
  SECTION 5.15.

  	
  Action on
  Bonds

  	
  42

  
	
  SECTION 5.16.

  	
  Performance
  and Enforcement of Certain Obligations

  	
  42

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI

  
	
  THE TRUSTEE

  
	
   

  	
   

  	
   

  
	
  SECTION 6.01.

  	
  Duties of
  Trustee

  	
  43

  
	
  SECTION 6.02.

  	
  Rights of
  Trustee

  	
  44

  

 

ii

 

TABLE OF CONTENTS

(continued)

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  SECTION 6.03.

  	
  Individual
  Rights of Trustee

  	
  44

  
	
  SECTION 6.04.

  	
  Trustee’s
  Disclaimer

  	
  44

  
	
  SECTION 6.05.

  	
  Notice of
  Defaults

  	
  45

  
	
  SECTION 6.06.

  	
  Reports by
  Trustee to Holders

  	
  45

  
	
  SECTION 6.07.

  	
  Compensation
  and Indemnity

  	
  45

  
	
  SECTION 6.08.

  	
  Resignation;
  Replacement of Trustee

  	
  46

  
	
  SECTION 6.09.

  	
  Successor
  Trustee by Merger

  	
  47

  
	
  SECTION 6.10.

  	
  Appointment
  of Co-Trustee or Separate Trustee

  	
  47

  
	
  SECTION 6.11.

  	
  Eligibility;
  Disqualification

  	
  48

  
	
  SECTION 6.12.

  	
  Preferential
  Collection of Claims Against Issuer

  	
  48

  
	
  SECTION 6.13.

  	
  Representations
  and Warranties of Trustee

  	
  49

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII

  
	
  BONDHOLDERS’ LISTS AND REPORTS

  
	
   

  	
   

  	
   

  
	
  SECTION 7.01.

  	
  Issuer To
  Furnish Trustee Names and Addresses of Bondholders

  	
  49

  
	
  SECTION 7.02.

  	
  Preservation
  of Information; Communications to Bondholders

  	
  49

  
	
  SECTION 7.03.

  	
  Reports by
  Issuer

  	
  49

  
	
  SECTION 7.04.

  	
  Reports by
  Trustee

  	
  50

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII

  
	
  ACCOUNTS, DISBURSEMENTS AND
  RELEASES

  
	
   

  	
   

  	
   

  
	
  SECTION 8.01.

  	
  Collection
  of Money

  	
  50

  
	
  SECTION 8.02.

  	
  Collection
  Account

  	
  51

  
	
  SECTION 8.03.

  	
  General
  Provisions Regarding the Collection Account

  	
  54

  
	
  SECTION 8.04.

  	
  Deposit of
  Excess Costs of Issuance

  	
  54

  
	
  SECTION 8.05.

  	
  Release of
  Collateral

  	
  54

  
	
  SECTION 8.06.

  	
  Opinion of
  Counsel

  	
  55

  
	
  SECTION 8.07.

  	
  Reports by
  Independent Accountants

  	
  55

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX

  
	
  SUPPLEMENTAL INDENTURES

  
	
   

  	
   

  	
   

  
	
  SECTION 9.01.

  	
  Supplemental
  Indentures Without Consent of Bondholders

  	
  56

  
	
  SECTION 9.02.

  	
  Supplemental
  Indentures with Consent of Bondholders

  	
  57

  
	
  SECTION 9.03.

  	
  Execution
  of Supplemental Indentures

  	
  58

  
	
  SECTION 9.04.

  	
  Effect of
  Supplemental Indenture

  	
  58

  
	
  SECTION 9.05.

  	
  Conformity
  with Trust Indenture Act

  	
  59

  
	
  SECTION 9.06.

  	
  Reference
  in Bonds to Supplemental Indentures

  	
  59

  

 

iii

 

TABLE OF CONTENTS

(continued)

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE X

  
	
  REDEMPTION OF BONDS

  
	
   

  	
   

  	
   

  
	
  SECTION 10.01.

  	
  Optional
  Redemption by Issuer

  	
  59

  
	
  SECTION 10.02.

  	
  Form of
  Optional Redemption Notice

  	
  59

  
	
  SECTION 10.03.

  	
  Bonds
  Payable on Redemption Date or Payment Date

  	
  60

  
	
  SECTION 10.04.

  	
  Purchase in
  Lieu of Redemption

  	
  60

  
	
   

  	
   

  	
   

  
	
  ARTICLE XI

  
	
  MISCELLANEOUS

  
	
   

  	
   

  	
   

  
	
  SECTION 11.01.

  	
  Compliance
  Certificates and Opinions, etc

  	
  61

  
	
  SECTION 11.02.

  	
  Form of
  Documents Delivered to Trustee

  	
  63

  
	
  SECTION 11.03.

  	
  Acts of
  Bondholders

  	
  64

  
	
  SECTION 11.04.

  	
  Notices,
  etc., to Trustee, Issuer, Rating Agencies and CPUC

  	
  64

  
	
  SECTION 11.05.

  	
  Notices to
  Bondholders; Waiver

  	
  65

  
	
  SECTION 11.06.

  	
  Conflict
  with Trust Indenture Act

  	
  65

  
	
  SECTION 11.07.

  	
  Effect of
  Headings and Table of Contents

  	
  66

  
	
  SECTION 11.08.

  	
  Successors
  and Assigns

  	
  66

  
	
  SECTION 11.09.

  	
  Separability

  	
  66

  
	
  SECTION 11.10.

  	
  Benefits of
  Indenture

  	
  66

  
	
  SECTION 11.11.

  	
  Legal
  Holidays

  	
  66

  
	
  SECTION 11.12.

  	
  Governing
  Law

  	
  66

  
	
  SECTION 11.13.

  	
  Counterparts

  	
  66

  
	
  SECTION 11.14.

  	
  Recording
  of Indenture

  	
  66

  
	
  SECTION 11.15.

  	
  No
  Liability

  	
  66

  
	
  SECTION 11.16.

  	
  No Recourse
  to Issuer

  	
  67

  
	
  SECTION 11.17.

  	
  Inspection

  	
  67

  
	
  SECTION 11.18.

  	
  No Petition

  	
  67

  
	
  SECTION 11.19.

  	
  No Premium

  	
  68

  

 

iv

 

INDENTURE dated as of November 9, 2005, between
PG&E ENERGY RECOVERY FUNDING LLC, a Delaware limited liability company, as
issuer, and DEUTSCHE BANK NATIONAL TRUST COMPANY, a national banking
association, as trustee.

 

RECITALS OF THE
ISSUER

 

The Issuer has duly authorized the execution and
delivery of this Indenture and the creation and issuance of Bonds issuable
hereunder to be of substantially the tenor set forth herein.

 

The Bonds shall be non-recourse obligations and shall
be secured by and payable solely out of the proceeds of the Recovery Property
and the other Collateral.

 

All things necessary to (a) make the Bonds, when
executed by the Issuer and authenticated and delivered by the Trustee hereunder
and duly issued by the Issuer, valid obligations, and (b) make this
Indenture a valid agreement of the Issuer, in each case, in accordance with
their respective terms, have been done.

 

NOW, THEREFORE, THIS INDENTURE WITNESSETH:

 

That the Issuer, in consideration of the purchase of
the Bonds by the Holders and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, has hereby executed
and delivered this Indenture, and

 

GRANTING CLAUSE

 

The Issuer hereby Grants to the Trustee all of the
Issuer’s right, title and interest, whether now owned or hereafter acquired or
arising, in, to, and under the following property:  (a) the Recovery Property, (b) the
Sale Agreement, (c) the Servicing Agreement to the extent it relates to
the Recovery Property, (d) the Collection Account, the General Subaccount,
the Capital Subaccount, the Overcollateralization Subaccount, the Reserve
Subaccount and all other subaccounts in the Collection Account, and all money,
instruments, investment property and other property on deposit therein or
credited thereto from time to time, (e) all rights to compel the Servicer
to file for and obtain true-up adjustments to the DRC Charge in accordance with
the Statute and the Financing Order, (f) all present and future claims,
demands, causes and choses in action in respect of any or all of the foregoing,
and all payments on or under the foregoing, and (g) all proceeds of the
foregoing (collectively, the “Collateral”). 
The following do not constitute Collateral: (i) all property
contributed to the Issuer by the Seller that is not held in the Capital
Subaccount, (ii) net investment earnings that have been released to the
Issuer pursuant to Section 8.02(d)(xii), and (iii) subject to Section 8.04,
amounts held by the Issuer on the Closing Date for payment of costs of issuance
with respect to the Bonds (collectively, the “Excluded Property”).

 

The foregoing Grant is made in trust to secure the
payment of principal of and premium, if any, interest on, and any other amounts
owing in respect of, the Bonds equally and ratably without prejudice, priority
or distinction, except as expressly provided in this Indenture, and to secure
compliance with the provisions of this Indenture with respect to the Bonds, all
as provided in this Indenture.  This
Indenture constitutes a security agreement within the meaning 

 

 

of the Statute and under the CUCC to the extent that the provisions of
the CUCC are applicable hereto.

 

The Trustee, as trustee on behalf of the Holders of the
Bonds, acknowledges such Grant and accepts the trusts under this Indenture in
accordance with the provisions of this Indenture and agrees to perform its
duties herein required.

 

AND IT IS HEREBY COVENANTED, DECLARED AND AGREED
between the parties hereto that all Bonds are to be issued, countersigned and
delivered and that all of the Collateral is to be held and applied, subject to
the further covenants, conditions, releases, uses and trusts hereinafter set
forth, and the Issuer, for itself and any successor, does hereby covenant and
agree to and with the Trustee and its successors in said trust, for the benefit
of the Holders, as follows:

 

ARTICLE I

DEFINITIONS AND INCORPORATION
BY REFERENCE

 

SECTION 1.01.      Definitions.  (a)  Except as otherwise specified
herein or as the context may otherwise require, the following terms have the
respective meanings set forth below for all purposes of this Indenture.

 

“Act” has the meaning specified in Section 11.03(a).

 

“Administration Fee” shall mean $25,000 per
calendar quarter.

 

“Administrative Services Agreement” means the
Amended and Restated Administrative Services and Premises Agreement, dated as
of February 10, 2005, between the Administrator and Issuer.

 

“Administrator” means Pacific Gas and Electric
Company, or any successor Administrator under the Administrative Services
Agreement.

 

“Affiliate” means, with respect to any
specified Person, any other Person controlling or controlled by or under common
control with such specified Person.  For
the purposes of this definition, “control” when used with respect to any
specified Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms “controlling” and “controlled”
have meanings correlative to the foregoing.

 

“Authorized Officer” means, with respect to the
Issuer, any officer of the Issuer who is authorized to act for the Issuer in
matters relating to the Issuer and who is identified on the list of Authorized
Officers delivered by the Issuer to the Trustee on the Closing Date (as such
list may be modified or supplemented from time to time thereafter).  For purposes of Section 3.09 only, an
Authorized Officer shall be the principal executive officer, the principal
financial officer or the principal accounting officer of the Issuer.  For purposes of Section 8.03 only, an
Authorized Officer may also include any other duly authorized person designated
by an Authorized Officer in writing to the Trustee.

 

2

 

“Basic Documents” means this Indenture, the
Sale Agreement and the Servicing Agreement.

 

“Bond Interest Rate” means, with respect to any
Class, the rate at which interest accrues on the Bonds of such Class, as
specified in Section 2.02(c).

 

“Bond Register” and “Bond Registrar”
have the respective meanings specified in Section 2.05.

 

“Bonds” means the bonds issued under this
Indenture, as provided in Section 2.02.

 

“Book-Entry Form” means, with respect to any
Bond, that security entitlements to such Bond shall be held through a Clearing
Agency as described in Section 2.12.

 

“Business Day” means any day other than a
Saturday, a Sunday or a day on which banking institutions or trust companies in
San Francisco, California, New York, New York, the city in which the
Corporate Trust Office of the Trustee is located, or the city in which the
Clearing Agency is located are authorized or obligated by law, regulation or
executive order to remain closed.

 

“Capital Subaccount” has the meaning
set forth in Section 8.02(a).

 

“Claim” means a “claim” as defined in Section 101(5) of
the Bankruptcy Code.

 

“Class” means any one of the classes of Bonds.

 

“Clearing Agency” means an organization
registered as a “clearing agency” pursuant to Section 17A of the Exchange
Act.

 

“Closing Date” means November 9, 2005.

 

“Code” means the Internal Revenue Code of 1986,
as amended from time to time, and Treasury Regulations promulgated thereunder.

 

“Collateral” has the meaning specified in the
Granting Clause of this Indenture.

 

“Collection Account” has the meaning specified
in Section 8.02(a).

 

“Corporate Trust Office” means the principal
office of the Trustee at which at any particular time its corporate trust
business shall be administered, which office at the date of the execution of
this Indenture is located at 60 Wall Street, 26th Floor, New York, NY 10005,
Attention:  Structured Finance Services,
or at such other address as the Trustee may designate from time to time by
notice to the Bondholders and the Issuer, or the principal corporate trust
office of any successor Trustee (the address of which the successor Trustee
will notify the Bondholders and the Issuer).

 

“Covenant Defeasance Option” has the meaning
specified in Section 4.01(b).

 

3

 

“CPUC” means the California Public Utilities
Commission or any successor governmental agency.

 

“CUCC” means the California Commercial Code, as
amended from time to time.

 

“Default” means any occurrence that is, or with
notice or the lapse of time or both would become, an Event of Default.

 

“Definitive Bonds” means Bonds
issued in definitive form in accordance with Section 2.13 of the
Indenture.

 

“DRC Charge” means the charges for fixed
recovery amounts authorized to be billed to Consumers in respect of Recovery
Property pursuant to the Financing Order and the Issuance Advice Letter, as
calculated pursuant to the Issuance Advice Letter and each true-up mechanism
advice letter relating to the DRC Charge filed with the CPUC pursuant to the
Financing Order.

 

“DRC Collections” means DRC Payments that are
remitted by the Servicer to the Collection Account.

 

“DTC” means The
Depository Trust Company.

 

“DTC Letter” means
the Blanket Issuer Letter of Representation executed by the Issuer on February 2,2005, or any other agreement with any
successor Clearing Agency with respect to such Clearing Agency’s rights and
obligations (in its capacity as a Clearing Agency) with respect to any Bonds in
Book-Entry Form, and in each case, as the same may be amended, supplemented or
otherwise modified from time to time.

 

“Eligible Deposit Account” means either (a) a
segregated account with an Eligible Institution or (b) a segregated trust
account with the corporate trust department of a depository institution
organized under the laws of the United States of America or any one of the
States (or any domestic branch of a foreign bank), having corporate trust
powers and acting as trustee for funds deposited in such account, so long as
any of the securities of such depository institution shall have a credit rating
from each Rating Agency in one of its three highest rating categories.

 

“Eligible Institution” means (a) the
corporate trust department of the Trustee; provided, that an account
with the Trustee will only be an Eligible Deposit Account if it is a segregated
trust account, or (b) a depository institution organized under the laws of
the United States of America or any State or any domestic branch of a
foreign bank, (i) that has either (A) a long-term unsecured debt
rating of “AAA” by Standard & Poor’s, “Aaa” by Moody’s and “AAA” by
Fitch, or (B) a certificate of deposit rating of “A-1+” by Standard & Poor’s,
“P-1” by Moody’s and if rated by Fitch, “F1+”, or any other long-term,
short-term or certificate of deposit rating acceptable to the applicable Rating
Agencies and (ii) whose deposits are insured by the FDIC.  If so qualified under clause (b) above,
the Trustee may be considered an Eligible Institution for the purposes of
clause (a) of this definition.

 

“Eligible Investments” mean:

 

4

 

(a)           direct obligations of, and
obligations fully and unconditionally guaranteed as to timely payment by, the
United States of America;

 

(b)           demand deposits, time deposits,
certificates of deposit or bankers’ acceptances of any depository institution
incorporated under the laws of the United States of America or any State, or
any domestic branch of a foreign bank, and subject to the supervision and
examination by federal or State banking or depository institution authorities,
so long as at the time of the investment or contractual commitment to invest
therein, the commercial paper or other short-term unsecured debt obligations,
other than any obligations thereof where the rating is based on the credit of a
person other than that depository institution, shall have a credit rating from
each of the Rating Agencies in the highest investment category granted thereby;

 

(c)           commercial paper or other short-term
obligations of any corporation (other than the Seller) organized under the laws
of the United States of America or any State having a rating, at the time of
the investment or contractual commitment to invest therein, from each of the
Rating Agencies in the highest short-term or long-term investment category
granted thereby;

 

(d)           investments in money market funds
having a rating from each of the Rating Agencies in the highest investment
category granted thereby (including funds for which the Trustee or any of its
Affiliates is investment manager or advisor);

 

(e)           repurchase obligations with respect
to any security that is a direct obligation of, or fully guaranteed by, the
United States of America or any agency or instrumentality thereof the
obligations of which are backed by the full faith and credit of the
United States of America, in either case entered into with a depository
institution or trust company, acting as principal, described in clause (b) of
the definition of Eligible Institutions;

 

(f)            repurchase obligations with respect
to any security or whole loan entered into with: (A) a depository
institution or trust company, acting as principal, described in clause (b) of
the definition of Eligible Institution, except that the rating referred to in
the proviso in clause (b) of the definition of Eligible Institution above
shall be “A-1+” or higher in the case of Standard & Poor’s, (B) a
broker/dealer, acting as principal, registered as a broker or dealer under Section 15
of the Exchange Act, the unsecured short-term debt obligations of which are
rated “P-1” by Moody’s, “F1+” by Fitch, if rated by Fitch, and at least “A-1+”
by Standard & Poor’s at the time of entering into this repurchase
obligation, or (C) an unrated broker/dealer, acting as principal, that is
a wholly-owned subsidiary of a non-bank or bank holding company the unsecured
short term debt obligations of which are rated “P-1” by Moody’s, “F1+” by
Fitch, if rated by Fitch, and at least “A-1+” by Standard & Poor’s at
the time of purchase; and

 

(g)           any other investment permitted by
each of the Rating Agencies;

 

provided, that unless otherwise
permitted by the applicable Rating Agencies, upon the failure of any Eligible
Institution to maintain any applicable rating set forth in this definition or
in the 

 

5

 

definition of “Eligible Institution,” the related investments at such
institution shall be reinvested in other Eligible Investments within ten (10) days;
and, provided  further, that no obligation of, or security issued
by, the Seller shall constitute an Eligible Investment.

 

“Event of Default” has the meaning specified in
Section 5.01.

 

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

 

“Excluded Property” has the meaning set forth
in the Granting Clause.

 

“Expected Amortization Schedule” means Schedule A hereto.

 

“FDIC” means the Federal Deposit Insurance
Corporation or any successor.

 

“Final Legal Maturity Date” means, with respect
to any Class of Bonds, the Final Legal Maturity Date therefor, as
specified herein.

 

“Fitch” means Fitch, Inc. or its
successor.

 

“General Subaccount” has the meaning set forth
in Section 8.02(a).

 

“Global Bond” means a Bond issued in Book-Entry
Form and registered in the name of the Clearing Agency or its nominee in
accordance with Section 2.12.

 

“Grant” means mortgage, pledge, bargain, sell,
warrant, alienate, remise, release, convey, assign, transfer, create, and grant
a lien upon and a security interest in and right of set-off against, deposit, set
over and confirm pursuant to this Indenture. 
A Grant of any item of Collateral shall include all rights, powers and
options (but none of the obligations) of the Granting party thereunder,
including the immediate and continuing right to claim for, collect, receive and
give receipt for payments in respect of such item of Collateral and all other
moneys payable thereunder, to give and receive notices and other
communications, to make waivers or other agreements, to exercise all rights and
options, to bring Proceedings in the name of the Granting party or otherwise
and generally to do and receive anything that the Granting party is or may be
entitled to do or receive thereunder or with respect thereto.

 

“Holder” or “Bondholder” means the
Person in whose name a Bond is registered on the Bond Register.

 

“Indemnity Amount” means any amounts payable by
the Issuer pursuant to Section 6.07(b).

 

“Indenture” or “this Indenture” means
this instrument as originally executed and, as from time to time supplemented
or amended by one or more indentures supplemental hereto entered into pursuant
to the applicable provisions hereof, as so supplemented or amended, or both,
and shall include the forms and terms of the Bonds established hereunder.

 

“Independent” means, when used with respect to
any specified Person, that the Person (a) is in fact independent of the
Issuer, any other obligor upon the Bonds, the Seller, the 

 

6

 

Servicer and any Affiliate of any of the foregoing Persons, (b) does
not have any direct financial interest or any material indirect financial
interest in the Issuer, any such other obligor, the Seller, the Servicer or any
Affiliate of any of the foregoing Persons and (c) is not connected with
the Issuer, any such other obligor, the Seller, the Servicer or any Affiliate
of any of the foregoing Persons as an officer, employee, promoter, underwriter,
trustee, partner, director or person performing similar functions.

 

“Independent Certificate” means a certificate or
opinion to be delivered to the Trustee under the circumstances described in,
and otherwise complying with, the applicable requirements of Section 11.01,
made by an Independent appraiser or other expert appointed by an Issuer Order
and consented to by the Trustee, and such opinion or certificate shall state
that the signer has read the definition of “Independent” in this Indenture and
that the signer is Independent within the meaning thereof.

 

“Initial Payment Date” has the meaning set
forth in Section 2.02(e).

 

“Issuance Advice Letter” has the meaning set
forth in Section 1.01 of the Sale Agreement.

 

“Issuance Date” means the Closing Date.

 

“Issuer” means the party named as such in this
Indenture until a successor replaces it and, thereafter, means the successor
and, for purposes of any provision contained herein and required by the TIA,
each other obligor on the Bonds.

 

“Issuer Order” or “Issuer Request” means
a written order or request signed in the name of the Issuer by any one of its
Authorized Officers and delivered to the Trustee.

 

“Legal Defeasance Option” has the meaning
specified in Section 4.01(b).

 

“Minimum Denomination” means, with respect to
any Bond, $1,000 and any integral multiple thereof.

 

“Moody’s” means Moody’s Investors Service Inc.
or its successor.

 

“Officer’s Certificate” means a certificate
signed by any Authorized Officer of the Issuer, under the circumstances
described in, and otherwise complying with, the applicable requirements of Section 11.01,
and delivered to the Trustee.  Unless
otherwise specified, any reference in this Indenture to an Officer’s
Certificate shall be to an Officer’s Certificate of any Authorized Officer of
the Issuer.

 

“Operating Expenses” means all fees, costs and
expenses of the Issuer, including all amounts owed by the Issuer to the Trustee
or any of its directors, taxes, the Servicing Fee in respect of the Recovery
Property, the Administration Fee, any rating agency surveillance and similar
fees, any fees, costs and expenses payable or reimbursable by the Issuer to the
Administrator under the Administrative Services Agreement, and legal and
accounting fees, costs and expenses of the Issuer.

 

7

 

“Opinion of Counsel” means one or more written
opinions of counsel who may, except as otherwise expressly provided in this
Indenture, be employees of or counsel to the Issuer or any Affiliate thereof
and who shall be reasonably satisfactory to the Trustee, and which opinion or
opinions shall be addressed to the Trustee as trustee, shall comply with any
applicable requirements of Section 11.01, and shall be in form and
substance reasonably satisfactory to the Trustee.

 

“Optional Redemption Price” has the meaning
specified in Section 10.01.

 

“Other Issuer Assets” has the meaning specified
in Section 3.18.

 

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

 

(i)            Bonds theretofore canceled by the
Bond Registrar or delivered to the Bond Registrar for cancellation;

 

(ii)           Bonds or portions thereof the payment
for which money in the necessary amount has been theretofore deposited with the
Trustee or any Paying Agent in trust for the Holders of such Bonds (provided,
however, that if such Bonds are to be redeemed, notice of such
redemption has been duly given pursuant to this Indenture or provision
therefor, satisfactory to the Trustee, made); and

 

(iii)          Bonds in exchange for or in lieu of
other Bonds which have been authenticated and delivered pursuant to this
Indenture unless proof satisfactory to the Trustee is presented that any such
other Bonds are held by a protected purchaser;

 

provided, that in determining
whether the Holders of the requisite Outstanding Amount of the Bonds or any Class thereof
have given any request, demand, authorization, direction, notice, consent or
waiver hereunder, Bonds owned by the Issuer, any other obligor upon the Bonds,
the Seller or any Affiliate of any of the foregoing Persons  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, only Bonds that the Trustee actually knows to be so owned shall be so
disregarded.  Bonds so owned that have
been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee’s right so to act
with respect to such Bonds and that the pledgee is not the Issuer, any other
obligor upon the Bonds, the Seller or any Affiliate of any of the foregoing
Persons.

 

“Outstanding Amount” means the aggregate
principal amount of all Bonds or, if the context requires, all Bonds of a
Class, Outstanding at the date of determination.

 

“Overcollateralization Subaccount” has the
meaning specified in Section 8.02(a).

 

“Paying Agent” means the Trustee or any other
Person that meets the eligibility standards for the Trustee specified in Section 6.11
and is authorized by the Issuer to make payment of principal of or premium, if
any, or interest on the Bonds on behalf of the Issuer.

 

8

 

“Payment Date” means, with respect to any
Class, the March 25, June 25, September 25 and December 25
of each year or, if any such date is not a Business Day, the next succeeding
Business Day.

 

“Person” means any individual, corporation,
limited liability company, estate, partnership, joint venture, association,
joint stock company, trust, unincorporated organization, government or any
agency or political subdivision thereof, or any other entity or organization,
whether or not a legal entity.

 

“Predecessor Bond” means, with respect to any
particular Bond, every previous Bond evidencing all or a portion of the same
debt as that evidenced by such particular Bond; and, for the purpose of this
definition, any Bond authenticated and delivered under Section 2.06 in
lieu of a mutilated, lost, destroyed or stolen Bond shall be deemed to evidence
the same debt as the mutilated, lost, destroyed or stolen Bond.

 

“Pro Rata Basis” has the meaning set forth in Section 8.02(d).

 

“Proceeding” means any suit in equity, action
at law or other judicial or administrative proceeding.

 

“Purchase in Lieu of Redemption Date” means the
date on which Bonds are purchased in lieu of redemption by the Issuer or its
designee, in accordance with Section 10.04 hereof, which shall be the date
on which such Bonds were to have been otherwise redeemed in accordance with the
provisions of Section 10.04 of this Indenture.

 

“Quarterly Interest” means, with respect to any
Payment Date and any Class of Bonds, the accrued interest at the
applicable Bond Interest Rate on the Outstanding Amount of such Class of
Bonds (as of the close of business on the preceding Payment Date after giving
effect to all payments of principal made to Holders of such Class of Bonds
on such preceding Payment Date) during the period from and including the prior
Payment Date (or in the case of the Initial Payment Date, the Issuance Date)
through but excluding such Payment Date.

 

“Quarterly Principal” means, with respect to
any Payment Date and any Class of Bonds, the excess, if any, of the
Outstanding Amount of such Class of Bonds over the outstanding Principal
Balance specified for such Payment Date on the applicable Expected Amortization
Schedule.

 

“Rating Agency” means Moody’s, Standard &
Poor’s and Fitch to the extent each such Rating Agency maintains a rating on
the Bonds at the request of the Issuer. 
If no such organization or successor is any longer in existence, “Rating
Agency” shall be a nationally recognized statistical rating organization or
other comparable Person designated by the Issuer, notice of which designation
shall be given to the Trustee and the Servicer.

 

“Rating Agency Condition” means, with respect
to any action, that each Rating Agency shall have been given ten (10) days
prior notice thereof and that each of the Rating Agencies shall have notified
the Servicer, the Issuer and the Trustee in writing that such action will not result
in a reduction or withdrawal of the then current rating by such Rating Agency
of any Class of Bonds.

 

9

 

“Record Date” means, (a) with respect to a
Payment Date or Redemption Date, the Business Day preceding that Payment Date
or Redemption Date, or if the Bonds are in definitive form, the last day of the
calendar month preceding the calendar month in which such Payment Date or
Redemption Date occurs, and (b) with respect to a Special Payment Date,
the special record date established in accordance with Section 2.08(c).

 

“Recovery Property” has the meaning set forth
in Section 1.01 of the Sale Agreement.

 

“Redemption Date” means the date specified by
the Issuer for the redemption of the Bonds pursuant to Section 10.01.

 

“Required Capital Level” means, as of any
Payment Date, 0.50% of the initial principal amount of the Bonds, being
$4,222,305.

 

“Required Overcollateralization Level” means,
as of any Payment Date, the amount required to be on deposit in the Overcollateralization
Subaccount as specified in Schedule B hereto.

 

“Reserve Subaccount” has the meaning specified
in Section 8.02(a).

 

“Responsible Officer” means any officer within
the Corporate Trust Office, including any Managing Director, Vice President,
Assistant Vice President, Secretary, Assistant Secretary or Assistant Treasurer
or any other officer of the Trustee or the Bond Registrar, as applicable,
customarily performing functions similar to those performed by any of the above
designated officers and also, with respect to a particular matter, any other
officer to whom such matter is referred because of such officer’s knowledge and
familiarity with the particular subject.

 

“Sale Agreement” means the Recovery Property
Purchase and Sale Agreement dated as of November 9, 2005, between the
Issuer and the Seller, as the same may be amended, supplemented or otherwise
modified from time to time.

 

“Scheduled Maturity Date” means, with respect
to any Class of Bonds, the Scheduled Maturity Date therefor, as specified
herein.

 

“SEC” means the Securities and Exchange
Commission.

 

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

 

“Servicing Agreement” means the Recovery
Property Servicing Agreement dated as of February 10, 2005, between the
Issuer and the Servicer, as amended on November 9, 2005, and as may
hereafter be further amended, supplemented or otherwise modified from time to
time.

 

“Special Payment Date” has the meaning set
forth in Section 2.08(c).

 

“Standard & Poor’s” means Standard &
Poor’s, a division of The McGraw-Hill Companies, Inc. or its successor.

 

10

 

“State” means any one of the states of the
United States of America or the District of Columbia.

 

“State Pledge” has the meaning specified in Section 5.01(vii).

 

“Statute” means Chapter 46, California Statutes
of 2004, codified at Public Utilities Code Section 848 et seq., as further
amended from time to time.

 

“Successor Servicer” has the meaning specified
in Section 3.07(e).

 

“Tariff” has the meaning set forth in Section 1.01
of the Sale Agreement.

 

“Trustee” means Deutsche Bank National Trust
Company, a national banking association, as Trustee under this Indenture, or
any successor Trustee under this Indenture.

 

“Trust Indenture Act” or “TIA” means the
Trust Indenture Act of 1939 as in force on the date hereof, unless otherwise
specifically provided.

 

“U.S. Government Obligations” means direct
obligations (or certificates representing an ownership interest in such
obligations) of the United States of America (including any agency or
instrumentality thereof) for the payment of which the full faith and credit of
the United States of America are pledged and which are not callable at the
option of the issuer thereof.

 

(b)           Except as otherwise specified herein
or as the context may otherwise require, the following terms have the
respective meanings set forth in the Servicing Agreement as in effect on the
Closing Date for all purposes of this Indenture, and the definitions of such
terms are equally applicable both to the singular and plural forms of such
terms:

 

	
  Term

  	
   

  	
  Section of

  Servicing Agreement

  
	
  Advice Letter

  	
   

  	
  Section 1.01

  
	
  Consumers

  	
   

  	
  Section 1.01

  
	
  CPUC

  	
   

  	
  Section 1.01

  
	
  CPUC Regulations

  	
   

  	
  Section 1.01

  
	
  DRC Payments

  	
   

  	
  Section 1.01

  
	
  ESPs

  	
   

  	
  Section 1.01

  
	
  Estimated DRC Payments

  	
   

  	
  Section 1.01

  
	
  Financing Order

  	
   

  	
  Section 1.01

  
	
  Monthly Servicer’s Certificate

  	
   

  	
  Section 1.01

  
	
  Principal Balance

  	
   

  	
  Section 1.01

  
	
  PU Code

  	
   

  	
  Section 1.01

  
	
  Quarterly Servicer’s Certificate

  	
   

  	
  Section 1.01

  
	
  Seller

  	
   

  	
  Section 1.01

  
	
  Servicer

  	
   

  	
  Section 1.01

  
	
  Servicer Default

  	
   

  	
  Section 1.01

  
	
  Servicing Fee

  	
   

  	
  Section 1.01

  

 

11

 

SECTION 1.02.      Incorporation by Reference of Trust
Indenture Act.  Whenever this
Indenture refers to a provision of the TIA, the provision is incorporated by
reference in and made a part of this Indenture. 
The following TIA terms used in this Indenture have the following
meanings:

 

“indenture securities”
means the Bonds.

 

“indenture security
holder” means a Bondholder.

 

“indenture to be
qualified” means this Indenture.

 

“indenture trustee” or “institutional
trustee” means the Trustee.

 

“obligor” on the
indenture securities means the Issuer and any other obligor on the indenture
securities.

 

All other TIA terms used in this Indenture that are
defined by the TIA, defined by TIA reference to another statute or defined by
SEC rule have the meanings assigned to them by such definitions.

 

SECTION 1.03.      Rules of Construction.  Unless the context otherwise requires:

 

(i)            terms used herein that are defined
in the Statute or the CUCC and not otherwise defined herein shall have the
meanings set forth in the Statute or the CUCC, as applicable;

 

(ii)           as used in this Indenture and in any
certificate or other document made or delivered pursuant hereto, accounting
terms not defined in this Indenture or in any such certificate or other
document, and accounting terms partly defined in this Indenture or in any such
certificate or other document to the extent not defined, shall have the
respective meanings given to them under generally accepted accounting
principles as in effect from time to time in the United States.  To the extent that the definitions of
accounting terms in this Indenture or in any such certificate or other document
are inconsistent with the meanings of such terms under such generally accepted
accounting principles, the definitions contained in this Indenture or in any
such certificate or other document shall control;

 

(iii)          “or” is not exclusive;

 

(iv)          “including” means including without
limitation;

 

(v)           words in the singular include the
plural and words in the plural include the singular;

 

(vi)          reference to any gender shall include
all other genders; and

 

12

 

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

 

ARTICLE II

THE BONDS

 

SECTION 2.01.      Form.  The Bonds and the Trustee’s certificate of
authentication shall be in substantially the forms set forth in Exhibit A, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may,
consistently herewith, be determined by the officers executing such Bonds, as
evidenced by their execution of such Bonds. 
Any portion of the text of any Bond may be set forth on the reverse
thereof, with an appropriate reference thereto on the face of the Bond.

 

The Bonds shall be word-processed, printed,
lithographed or engraved or produced by any combination of these methods (with
or without steel engraved borders), all as determined by the officers executing
such Bonds, as evidenced by their execution of such Bonds.

 

Each Bond shall be dated the date of its
authentication.  The terms of the Bonds
set forth in Exhibit A are
part of the terms of this Indenture.

 

SECTION 2.02.      Designation; Denominations; Initial
Principal Amount, Bond Interest Rate; Scheduled Maturity Date; Final Legal
Maturity Date; Etc.

 

(a)           Designation.  The Bonds shall be issued in the Classes set
forth in Section 2.02(c) and shall be designated “PG&E Energy
Recovery Funding LLC Energy Recovery Bonds, Series 2005-2” and further
denominated as Classes A-1 through A-3. 
All Bonds of the same Class shall be identical in all respects
except for the denominations thereof. 
All Bonds of the same Class shall be in all respects equally and
ratably entitled to the benefits hereof without preference, priority, or
distinction on account of the actual time or times of authentication and
delivery, all in accordance with the terms and provisions of this Indenture.

 

(b)           Denominations.  Except as provided in Section 2.14, the
Bonds shall be issuable as registered Bonds in Book-Entry Form in any
Minimum Denomination, except that one Bond of each Class may be in a
smaller denomination.

 

(c)           Initial Principal Amount, Bond
Interest Rates, Scheduled Maturity Dates, Final Legal Maturity Dates.  The Bonds of each Class shall have the
initial principal amount, bear interest at the rates per annum and shall have
Scheduled Maturity Dates and Final Legal Maturity Dates as set forth below: 

 

13

 

	
  Class

  	
   

  	
  Initial

  Principal

  Amount

  	
   

  	
  Bond

  Interest Rate

  	
   

  	
  Scheduled

  Maturity Date

  	
   

  	
  Final
  Legal

  Maturity Date

  
	
  A-1

  	
   

  	
  $

  	
  351,000,000

  	
   

  	
  4.85

  	
  %

  	
  June 25, 2009

  	
   

  	
  June 25, 2011

  
	
  A-2

  	
   

  	
  $

  	
  372,000,000

  	
   

  	
  5.03

  	
  %

  	
  March 25, 2012

  	
   

  	
  March 25, 2014

  
	
  A-3

  	
   

  	
  $

  	
  121,461,000

  	
   

  	
  5.12

  	
  %

  	
  December 25, 2012

  	
   

  	
  December 25, 2014

  

 

The Bond Interest Rate shall be computed on the basis
of a 360-day year of twelve 30-day months.

 

(d)           Payment Dates.  Principal of, and interest on, the Bonds
shall be payable on each Payment Date, commencing on the Payment Date in June 2006
(the “Initial Payment Date”) and continuing until the earlier of
repayment of each Class in full and the applicable Final Legal Maturity
Date for such Class.

 

(e)           Expected Amortization Schedule for
Principal.  Unless an Event of
Default shall have occurred and be continuing, on each Payment Date, the
Trustee shall distribute to the Holders of record as of the related Record Date
amounts payable pursuant to Section 8.02(d)(viii) of this Indenture
as principal, in the following order and priority: (1) to the holders of
the Class A-1 Bonds, until the Outstanding Amount of such Class of
Bonds thereof has been reduced to zero; (2) to the holders of the Class A-2
Bonds, until the Outstanding Amount of such Class of Bonds thereof has
been reduced to zero; and (3) to the holders of the Class A-3 Bonds,
until the Outstanding Amount of such Class of Bonds thereof has been
reduced to zero; provided, however, that in no event shall a
principal payment pursuant to this Section 2.02(e) on any Class on
a Payment Date be greater than the amount necessary to reduce the Outstanding
Amount of such Class of Bonds to the amount specified in the Expected
Amortization Schedule which is attached as Schedule A hereto for such Class and Payment Date,
except in the case of an acceleration of the Bonds following an Event of
Default.

 

(f)            Quarterly Interest.  Quarterly Interest will be payable on each Class of
the Bonds on each Payment Date.  To the
extent not paid on any Payment Date, and only if the Bonds are not declared to
be immediately due and payable as provided in Section 5.02, Quarterly
Interest will be paid when the Issuer has sufficient amounts therefor in
accordance with Section 8.02(d).  Interest will accrue, in respect of each
Payment Date, from and including the 25th day of the month in which the prior
Payment Date occurs (or in the case of the first Payment Date in June 2006,
November 9, 2005) through but excluding the 25th day of the month in which
the current Payment Date occurs.

 

(g)           Required Overcollateralization
Level.  The Required
Overcollateralization Level for any Payment Date shall be as set forth in Schedule B hereto.

 

SECTION 2.03.      Execution, Authentication and Delivery.  The Bonds shall be executed on behalf of the
Issuer by any of its Authorized Officers. 
The signature of any such Authorized Officer on the Bonds may be manual
or facsimile.

 

14

 

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

 

At any time and from time to time after the execution
and delivery of this Indenture, the Issuer may deliver Bonds executed by the
Issuer to the Trustee pursuant to an Issuer Order for authentication; and the
Trustee shall authenticate and deliver such Bonds as in this Indenture provided
and not otherwise.

 

Each Bond shall be dated the date of its
authentication.

 

No Bond shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose, unless there appears on
such Bond a certificate of authentication substantially in the form provided
for herein executed by the Trustee by the manual signature of one of its
authorized signatories, and such certificate upon any Bond shall be conclusive
evidence, and the only evidence, that such Bond has been duly authenticated and
delivered hereunder.

 

SECTION 2.04.      Temporary Bonds.  Subject to Section 2.12, pending the
preparation of Definitive Bonds pursuant to Section 2.14, the Issuer may
execute, and upon receipt of an Issuer Order the Trustee shall authenticate and
deliver, temporary Bonds that are printed, lithographed, word-processed or
otherwise produced, of the tenor of the Definitive Bonds in lieu of which they
are issued and with such variations not inconsistent with the terms of this
Indenture as the Authorized Officer executing such Bonds may determine, as
evidenced by the execution of such Bonds.

 

After the preparation of Definitive Bonds, the
temporary Bonds shall be exchangeable for Definitive Bonds upon surrender of
the temporary Bonds at the office or agency of the Issuer to be maintained as
provided in Section 3.02, without charge to the Holder.  Upon surrender for cancellation of any one or
more temporary Bonds, the Issuer shall execute and the Trustee shall authenticate
and deliver in exchange therefor a like principal amount of Definitive
Bonds.  Until so exchanged, the temporary
Bonds shall in all respects be entitled to the same benefits under this
Indenture as Definitive Bonds.

 

SECTION 2.05.      Registration; Registration of Transfer
and Exchange.  The Issuer shall cause
to be kept a register (the “Bond Register”) in which, subject to such
reasonable regulations as it may prescribe, the Issuer shall provide for the
registration of Bonds and the registration of transfers of Bonds.  Initially, the Trustee shall be the “Bond
Registrar” for the purpose of registering Bonds and transfers of Bonds as
herein provided.  Upon any resignation of
any Bond Registrar, the Issuer shall promptly appoint a successor or, if it elects
not to make such an appointment, assume the duties of the Bond Registrar.

 

If a Person other than the Trustee is appointed by the
Issuer as Bond Registrar, the Issuer will give the Trustee prompt written
notice of the appointment of such Bond Registrar and of the location, and any
change in the location, of the Bond Register, and the Trustee shall have the
right to inspect the Bond Register at all reasonable times and to obtain copies
thereof, and the 

 

15

 

Trustee shall have the right to rely upon a certificate executed on
behalf of the Bond Registrar by a Responsible Officer thereof as to the names
and addresses of the Holders of the Bonds and the principal amounts and number
of such Bonds.

 

Upon surrender for registration of transfer of any
Bond at the office or agency of the Issuer to be maintained as provided in Section 3.02,
the Issuer shall execute, and the Trustee shall authenticate and the Bondholder
shall obtain from the Trustee, in the name of the designated transferee or
transferees, one or more new Bonds in any Minimum Denominations, to the extent
applicable, of a like Class and aggregate principal amount.

 

At the option of the Holder, Bonds may be exchanged
for other Bonds in any Minimum Denominations, to the extent applicable, of a
like Class and aggregate principal amount, upon surrender of the Bonds to
be exchanged at such office or agency. 
Whenever any Bonds are so surrendered for exchange, the Issuer shall
execute, and the Trustee shall authenticate and the Bondholder shall obtain
from the Trustee, the Bonds which the Bondholder making the exchange is
entitled to receive.

 

All Bonds issued upon any registration of transfer or
exchange of Bonds shall be the valid obligations of the Issuer, evidencing the
same debt, and entitled to the same benefits under this Indenture, as the Bonds
surrendered upon such registration of transfer or exchange.

 

Every Bond presented or surrendered for registration
of transfer or exchange shall be duly endorsed by, or be accompanied by (a) a
written instrument of transfer in form satisfactory to the Trustee duly
executed by the Holder thereof or such Holder’s attorney duly authorized in
writing, with such signature guaranteed by an institution which is a member of one
of the following recognized Signature Guaranty Programs:  (i) The Securities Transfer Agent
Medallion Program (STAMP); (ii) The New York Stock Exchange Medallion
Program (MSP); (iii) The Stock Exchange Medallion Program (SEMP); or (iv) such
other guarantee program acceptable to the Trustee or authorized by the
regulations of the SEC, and (b) such other documents as the Trustee may
reasonably require.

 

No service charge shall be made to a Holder for any
registration of transfer or exchange of Bonds, but the Issuer 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
Bonds, other than exchanges pursuant to Section 2.04 or 9.06 not involving
any transfer.

 

The preceding provisions of this Section notwithstanding,
the Issuer shall not be required to make and the Bond Registrar need not
register transfers or exchanges of Bonds selected for redemption or of any Bond
for a period of fifteen (15) days preceding the due date for any payment
with respect to the Bond.

 

SECTION 2.06.      Mutilated, Destroyed, Lost or Stolen
Bonds.  If (i) any mutilated
Bond is surrendered to the Trustee, or the Trustee receives evidence to its
satisfaction of the destruction, loss or theft of any Bond, and (ii) in
case of destruction, loss, or theft, there is delivered to the Trustee such
security or indemnity as may be reasonably required by it to hold the Issuer
and the Trustee harmless, then, in the absence of notice to the Issuer, the
Bond 

 

16

 

Registrar or the Trustee that such Bond has been
acquired by a protected purchaser, the Issuer shall execute and, upon its
request, the Trustee shall authenticate and deliver, in exchange for or in lieu
of any such mutilated, destroyed, lost or stolen Bond, a replacement Bond of
like Class, tenor and principal amount, bearing a number not contemporaneously
outstanding; provided, however, that if any such destroyed, lost
or stolen Bond, but not a mutilated Bond, shall have become or within seven (7) days
shall be due and payable, or shall have been called for redemption, instead of
issuing a replacement Bond, the Issuer may pay such destroyed, lost or stolen
Bond when so due or payable or upon the Redemption Date, without surrender
thereof.  If, after the delivery of such
replacement Bond or payment of a destroyed, lost or stolen Bond pursuant to the
proviso to the preceding sentence, a protected purchaser of the original Bond
in lieu of which such replacement Bond was issued presents for payment such
original Bond, the Issuer and the Trustee shall be entitled to recover such
replacement Bond (or such payment) from the Person to whom it was delivered or
any Person taking such replacement Bond from such Person to whom such
replacement Bond was delivered or any assignee of such Person, except a
protected purchaser, and shall be entitled to recover upon the security or
indemnity provided therefor to the extent of any loss, damage, cost or expense
incurred by the Issuer or the Trustee in connection therewith.

 

Upon the issuance of any replacement Bond under this
Section, the Issuer may require the payment by the Holder of such Bond 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) connected therewith.

 

Every replacement Bond issued pursuant to this Section in
replacement of any mutilated, destroyed, lost or stolen Bond shall constitute
an original additional contractual obligation of the Issuer, whether or not the
mutilated, destroyed, lost or stolen Bond shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Bonds duly issued hereunder.

 

The provisions of this Section are exclusive and
shall preclude (to the extent lawful) all other rights and remedies with
respect to the replacement or payment of mutilated, destroyed, lost or stolen
Bonds.

 

SECTION 2.07.      Persons Deemed Owner.  Prior to due presentment for registration of
transfer of any Bond, the Issuer, the Trustee and any agent of the Issuer or
the Trustee may treat the Person in whose name any Bond is registered (as of
the day of determination) as the owner of such Bond for the purpose of
receiving payments of principal of and premium, if any, and interest on such
Bond and for all other purposes whatsoever, whether or not such Bond be
overdue, and neither the Issuer, the Trustee nor any agent of the Issuer or the
Trustee shall be affected by notice to the contrary.

 

SECTION 2.08.      Payment of Principal, Premium, if any,
and Interest; Principal, Premium, if any, and Interest Rights Preserved.  (a)   Any installment of interest,
principal or premium, if any, payable on any Bond which is punctually paid or
duly provided for by the Issuer on the applicable Payment Date shall be paid to
the Person in whose name such Bond (or one or more Predecessor Bonds) is
registered on the Record Date for such Payment Date, by check mailed
first-class, postage prepaid to such Person’s address as it appears on the Bond

 

17

 

Register on such Record Date, except that (i) upon application to the Trustee by any Holder owning
Bonds of any Class in the principal amount of $10,000,000 or more not
later than the applicable Record Date, payment will be made by wire transfer to
an account maintained by such Holder in New York, New York and (ii) with
respect to Bonds registered on the Record Date in the name of DTC or another
Clearing Agency, payments will be made by wire transfer in immediately
available funds to the account designated by DTC or such other Clearing Agency,
as applicable, and except for the final installment of principal and premium,
if any, and interest payable with respect to such Bond on a Payment Date which
shall be payable as provided below.  The
funds represented by any such checks returned undelivered shall be held in
accordance with Section 3.03 hereof.

 

(b)           The principal of each Bond of each Class shall
be paid, to the extent funds are available therefor in the Collection Account,
as specified in Sections 2.02(e) and 8.03 on each Payment Date.  Notwithstanding the foregoing, the entire
unpaid principal amount of the Bonds shall be due and payable, if not
previously paid, on the date on which an Event of Default shall have occurred
and be continuing, if the Trustee or the Holders of the Bonds representing not
less than a majority of the Outstanding Amount of the Bonds have declared the
Bonds to be immediately due and payable in the manner provided in Section 5.02.  All payments of principal and premium, if
any, on the Bonds of each Class shall be made pro rata to the Bondholders entitled
thereto.  The Trustee shall notify the
Person in whose name a Bond is registered at the close of business on the
Record Date preceding the Payment Date on which the Issuer expects that the
final installment of principal of and premium, if any, and interest on such
Bond will be paid.  Such notice shall be
mailed no later than five (5) days prior to such final Payment Date
and shall specify that such final installment will be payable only upon
presentation and surrender of such Bond and shall specify the place where such
Bond may be presented and surrendered for payment of such installment and the
date and amount of such payment.  Notices
in connection with redemptions of Bonds shall be mailed to Bondholders as provided
in Section 10.02.

 

(c)           If the Issuer defaults in a payment
of interest on the Bonds when due, the Issuer shall pay such defaulted interest
to the Persons who are Bondholders on a special record date, which date shall
be at least fifteen (15) Business Days prior to the payment date established
for the payment of such defaulted interest (the “Special Payment Date”).  The Issuer shall fix or cause to be fixed any
such special record date and Special Payment Date, and, at least ten (10) days
before any such special record date, the Issuer shall mail to each affected
Bondholder a notice that states the special record date, the Special Payment
Date and the amount of defaulted interest to be paid.

 

SECTION 2.09.      Cancellation.  All Bonds surrendered for payment,
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Trustee, be delivered to the Trustee and shall be
promptly canceled by the Trustee. 
Subject to Section 10.04, the Issuer may at any time deliver to the
Trustee for cancellation any Bonds previously authenticated and delivered
hereunder which the Issuer may have acquired in any manner whatsoever, and all
Bonds so delivered shall be promptly canceled by the Trustee.  No Bonds shall be authenticated in lieu of or
in exchange for any Bonds canceled as provided in this Section, except as
expressly permitted by this Indenture. 
All canceled Bonds may be held or 

 

18

 

disposed of by the Trustee in accordance with its
standard retention or disposal policy as in effect at the time.

 

SECTION 2.10.      Amount Issuable.  The aggregate principal amount of Bonds that
may be authenticated and delivered under this Indenture is $844,461,000.

 

SECTION 2.11.      Release of Collateral.  Subject to Section 11.01, the Trustee
shall release Collateral from the lien of this Indenture only as specified in Section 8.02(d) or
upon receipt of an Issuer Request accompanied by an Officer’s Certificate, an
Opinion of Counsel and Independent Certificates in accordance with TIA Sections
314(c) and 314(d)(l) or an Opinion of Counsel in lieu of such Independent
Certificates to the effect that the TIA does not require any such Independent
Certificates.  Except for Collateral
released from the lien of this Indenture as specified in Section 8.02(d),
the Issuer will notify the Rating Agencies in writing of such release.

 

SECTION 2.12.      Global Bonds.  The Bonds shall be issued in Book-Entry Form,
and the Issuer shall execute and the Trustee shall, in accordance with this Section and
the Issuer Order, authenticate and deliver one or more Global Bonds,
representing the Bonds which (i) shall be in an aggregate original
principal amount equal to the aggregate original principal amount of such Bonds
to be issued pursuant to the applicable Issuer Order, (ii) shall be
registered in the name of the Clearing Agency therefor or its nominee, which
shall initially be Cede & Co., as nominee for DTC, the initial
Clearing Agency, (iii) shall be held by the Trustee as custodian for such
Clearing Agency pursuant to such Clearing Agency’s or such nominee’s
instructions, and (iv) shall bear a legend substantially to the effect set
forth in Exhibit A.

 

Each Clearing Agency designated
pursuant to this Section 2.12 must, at the time of its designation and at
all times while it serves as Clearing Agency hereunder, be a “clearing agency”
registered under the Exchange Act and any other applicable statute or
regulation.

 

No Holder of any Bonds issued in
Book-Entry Form shall receive a Definitive Bond representing such Holder’s
interest in any such Bonds, except as provided in Section 2.14.  Unless (and until) fully registered
Definitive Bonds have been issued to the Holders pursuant to Section 2.14:

 

(a)           the
provisions of this Section 2.12 shall be in full force and effect;

 

(b)           the
Issuer, the Servicer, the Paying Agent, the Bond Registrar and the Trustee may
deal with the Clearing Agency for all purposes (including the making of
distributions on the Bonds) as the Holder;

 

(c)           to the
extent that the provisions of this Section 2.12 conflict with any other
provisions of this Indenture, the provisions of this Section 2.12 shall
control; and

 

(d)           the rights
of owners of security entitlements to Bonds shall be exercised only through the
Clearing Agency and the Clearing Agency participants and shall be limited to
those established by law and agreements between such owners and the Clearing
Agency and/or the Clearing Agency participants. 
Unless and until Definitive Bonds are issued pursuant to Section 2.14,
the initial Clearing Agency will make book-entry transfers among the Clearing 

 

19

 

Agency participants and receive and
transmit distributions of principal and interest on the Global Bonds to such
Clearing Agency participants.

 

SECTION 2.13.      Notices to Clearing Agency.  Unless and until Definitive Bonds shall have
been issued pursuant to Section 2.14, whenever notice, payment, or other
communication to the owners of security entitlements to Bonds is required under
this Indenture, the Trustee and the Paying Agent shall give all such notices
and communications specified herein to be given to owners of security
entitlements to Bonds to the Clearing Agency.

 

SECTION 2.14.      Definitive Bonds.

 

If (i) to the extent permitted
by law, the Issuer, at its option, advises the Trustee in writing that it
elects to terminate the book-entry system through the Clearing Agency or (ii) after
the occurrence of an Event of Default hereunder, owners of security
entitlements to Bonds aggregating not less than a majority of the aggregate
Outstanding Amount of Bonds advise the Trustee, the Issuer and the Clearing
Agency (through the Clearing Agency participants) in writing that the
continuation of a book-entry system through the Clearing Agency is no longer in
the best interests of the owners of security entitlements to such Bonds, the
Issuer shall notify the Clearing Agency, the Trustee and all such owners in
writing of the occurrence of any such event and of the availability of
Definitive Bonds.  Upon surrender to the
Trustee of the Global Bonds by the Clearing Agency accompanied by registration
instructions from such Clearing Agency for re-registration, the Issuer shall
execute, and the Trustee shall authenticate and deliver, Definitive Bonds.  None of the Issuer, the Bond Registrar or the
Trustee shall be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be fully protected in relying on, such
instructions.  Upon the issuance of Definitive
Bonds the Trustee shall recognize the Holders of the Definitive Bonds as
Holders hereunder.

 

Definitive Bonds will be transferable
and exchangeable at the offices of the Bond Registrar.

 

ARTICLE III

 

COVENANTS

 

SECTION 3.01.      Payment of Principal, Premium, if any,
and Interest.  The Issuer will duly
and punctually pay the principal of and premium, if any, and interest on the
Bonds in accordance with the terms of the Bonds and this Indenture.  Amounts properly withheld under the Code by
any Person from a payment to any Bondholder of interest or principal or
premium, if any, shall be considered as having been paid by the Issuer to such
Bondholder for all purposes of this Indenture.

 

SECTION 3.02.      Maintenance of Office or Agency.  The Issuer will maintain an office or agency
where Bonds may be surrendered for registration of transfer or exchange.  The Issuer hereby initially appoints the
Trustee to serve as its agent for the foregoing purposes.  The Issuer will give prompt written notice to
the Trustee of the location, and of any change in the location, of any such
office or agency.  If at any time the
Issuer shall fail to maintain any such office or agency or shall fail to
furnish the Trustee with the address thereof, such surrenders may 

 

20

 

be made at the Corporate Trust Office, and the Issuer
hereby appoints the Trustee as its agent to receive all such surrenders.

 

SECTION 3.03.      Money for Payments To Be Held in Trust.  As provided in Section 8.02(a), all
payments of amounts due and payable with respect to any Bonds that are to be
made from amounts withdrawn from the Collection Account pursuant to Section 8.02(d) shall
be made on behalf of the Issuer by the Trustee or by another Paying Agent, and
no amounts so withdrawn from the Collection Account for payments of Bonds shall
be paid over to the Issuer except as provided in this Section and Section 8.02.

 

The Issuer will cause each Paying Agent other than the
Trustee to execute and deliver to the Trustee an instrument in which such
Paying Agent shall agree with the Trustee (and if the Trustee acts as Paying
Agent, it hereby so agrees), subject to the provisions of this Section, that
such Paying Agent will:

 

(i)            hold all sums held by it for the
payment of amounts due with respect to the 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 and pay such sums to such Persons as
herein provided;

 

(ii)           give the Trustee notice of any
default by the Issuer (or any other obligor upon the Bonds) of which it has
actual knowledge in the making of any payment required to be made with respect
to the Bonds;

 

(iii)          at any time during the continuance of
any such default, upon the written request of the Trustee, forthwith pay to the
Trustee all sums so held in trust by such Paying Agent;

 

(iv)          immediately resign as a Paying Agent
and forthwith pay to the Trustee all sums held by it in trust for the payment
of Bonds if at any time it ceases to meet the standards required to be met by a
Paying Agent at the time of its appointment; and

 

(v)           comply with all requirements of the
Code with respect to the withholding from any payments made by it on any Bonds
of any applicable withholding taxes imposed thereon and with respect to any
applicable reporting requirements in connection therewith.

 

The Issuer may at any time, for the purpose of
obtaining the satisfaction and discharge of this Indenture or for any other
purpose, by Issuer Order direct any Paying Agent to pay to the Trustee all sums
held in trust by such Paying Agent, such sums to be held by the Trustee upon
the same trusts as those upon which the sums were held by such Paying Agent;
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.

 

Subject to applicable laws with respect to escheat of
funds, any money held by the Trustee or any Paying Agent in trust for the
payment of any amount due with respect to any Bond and remaining unclaimed for
two (2) years after such amount has become due and payable shall be
discharged from such trust and be repaid to the Issuer on Issuer Request; and,
subject to 

 

21

 

Section 11.18, the Holder of such Bond shall thereafter, as an
unsecured general creditor, look only to the Issuer for payment thereof (but
only to the extent of the amounts so repaid to the Issuer), and all liability
of the Trustee or such Paying Agent with respect to such trust money shall thereupon
cease; provided, however, that the Trustee or such Paying Agent,
before being required to make any such repayment, may at the expense of the
Issuer cause to be published once, in a newspaper published in the English
language, customarily published on each Business Day and of general circulation
in The City of New York, notice that such money remains unclaimed and that,
after a date specified therein, any unclaimed balance of such money then
remaining will be repaid to the Issuer. 
The Trustee may also adopt and employ, at the expense of the Issuer, any
other reasonable means of notification of such repayment (including mailing
notice of such repayment to Holders whose Bonds have been called but have not
been surrendered for redemption or whose right to or interest in moneys due and
payable but not claimed is determinable from the records of the Trustee or of
any Paying Agent, at the last address of record for each such Holder).

 

SECTION 3.04.      Existence.  The Issuer will keep in full effect its existence,
rights and franchises as a limited liability company under the laws of the
State of Delaware (unless it becomes, or any successor Issuer hereunder is or
becomes, organized under the laws of any other State or of the United States of
America, in which case the Issuer will keep in full effect its existence,
rights and franchises under the laws of such other jurisdiction) and will
obtain and preserve its qualification to do business in each jurisdiction in
which such qualification is or shall be necessary to protect the validity and
enforceability of this Indenture, the Bonds, the Collateral and each other
instrument or agreement included in the Collateral.

 

SECTION 3.05.      Protection of Collateral.  The Issuer will from time to time authorize,
execute and deliver all such supplements and amendments hereto and all such
filings with the CPUC pursuant to the PU Code, financing statements, amendments
thereto, continuation statements, instruments of further assurance and other
instruments, and will take such other action necessary or advisable to:

 

(i)            maintain, perfect, continue the
perfection of, or preserve the lien and security interest (and the priority
thereof) of this Indenture or carry out more effectively the purposes hereof;

 

(ii)           perfect, publish notice of or protect
the validity of any Grant made or to be made by this Indenture;

 

(iii)          enforce any of the Collateral;

 

(iv)          preserve and defend title to the
Collateral and the rights of the Trustee and the Bondholders in such Collateral
against the claims of all Persons and parties, including the challenge by any
party to the validity or enforceability of the Financing Order, the Issuance
Advice Letter or the Recovery Property or any proceeding relating thereto and
institute any action or proceeding necessary to compel performance by the CPUC
or the State of California of any of its obligations or duties under the PU
Code, the Financing Order or any Advice Letter; or

 

22

 

(v)           pay any and all taxes levied or assessed
upon all or any part of the Collateral.

 

The Issuer hereby designates the Trustee its agent and
attorney-in-fact to execute any filings with the CPUC, financing statements,
continuation statements or other instruments required pursuant to this Section,
it being understood that the Trustee shall have no such obligation.

 

SECTION 3.06.      Opinions as to Collateral.  (a)  On the Issuance Date, the
Issuer shall furnish to the Trustee an Opinion of Counsel either stating that,
in the opinion of such counsel, such action has been taken with respect to the
recording and filing of this Indenture, and any other requisite documents, and
with respect to the execution and filing of any filings with the CPUC pursuant
to the PU Code and financing statements, as are necessary to perfect and make
effective the lien and security interest of this Indenture 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 and security interest effective.

 

(b)           On or before September 30 in
each calendar year, while any Bonds are Outstanding, the Issuer shall furnish
to the Trustee an Opinion of Counsel either stating that, in the opinion of
such counsel, such action has been taken with respect to the recording, filing,
re-recording and refiling of this Indenture, and any indentures supplemental
hereto, and any other requisite documents and with respect to the execution and
filing of any filings with the CPUC or the California Secretary of State
pursuant to the PU Code, financing statements and continuation statements as is
necessary to maintain the lien and security interest created by this Indenture
and reciting the details of such action or stating that in the opinion of such
counsel no such action is necessary to maintain such lien and security
interest. Such Opinion of Counsel shall also describe the recording, filing,
re-recording and refiling of this Indenture, any indentures supplemental hereto
and any other requisite documents and the execution and filing of any filings
with the CPUC or the California Secretary of State, financing statements and
continuation statements that will, in the opinion of such counsel, be required
to maintain the lien and security interest of this Indenture until September 30
in the following calendar year.

 

SECTION 3.07.      Performance of Obligations; Servicing;
SEC Filings.  (a)  The
Issuer (i) will diligently pursue any and all actions to enforce its
rights under each instrument or agreement included in the Collateral and (ii) will
not take any action and will use its best efforts not to permit any action to
be taken by others that would release any Person from any of such Person’s
covenants or obligations under any such instrument or agreement or that would
result in the amendment, hypothecation, subordination, termination or discharge
of, or impair the validity or effectiveness of, any such instrument or
agreement, except, in each case, as expressly provided in this Indenture, the
Sale Agreement or the Servicing Agreement.

 

(b)           The Issuer may contract with other
Persons to assist it in performing its duties under this Indenture, and any
performance of such duties by a Person identified to the Trustee in an Officer’s
Certificate of the Issuer shall satisfy the Issuer’s obligation to perform such
duties.  Initially, the Issuer has
contracted with the Servicer pursuant to the Servicing Agreement to assist the
Issuer in performing its duties under this Indenture.

 

23

 

(c)                                  The
Issuer will punctually perform and observe all of its obligations and
agreements contained in this Indenture and in the instruments and agreements
included in the Collateral, including filing or causing to be filed all filings
with the CPUC pursuant to the PU Code, UCC financing statements and
continuation statements required to be filed by it by the terms of this
Indenture with respect to the Recovery Property and the other Collateral in
accordance with and within the time periods provided for herein.

 

(d)                                 If
the Issuer shall have knowledge of the occurrence of a Servicer Default with
respect to the Recovery Property under the Servicing Agreement, the Issuer
shall promptly give written notice thereof to the Trustee and the Rating
Agencies, and shall specify in such notice the action, if any, the Issuer is
taking in respect of such default.  If a
Servicer Default shall arise from the failure of the Servicer to perform any of
its duties or obligations with respect to the Recovery Property under the Servicing
Agreement, the Issuer shall take all reasonable steps available to it to remedy
such failure.

 

(e)                                  As
promptly as possible after the giving of notice of termination to the Servicer
and the Rating Agencies of the Servicer’s rights and powers pursuant to Section 7.01
of the Servicing Agreement, the Issuer shall appoint a successor Servicer (the “Successor
Servicer”) with the Trustee’s prior written consent thereto (which consent
shall not be unreasonably withheld) and the CPUC’s prior written consent thereto,
and such Successor Servicer shall accept its appointment by a written
assumption in a form acceptable to the Issuer and the Trustee.  A Person shall qualify as a Successor
Servicer only if such Person satisfies the requirements of the Servicing Agreement.  If within thirty (30) days after the
delivery of the notice referred to above, the Issuer shall not have obtained
such a new Servicer, the Trustee may petition the CPUC or a court of competent
jurisdiction to appoint a Successor Servicer. 
In connection with any such appointment, the Issuer may make such
arrangements for the compensation of such successor as it and such successor
shall agree, subject to the limitations set forth below and in the Servicing
Agreement, and in accordance with Section 7.02 of the Servicing Agreement,
the Issuer shall enter into an agreement with such successor for the servicing
of the Recovery Property (such agreement to be in form and substance
satisfactory to the Trustee).

 

(f)                                    Upon
any termination of the Servicer’s rights and powers pursuant to the Servicing
Agreement with respect to the Recovery Property, the Trustee shall promptly
notify the Issuer, the Bondholders and the Rating Agencies.  As soon as a Successor Servicer is appointed,
the Issuer shall notify the Trustee, the Bondholders, the CPUC and the Rating
Agencies of such appointment, specifying in such notice the name and address of
such Successor Servicer.

 

(g)                                 Without
derogating from the absolute nature of the assignment granted to the Trustee
under this Indenture or the rights of the Trustee hereunder, the Issuer agrees
that it will not (i) amend, modify, waive, supplement, terminate or
surrender, or agree to any amendment, modification, supplement, termination,
waiver or surrender of, the terms of the Sale Agreement or the Servicing
Agreement, except as provided in the Sale Agreement or the Servicing Agreement,
respectively, or (ii) waive timely performance or observance by the Seller
or the Servicer with respect to the Recovery Property under the Sale Agreement
or the Servicing Agreement, respectively. 
The Issuer agrees that no such amendment, modification, supplement 

 

24

 

or waiver shall adversely affect in any material
respect the interests of the Holders of the Bonds outstanding at the time of
any such amendment, modification, supplement or waiver.

 

(h)                                 The
Issuer shall file with the SEC such periodic reports, if any, as are required
from time to time under Section 13 of the Exchange Act.

 

(i)                                     The
Issuer shall make all filings required under the Statute or the CUCC relating
to the transfer of the ownership or security interest in the Recovery Property
other than those required to be made by the Seller pursuant to the Sale
Agreement.

 

SECTION 3.08.                 Negative
Covenants.  So long as any Bonds are
Outstanding, the Issuer shall not:

 

(i)                                     except
as expressly permitted by this Indenture, the Sale Agreement or the Servicing
Agreement, sell, transfer, exchange or otherwise dispose of any of the assets
that constitute part of the Collateral, unless directed to do so by the Trustee
in accordance with Article V;

 

(ii)                                  claim
any credit on, or make any deduction from the principal or premium, if any, or
interest payable in respect of, the Bonds (other than amounts properly withheld
from such payments under the Code or other tax laws) or assert any claim
against any present or former Bondholder by reason of the payment of the taxes
levied or assessed upon any part of the Collateral;

 

(iii)                               terminate
its existence or dissolve or liquidate in whole or in part except in a
transaction permitted by Section 3.10;

 

(iv)                              (A) permit
the validity or effectiveness of this Indenture to be impaired, or permit the
lien of this Indenture to be amended, hypothecated, subordinated, terminated or
discharged, or permit any Person to be released from any covenants or
obligations with respect to the Bonds under this Indenture except as may be
expressly permitted hereby, (B) permit any lien, charge, claim, security
interest, mortgage or other encumbrance (other than the lien of this Indenture
and the lien arising under Section 848.3(g) of the PU Code, the
Financing Order and the Issuance Advice Letter) to be created on or extend to
or otherwise arise upon or burden the Collateral or any part thereof or any
interest therein (other than tax liens arising by operation of law with respect
to amounts not yet due) or (C) subject to the lien arising under Section 848.3(g) of
the PU Code, the Financing Order and the Issuance Advice Letter, permit the
lien of this Indenture not to constitute a valid first priority security
interest in the Collateral;

 

(v)                                 elect
to be classified as an association taxable as a corporation for federal income
tax purposes or otherwise take any action, file any tax return, or make any
election inconsistent with the treatment of the Issuer, for purposes of federal
income taxes and, to the extent consistent with applicable state tax law, state
income and franchise tax purposes, as a disregarded entity that is not separate
from the equity member of the Issuer;

 

25

 

(vi)                              change
its name or type or jurisdiction of organization, unless prior to the effective
date of any such change the Issuer delivers to the Trustee such documents,
filings, instruments or agreements, authorized and executed by the Issuer, as
are necessary to reflect such change and to continue the perfection of the
security interest of this Indenture;

 

(vii)                           issue
other bonds, notes or other evidences of indebtedness authorized by the
Financing Order unless the Rating Agency Condition has been satisfied; or

 

(viii)                        take
any action which is expressly stated in the Basic Documents to require
satisfaction of the Rating Agency Condition without satisfying the Rating
Agency Condition.

 

SECTION 3.09.                 Annual
Statement as to Compliance.  The
Issuer will deliver to the Trustee and the Rating Agencies not later than September 30
of each year (commencing with September 30, 2006), an Officer’s
Certificate (which need not comply with Section 11.01) stating, as to the
Authorized Officer signing such Officer’s Certificate, that

 

(i)                                     a
review of the activities of the Issuer during the preceding twelve (12) months
ended June 30 (or relevant portion thereof) and of performance under this
Indenture has been made under such Authorized Officer’s supervision; and

 

(ii)                                  to
the best of such Authorized Officer’s knowledge, based on such review, the
Issuer has complied with all conditions and covenants under this Indenture
throughout such twelve month period (or relevant portion thereof), or, if there
has been a default in the compliance of any such condition or covenant,
specifying each such default known to such Authorized Officer and the nature
and status thereof.

 

SECTION 3.10.                 Issuer
May Consolidate, etc., Only on Certain Terms.  (a)  The Issuer shall not
consolidate with or merge into any other Person, or sell, convey, exchange,
transfer or otherwise dispose of substantially all of its properties or assets
to any Person, unless

 

(i)                                     the
Person (if other than the Issuer) formed by or surviving such consolidation or
merger or to whom substantially all of the Issuer’s assets are sold or disposed
of shall be a Person organized and existing under the laws of the United States
of America or any State and shall expressly assume, (A) by an indenture
supplemental hereto, executed and delivered to the Trustee, in form and
substance satisfactory to the Trustee, the due and punctual payment of the
principal of and premium, if any, and interest on all Bonds and the performance
of the Issuer’s obligations under this Indenture on the part of the Issuer to
be performed or observed, all as provided herein, and (B) by an assignment
and assumption agreement, all obligations and succeeds to all of the Issuer’s
rights under the Sale Agreement and the Servicing Agreement with respect to the
Recovery Property;

 

(ii)                                  immediately
after giving effect to such transaction, no Default or Event of Default shall
have occurred and be continuing;

 

26

 

(iii)                               the
Rating Agency Condition shall have been satisfied with respect to such
transaction;

 

(iv)                              the
Issuer shall have received an Opinion of Counsel (and shall have delivered
copies thereof to the Servicer, the Trustee and the Rating Agencies) to the
effect that such transaction (A) will not have any material adverse tax
consequence to the Issuer or any Bondholder and (B) will result in the
Trustee continuing to have a perfected security interest in the Collateral;

 

(v)                                 any
action as is necessary to continue the perfection of the security interest
granted by the Issuer under this Indenture shall have been taken;

 

(vi)                              the
Issuer shall have delivered to the Trustee an Officer’s Certificate and an
Opinion of Counsel (with copies to the Servicer and the Rating Agencies) each
stating that such consolidation or merger and such supplemental indenture
comply with this Section 3.10 and that all conditions precedent herein
provided for relating to such transaction have been complied with (including any
filing required by the Exchange Act);

 

(vii)                           none
of the Recovery Property, the Financing Order or the Seller’s, Servicer’s or
Issuer’s rights under the Statute or the Financing Order are impaired thereby;
and

 

(viii)                        the
CPUC shall have approved the transaction.

 

(b)                                 Except
as specifically provided herein, the Issuer shall not sell, convey, exchange,
transfer or otherwise dispose of any of its properties or assets included in
the Collateral, to any Person, unless

 

(i)                                     the
Person that acquires by conveyance or transfer the properties and assets of the
Issuer the conveyance or transfer of which is hereby restricted shall (A) be
a United States citizen or a Person organized and existing under the laws of
the United States of America or any State, (B) expressly assumes, by an
indenture supplemental hereto, executed and delivered to the Trustee, in form
and substance satisfactory to the Trustee, the due and punctual payment of the
principal of and premium, if any, and interest on all Bonds and the performance
or observance of every agreement and covenant of this Indenture on the part of
the Issuer to be performed or observed, all as provided herein, (C) expressly
agrees by means of such supplemental indenture that all right, title and
interest so conveyed or transferred shall be subject and subordinate to the
rights of Holders of the Bonds, and (D) unless otherwise provided in the
supplemental indenture referred to in clause (B) above, expressly
agrees to indemnify, defend and hold harmless the Issuer against and from any
loss, liability or expense arising under or related to this Indenture and the
Bonds;

 

(ii)                                  immediately
after giving effect to such transaction, no Default or Event of Default shall
have occurred and be continuing;

 

(iii)                               the
Rating Agency Condition shall have been satisfied with respect to such
transaction;

 

27

 

(iv)                              the
Issuer shall have received an Opinion of Counsel (and shall have delivered
copies thereof to the Trustee) to the effect that such transaction will not
have any material adverse tax consequence to the Issuer or any Bondholder;

 

(v)                                 any
action as is necessary to maintain the security interest created by this
Indenture shall have been taken;

 

(vi)                              the
Issuer shall have delivered to the Trustee an Officer’s Certificate and an
Opinion of Counsel each stating that such conveyance or transfer and such
supplemental indenture comply with this Section 3.10 and that all
conditions precedent herein provided for relating to such transaction have been
complied with (including any filing required by the Exchange Act); and

 

(vii)                           the
CPUC shall have approved the transaction.

 

(c)                                  Whenever
the approval of the CPUC shall be required pursuant to this Section 3.10,
the Issuer shall follow the following procedures in obtaining such approval:

 

(i)                                     At
least thirty (30) calendar days prior to the closing of the transaction, the
Issuer shall deliver to each of the CPUC’s Executive Director, General Counsel
and Director of the Energy Division (or any successor to any of such positions,
if any), at the address specified in or provided pursuant to Section 11.04,
written notification of the proposed transaction, which notification shall
contain:

 

(A)                              a
reference to the Financing Order; and

 

(B)                                a
statement identifying the person to whom the CPUC or its staff is to address
any response to the proposed transaction or is to request additional time to
respond to the proposed transaction.

 

(ii)                                  If
the CPUC or its staff have, within thirty (30) calendar days of receiving a
notification complying with Section 3.10(c)(i) above, delivered to
the office of the person specified in Section 3.10(c)(i)(B) above a
written statement that the CPUC might object to the proposed transaction, then
such proposed transaction shall not be effective unless and until the CPUC
subsequently delivers a written statement that it approves such proposed
transaction.

 

(iii)                               If
the CPUC or its staff shall not have delivered a written statement that the
CPUC might object to such proposed transaction within the time period described
in Section 3.10(c)(ii) above, then the CPUC shall be conclusively
deemed to have approved the proposed transaction, and such transaction may
subsequently become effective upon the satisfaction of any other conditions
thereto.

 

(iv)                              Following
the delivery of a notice to the CPUC by the Issuer under Section 3.10(c)(i) above,
the Issuer shall have the right at any time to withdraw from the CPUC further
consideration of any notification of a proposed transaction.

 

28

 

SECTION 3.11.                 Successor
or Transferee.  (a)  Upon
any consolidation or merger of the Issuer in accordance with Section 3.10(a),
the Person formed by or surviving such consolidation or merger (if other than
the Issuer) shall succeed to, and be substituted for, and may exercise every
right and power of, the Issuer under this Indenture with the same effect as if
such Person had been named as the Issuer herein.

 

(b)                                 Except
as set forth in Section 6.07, upon a conveyance or transfer of all the
assets and properties of the Issuer pursuant to Section 3.10(b), the
Issuer will be released from every covenant and agreement of this Indenture to
be observed or performed on the part of the Issuer with respect to the Bonds
immediately upon the delivery of written notice to the Trustee stating that the
Issuer is to be so released.

 

SECTION 3.12.                 No
Other Business.  The Issuer shall not
engage in any business other than (i) financing, purchasing, owning and
managing the Recovery Property and the other Collateral and issuing bonds in
the manner contemplated by the Financing Order, this Indenture and the Basic
Documents and activities incidental thereto and (ii) financing,
purchasing, owning and managing other property authorized or contemplated by
the Financing Order and any other sale agreement or any other servicing
agreement authorized or contemplated by the Financing Order and activities
incidental thereto.

 

SECTION 3.13.                 No
Borrowing.  The Issuer shall not
issue, incur, assume, guarantee or otherwise become liable, directly or
indirectly, for any indebtedness except for the Bonds and other bonds, notes or
other evidences of indebtedness authorized by the Financing Order and related
expenses.

 

SECTION 3.14.                 Servicer’s
Obligations.  The Issuer shall
enforce in all material respects the Servicer’s compliance with all of the
Servicer’s obligations under the Servicing Agreement with respect to the
Recovery Property.

 

SECTION 3.15.                 Guarantees,
Loans, Advances and Other Liabilities. 
Except as otherwise contemplated by the Sale Agreement, the Servicing
Agreement, this Indenture, and any similar documents relating to other bonds
authorized by the Financing Order, the Issuer shall not make any loan or
advance or credit to, or guarantee (directly or indirectly or by an instrument
having the effect of assuring another’s payment or performance on any
obligation or capability of so doing or otherwise), endorse or otherwise become
contingently liable, directly or indirectly, in connection with the obligations,
stocks or dividends of, or own, purchase, repurchase or acquire (or agree
contingently to do so) any stock, obligations, assets or securities of, or any
other interest in, or make any capital contribution to, any other Person.

 

SECTION 3.16.                 Capital
Expenditures.  Other than
expenditures in an aggregate amount not to exceed $200,000 per series of bonds
authorized to be issued by the Financing Order (including the Bonds) in any
calendar year and other than as contemplated by the Sale Agreement, the Servicing
Agreement, this Indenture, and any similar documents relating to other bonds
authorized by the Financing Order, the Issuer shall not make any expenditure
(by long-term or operating lease or otherwise) for capital assets (either
realty or personalty).

 

29

 

SECTION 3.17.                 Restricted
Payments.  The Issuer shall not,
directly or indirectly, (i) pay any dividend or make any distribution (by
reduction of capital or otherwise), whether in cash, property, securities or a
combination thereof, to any owner of a beneficial interest in the Issuer or
otherwise with respect to any ownership or equity interest or security in or of
the Issuer, (ii) redeem, purchase, retire or otherwise acquire for value
any such ownership or equity interest or security or (iii) set aside or
otherwise segregate any amounts for any such purpose; provided, however,
that, if no Event of Default shall have occurred and be continuing, the Issuer
may make, or cause to be made, any such distributions to any owner of a
beneficial interest in the Issuer or otherwise with respect to any ownership or
equity interest or security in or of the Issuer using funds distributed to the
Issuer pursuant to Section 8.02(d) to the extent that such
distributions would not cause the balance of the Capital Subaccount to decline
below the Required Capital Level or using any other funds that are not subject
to the lien of this Indenture.  The
Issuer will not, directly or indirectly, make payments to or distributions from
the Collection Account except in accordance with this Indenture and the Basic
Documents.

 

SECTION 3.18.                 Payment
by Issuer is Nonrecourse.  Any
amounts due hereunder from the Issuer with respect to the Bonds shall be paid
solely from the Collateral.  In the event
the Collateral pledged to secure the Bonds has been exhausted and the Bonds
have not been paid in full, then any and all amounts remaining due on the Bonds
shall be extinguished and the Bonds cancelled. 
To the extent that under any applicable law the Holder of a Bond or any
owner of a security entitlement to a Bond is deemed to have an interest in
assets of the Issuer other than the Collateral (“Other Issuer Assets”),
such Holder or owner is deemed to have agreed that its interest in such Other
Issuer Assets is fully subordinate to the claim against such Other Issuer
Assets of the pledgees or grantees to which such Other Issuer Assets are
pledged or granted and is further deemed to have agreed that this agreement
shall constitute a subordination agreement for purpose of Section 510(a) of
the United States Bankruptcy Code.

 

SECTION 3.19.                 Notice
of Events of Default.  The Issuer
agrees to give the Trustee, the CPUC and the Rating Agencies prompt written
notice of each Event of Default hereunder and each default on the part of the
Seller or the Servicer of its obligations under the Sale Agreement or the
Servicing Agreement with respect to the Recovery Property, respectively.

 

SECTION 3.20.                 Further
Instruments and Acts.  Upon request
of the Trustee, the Issuer will authorize, execute and deliver such further
instruments and do such further acts as may be reasonably necessary or proper
to carry out more effectively the purpose of this Indenture.

 

SECTION 3.21.                 Representations
and Warranties.

 

(a)                                  The
Issuer makes the following representations and warranties:

 

(i)                                     This
Indenture creates a valid and continuing security interest in the Recovery
Property in favor of the Trustee, which security interest is prior to all other
liens, and is enforceable as such as against creditors of and purchasers from
the Issuer.

 

(ii)                                  The
Issuer owns and has good and marketable title to the Recovery Property, free
and clear of any lien, claim or encumbrance of any Person.

 

30

 

(iii)                               The
Issuer has received all consents and approvals required by the terms of the
Recovery Property to the transfer of the Recovery Property hereunder to the
Trustee.

 

(iv)                              Other
than the security interest granted to the Trustee pursuant to this Indenture and
the statutory lien created pursuant to Section 848.3(g) of the PU
Code, the Financing Order, and the Issuance Advice Letter, the Issuer has not
pledged, assigned, sold, granted a security interest in, or otherwise conveyed
the Recovery Property.  The Issuer has
not authorized the filing of and is not aware of any financing statements
against the Issuer that include a description of collateral covering the
Recovery Property other than any financing statement relating to the security
interest granted to the Trustee hereunder or that has been terminated.  The Issuer is not aware of any judgment or
tax lien filings against the Issuer.

 

(v)                                 The
Issuer has caused or will have caused, within ten (10) days, the filing of
all appropriate financing statements in the proper filing office in the
appropriate jurisdictions under applicable law in order to perfect the security
interest in the Recovery Property granted to the Trustee hereunder.

 

(b)                                 None
of the provisions of this Section 3.21 shall be waived or amended without
the prior written confirmation from Standard & Poor’s that such waiver
or amendment shall not result in a reduction or withdrawal of the then-current
rating of the Bonds.

 

ARTICLE IV

SATISFACTION AND DISCHARGE;
DEFEASANCE

 

SECTION 4.01.                 Satisfaction
and Discharge of Indenture; Defeasance. 
(a)  This Indenture shall cease to be of further effect with
respect to the Bonds and the Trustee, on reasonable demand of and at the
expense of the Issuer, shall execute proper instruments acknowledging satisfaction
and discharge of this Indenture with respect to the Bonds, when

 

(A)                              either

 

(1)                                  all
Bonds theretofore authenticated and delivered (other than (i) Bonds that
have been destroyed, lost or stolen and that have been replaced or paid as
provided in Section 2.06 and (ii) Bonds for whose payment money has
theretofore been deposited in trust or segregated and held in trust by the
Issuer and thereafter repaid to the Issuer or discharged from such trust, as
provided in Section 3.03) have been delivered to the Trustee for
cancellation; or

 

(2)                                  the
Scheduled Maturity Date has occurred with respect to all Bonds not theretofore
delivered to the Trustee for cancellation, and the Issuer has irrevocably
deposited or caused to be irrevocably deposited with the Trustee cash, in trust
for such purpose, in an amount sufficient to pay and discharge the entire
indebtedness on such Bonds not theretofore delivered to the Trustee for
cancellation on the Scheduled Maturity Date therefor;

 

31

 

(B)                                the
Issuer has paid or caused to be paid all other sums payable hereunder by the
Issuer; and

 

(C)                                the
Issuer has delivered to the Trustee (i) an Officer’s Certificate and an
Opinion of Counsel each meeting the applicable requirements of Section 11.01(a) and
each stating that all conditions precedent herein provided for relating to the
satisfaction and discharge of this Indenture with respect to the Bonds have
been complied with and (ii) (if required by the TIA) an Independent
Certificate from a firm of certified public accountants meeting the
requirements of TIA Section 314(c).

 

(b)                                 Subject
to Sections 4.01(c) and 4.02, the Issuer at any time may terminate (i) all
its obligations under this Indenture with respect to the Bonds (“Legal
Defeasance Option”) or (ii) its obligations under Sections 3.04,
3.05, 3.06, 3.07, 3.08, 3.09, 3.10, 3.12, 3.13, 3.14, 3.15, 3.16 and 3.17 and
the operation of Section 5.01(iv) (“Covenant Defeasance Option”).  The Issuer may exercise the Legal Defeasance
Option notwithstanding its prior exercise of the Covenant Defeasance Option.

 

If the Issuer exercises the Legal Defeasance Option,
the maturity of the Bonds may not be accelerated because of an Event of
Default.  If the Issuer exercises the
Covenant Defeasance Option, the maturity of the Bonds may not be accelerated
because of an Event of Default specified in Section 5.01(iv).

 

Upon satisfaction of the conditions set forth herein
to the exercise of the Legal Defeasance Option or the Covenant Defeasance
Options the Trustee, on reasonable demand of and at the expense of the Issuer,
shall execute proper instruments acknowledging satisfaction and discharge of
the obligations that are terminated pursuant to such exercise.

 

(c)                                  Notwithstanding
Sections 4.01(a) and 4.01(b) above, (i) rights of
registration of transfer and exchange, (ii) substitution of mutilated,
destroyed, lost or stolen Bonds, (iii) rights of Bondholders to receive
payments of principal, premium, if any, and interest, (iv) Sections 4.03
and 4.04, (v) the rights, obligations and immunities of the Trustee
hereunder (including the rights of the Trustee under Section 6.07 and the
obligations of the Trustee under Section 4.03), (vi) Sections 3.18
and 11.18 and (vii) the rights of Bondholders as beneficiaries hereof with
respect to the property deposited with the Trustee payable to all or any of
them, shall survive until the Bonds that have been satisfied and discharged
pursuant to Section 4.01(a) or 4.01(b) have been paid in
full.  Thereafter, the obligations in Sections 3.18,
6.07, 4.04 and 11.18 shall survive.

 

SECTION 4.02.                 Conditions
to Defeasance.  The Issuer may
exercise the Legal Defeasance Option or the Covenant Defeasance Option only if:

 

(a)                                  the
Issuer irrevocably deposits or causes to be deposited in trust with the Trustee
cash or U.S. Government Obligations, or both, for the payment of principal of
and premium, if any, and interest on such Bonds to the Scheduled Maturity Dates
or Redemption Date therefor, as applicable;

 

(b)                                 the
Issuer delivers to the Trustee a report from a nationally recognized firm of
Independent accountants to the effect that the payments of principal and
interest 

 

32

 

when due and without reinvestment on the deposited
U.S. Government Obligations plus any deposited cash without investment will
provide cash at such times and in such amounts (but, in the case of the Legal
Defeasance Option only, not more than such amounts) as will be sufficient to
pay in respect of the Bonds (i) subject to clause (ii), principal in
accordance with the Expected Amortization Schedule therefor, (ii) if
Bonds are to be redeemed, the Optional Redemption Price therefor on the
Redemption Date therefor and (iii) interest when due;

 

(c)                                  in
the case of the Legal Defeasance Option, 91 days pass after the deposit is
made and during the 91-day period no Default specified in Section 5.01(v) or
(vi) occurs which is continuing at the end of the period;

 

(d)                                 no
Default has occurred and is continuing on the day of such deposit and after
giving effect thereto;

 

(e)                                  in
the case of an exercise of the Legal Defeasance Option, the Issuer shall have
delivered to the Trustee an Opinion of Counsel stating that (i) the Issuer
has received from, or there has been published by, the Internal Revenue Service
a ruling, or (ii) since the date of execution of this Indenture, there has
been a change in the applicable federal income tax law, in either case to the
effect that, and based thereon such opinion shall confirm that, the Holders
will not recognize income, gain or loss for federal income tax purposes as a
result of such legal defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if such legal defeasance had not occurred;

 

(f)                                    in
the case of an exercise of the Covenant Defeasance Option, the Issuer shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of the Bonds will not recognize income, gain or loss for federal income
tax purposes as a result of such covenant defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such covenant defeasance had not occurred;

 

(g)                                 the
Issuer delivers to the Trustee an Officer’s Certificate and an Opinion of
Counsel, each stating that all conditions precedent to the satisfaction and
discharge of the Bonds to the extent contemplated by this Article IV have
been complied with; and

 

(h)                                 the
Rating Agency Condition shall have been satisfied.

 

Before or after a deposit pursuant to this Section 4.02,
the Issuer may make arrangements satisfactory to the Trustee for the redemption
of such Bonds at a future date in accordance with Article X.

 

SECTION 4.03.                 Application
of Trust Money.  All moneys or U.S.
Government Obligations deposited with the Trustee pursuant to Section 4.01
or 4.02 hereof shall be held in trust and applied by it, in accordance with the
provisions of the Bonds and this Indenture, to the payment, either directly or
through any Paying Agent, as the Trustee may determine, to the Holders of the
particular Bonds for the payment or redemption of which such moneys have been
deposited with the Trustee, of all sums due and to become due thereon for principal,
premium, if 

 

33

 

any, and interest; but such moneys need not be
segregated from other funds except to the extent required herein or in the
Servicing Agreement or required by law.

 

SECTION 4.04.                 Repayment
of Moneys Held by Paying Agent.  In
connection with the satisfaction and discharge of this Indenture or the
Covenant Defeasance Option or Legal Defeasance Option, all moneys then held by
any Paying Agent other than the Trustee under the provisions of this Indenture
with respect to such Bonds shall, upon demand of the Issuer, be paid to the
Trustee to be held and applied according to Section 3.03 and thereupon
such Paying Agent shall be released from all further liability with respect to
such moneys.

 

ARTICLE V

REMEDIES

 

SECTION 5.01.                 Events
of Default.  “Event of Default”,
wherever used herein, means any one of the following events (whatever the
reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):

 

(i)                                     default
in the payment of any interest on any Bond when the same becomes due and
payable, and such default shall continue for a period of five (5) Business
Days; or

 

(ii)                                  default
in the payment of the then unpaid principal of any Bond of any Class on
the Final Legal Maturity Date for such Class; or

 

(iii)                               default
in the payment of the Optional Redemption Price for any Bond on the Redemption
Date therefor; or

 

(iv)                              (a) default
in the observance or performance of any covenant or agreement of the Issuer
made in this Indenture (other than those specifically described in clauses (i)-(iii) above),
or (b) any representation or warranty of the Issuer made in this Indenture
or in any certificate or other writing delivered pursuant hereto or in
connection herewith proving to have been incorrect in any material respect as
of the time when the same shall have been made, which, in either case,
materially adversely affects Holders, and such default shall continue or not be
cured, or the circumstance or condition in respect of which such
misrepresentation or warranty was incorrect shall not have been eliminated or
otherwise cured, for a period of thirty (30) days after there shall have been
given, by registered or certified mail, return receipt requested, to the Issuer
by the Trustee or to the Issuer and the Trustee by the Holders of at least
twenty-five percent (25%) of the Outstanding Amount of the Bonds, a written
notice specifying such default or incorrect representation or warranty and
requiring it to be remedied and stating that such notice is a “Notice of
Default” hereunder; or

 

(v)                                 the
filing of a decree or order for relief by a court having jurisdiction in the
premises in respect of the Issuer or any substantial part of the Collateral in
an involuntary case or Proceeding under any applicable federal or state
bankruptcy, 

 

34

 

insolvency or other similar law now or hereafter in
effect, or appointing a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Issuer or the Issuer’s property or for
any substantial part of the Collateral, or ordering the winding-up or
liquidation of the Issuer’s affairs, and such decree or order shall remain
unstayed and in effect for a period of ninety (90) consecutive days; or

 

(vi)                              the
commencement by the Issuer of a voluntary case or Proceeding under any applicable
federal or state bankruptcy, insolvency or other similar law now or hereafter
in effect, or the consent by the Issuer to the entry of an order for relief in
an involuntary case under any such law, or the consent by the Issuer to the
appointment or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Issuer or for any
substantial part of the Collateral, or the making by the Issuer of any
assignment for the benefit of creditors, or the failure by the Issuer generally
to pay its debts as such debts become due; or

 

(vii)                           a
breach by the State of California or any of its agencies (including the CPUC)
of the pledge set forth in Section 848.1(g) of the PU Code (the “State
Pledge”).

 

The Issuer shall deliver to a Responsible Officer of
the Trustee and the Rating Agencies, within five (5) days after an
Authorized Officer has knowledge of the occurrence thereof, written notice in
the form of an Officer’s Certificate of any event which with the giving of
notice and the lapse of time would become an Event of Default under clause
(iv), its status and what action the Issuer is taking or proposes to take with
respect thereto.

 

SECTION 5.02.                 Acceleration
of Maturity; Rescission and Annulment. 
If an Event of Default should occur and be continuing (other than an
Event of Default under Section 5.01(vii)), then and in every such case the
Trustee or the Holders of Bonds representing not less than a majority of the
Outstanding Amount of the Bonds may declare all the Bonds to be immediately due
and payable, by a notice in writing to the Issuer (and to the Trustee if given
by Bondholders), and upon any such declaration the unpaid principal amount of
the Bonds, together with accrued and unpaid interest thereon through the date
of acceleration, shall become immediately due and payable.

 

Upon acceleration of the principal of the Bonds,
payments under this Indenture, including interest on and principal of the
Bonds, will be made in accordance with the priority set forth in Section 8.02(d).

 

At any time after such declaration of acceleration of
maturity has been made and before a judgment or decree for payment of the money
due has been obtained by the Trustee as hereinafter in this Article V
provided, the Holders of Bonds representing a majority of the Outstanding
Amount of the Bonds, by written notice to the Issuer and the Trustee, may
rescind and annul such declaration and its consequences if:

 

(i)                                     the
Issuer has paid or deposited with the Trustee a sum sufficient to pay

 

(A)                              all
payments of principal of and premium, if any, and interest on all Bonds and all
other amounts that would then be due hereunder or upon such 

 

35

 

Bonds if the
Event of Default giving rise to such acceleration had not occurred; and

 

(B)                                all
amounts paid or advanced by the Trustee hereunder and the reasonable
compensation, expenses, disbursements and advances of the Trustee and its
agents and counsel; and

 

(ii)                                  all
Events of Default, other than the nonpayment of the principal of the Bonds that
has become due solely by such acceleration, have been cured or waived as
provided in Section 5.12.

 

No such rescission shall affect any subsequent default
or impair any right consequent thereto.

 

SECTION 5.03.                 Collection
of Indebtedness and Suits for Enforcement by Trustee.  (a)  The Issuer covenants that if (i) default
is made in the payment of any interest on any Bond when the same becomes due
and payable, and such default continues for a period of five (5) days,
(ii) default is made in the payment of the then unpaid principal of any
Bond on the Final Legal Maturity Date for such Bond or (iii) default is
made in the payment of the Optional Redemption Price for any Bond on the
Redemption Date therefor, the Issuer will, upon demand of the Trustee, pay to
it, for the benefit of the Holders of the Bonds, the whole amount then due and
payable on such Bonds for principal, premium, if any, and interest, and in
addition thereto such further amount as shall be sufficient to cover the costs
and expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee and its agents and counsel.

 

(b)                                 Subject
to Section 11.18, in case the Issuer shall fail forthwith to pay such
amounts upon such demand, the Trustee, in its own name and as trustee of an
express trust, may institute a Proceeding for the collection of the sums so due
and unpaid, and may prosecute such Proceeding to judgment or final decree, and
may enforce the same against the Issuer or other obligor upon such Bonds and
collect in the manner provided by law out of the Collateral, wherever situated,
the moneys adjudged or decreed to be payable.

 

(c)                                  If
an Event of Default occurs and is continuing, the Trustee may, as more particularly
provided in Section 5.04, in its discretion, proceed to protect and
enforce its rights and the rights of the Bondholders, by such appropriate
Proceedings as the Trustee shall deem most effective to protect and enforce any
such rights, whether for the specific enforcement of any covenant or agreement
in this Indenture or in aid of the exercise of any power granted herein, or to
enforce any other proper remedy or legal or equitable right vested in the
Trustee by this Indenture or by law.

 

(d)                                 In
case there shall be pending, relative to the Issuer or any other obligor upon
the Bonds or any Person having or claiming an ownership interest in the
Collateral, Proceedings under Title 11 of the United States Code or any
other applicable federal or state bankruptcy, insolvency or other similar law,
or in case a receiver, assignee, trustee in bankruptcy, liquidator,
sequestrator or similar official shall have been appointed for or taken
possession of the Issuer or its property or such other obligor or Person, or in
case of any other 

 

36

 

comparable judicial Proceedings relative to the Issuer
or other obligor upon the Bonds, or to the creditors or property of the Issuer
or such other obligor, the Trustee, irrespective of whether the principal of
any 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
pursuant to the provisions of this Section, shall be entitled and empowered, by
intervention in such Proceedings or otherwise:

 

(i)                                     to
file and prove a claim for the whole amount of principal, premium, if any, and
interest owing and unpaid in respect of the 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 reasonable compensation to the Trustee and
each predecessor Trustee, and their respective agents, attorneys and counsel,
and for reimbursement of all expenses and liabilities incurred, and all
advances made, by the Trustee and each predecessor Trustee, except as a result
of negligence or bad faith) and of the Bondholders allowed in such Proceedings;

 

(ii)                                  unless
prohibited by applicable law and regulations, to vote on behalf of the Holders
of Bonds in any election of a trustee, a standby trustee or Person performing
similar functions in any such Proceedings; and

 

(iii)                               to
collect and receive any moneys or other property payable or deliverable on any
such claims and to distribute all amounts received with respect to the claims
of the Bondholders and of the Trustee on their behalf;

 

and any trustee, receiver, liquidator, custodian or
other similar official in any such Proceeding is hereby authorized by each of
such Bondholders to make payments to the Trustee, and, in the event that the
Trustee shall consent to the making of payments directly to such Bondholders,
to pay to the Trustee such amounts as shall be sufficient to cover reasonable
compensation to the Trustee, each predecessor Trustee and their respective
agents, attorneys and counsel, and all other expenses and liabilities incurred,
and all advances made, by the Trustee and each predecessor Trustee except as a
result of negligence or bad faith.

 

(e)                                  Nothing
herein contained shall be deemed to authorize the Trustee to authorize or
consent to or vote for or accept or adopt on behalf of any Bondholder any plan
of reorganization, arrangement, adjustment or composition affecting the Bonds
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Bondholder in any such proceeding except, as
aforesaid, to vote for the election of a trustee in bankruptcy or similar
Person.

 

(f)                                    All
rights of action and of asserting claims under this Indenture, or under any of
the Bonds, may be enforced by the Trustee without the possession of any of the
Bonds or the production thereof in any trial or other Proceedings relative
thereto, and any such action or other Proceedings instituted by the Trustee shall
be brought in its own name as trustee of an express trust, and any recovery of
judgment, subject to the payment of the expenses, disbursements and
compensation of the Trustee, each predecessor Trustee and their respective
agents and attorneys, shall be for the ratable benefit of the Holders of the
Bonds.  In the case of a default in the
payment of principal of and interest on the Bonds when and as the same shall 

 

37

 

become due and payable hereunder (including all grace
periods), the Trustee shall be entitled to recover judgment against the Issuer
for the whole amount of such principal and interest and to file proofs of claim
and other papers or documents as may be necessary or advisable in order to have
the claims of the Trustee and the Holders allowed in any judicial proceedings
relative to the Issuer, its creditors or the Collateral.

 

(g)                                 In
any Proceedings brought by the Trustee (and also any Proceedings involving the
interpretation of any provision of this Indenture to which the Trustee shall be
a party), the Trustee shall be held to represent all the Holders of the Bonds,
and it shall not be necessary to make any Bondholder a party to any such
Proceedings.

 

SECTION 5.04.                 Remedies;
Priorities.  (a)  If an
Event of Default shall have occurred and be continuing, the Trustee may do one
or more of the following (subject to Section 5.05):

 

(i)                                     institute
Proceedings in its own name and as trustee of an express trust for the
collection of all amounts then payable on the Bonds or under this Indenture
with respect thereto, whether by declaration or otherwise, enforce any judgment
obtained, and collect from the Collateral moneys adjudged due;

 

(ii)                                  institute
Proceedings from time to time for the complete or partial foreclosure of this
Indenture with respect to the Collateral;

 

(iii)                               exercise
any remedies of a secured party under the CUCC or the Statute and take any
other appropriate action to protect and enforce the rights and remedies of the
Trustee and the Holders of the Bonds;

 

(iv)                              sell
the Collateral or any portion thereof or rights or interest therein, at one or
more public or private sales called and conducted in any manner permitted by
law; and

 

(v)                                 exercise
all rights, remedies, powers, privileges and claims of the Issuer against the
Seller or the Servicer under or in connection with the Sale Agreement or the
Servicing Agreement with respect to the Recovery Property;

 

provided, however, that the
Trustee may not sell or otherwise liquidate any portion of the Collateral
following an Event of Default, other than an Event of Default described in Section 5.01(i),
(ii) or (iii), unless (A) the Holders of one hundred percent (100%)
of the Outstanding Amount of the Bonds consent thereto, or (B) the
proceeds of such sale or liquidation distributable to the Bondholders, together
with all other funds available for such purpose, are sufficient to discharge in
full all amounts then due and unpaid upon such Bonds for principal, premium, if
any, and interest after taking into account payment of all amounts due prior
thereto pursuant to the priorities set forth in Section 8.02(d), or (C) the
Trustee determines that the Collateral will not continue to provide sufficient
funds for all payments on the Bonds as they would have become due if the Bonds
had not been declared due and payable, and the Trustee obtains the consent of
Holders of sixty-six and two-thirds percent (66-2/3%) of the Outstanding Amount
of the Bonds.  In determining such
sufficiency or insufficiency with respect to clause (B) and (C), the
Trustee may, but need not, obtain and conclusively rely upon a certificate of
an 

 

38

 

Independent
investment banking or accounting firm of national reputation as to the
feasibility of such proposed action and as to the sufficiency of the Collateral
for such purpose.

 

(b)                                 If
an Event of Default under clause (vii) of Section 5.01 shall have
occurred and be continuing, the Trustee, for the benefit of the Holders, shall
be entitled and empowered to the extent permitted by applicable law, to
institute or participate in Proceedings necessary to compel performance of or
to enforce the State Pledge and to collect any monetary damages incurred by the
Holders or the Trustee as a result of any such Event of Default, and may
prosecute any such Proceeding to final judgment or decree.

 

(c)                                  If
the Trustee collects any money pursuant to this Article V, it shall pay
out such money in accordance with the priorities set forth in Section 8.02(d).

 

SECTION 5.05.                 Optional
Preservation of the Collateral.  If
the Bonds have been declared to be due and payable under Section 5.02
following an Event of Default and such declaration and its consequences have
not been rescinded and annulled, the Trustee may, but need not, elect to
maintain possession of the Collateral. 
It is the desire of the parties hereto and the Bondholders that there be
at all times sufficient funds for the payment of principal of and premium, if
any, and interest on the Bonds, and the Trustee shall take such desire into
account when determining whether or not to maintain possession of the
Collateral.  In determining whether to
maintain possession of the Collateral, the Trustee may, but need not, obtain
and conclusively rely upon a certificate of an Independent investment banking
or accounting firm of national reputation as to the feasibility of such
proposed action and as to the sufficiency of the Collateral for such purpose.

 

SECTION 5.06.                 Limitation
of Suits.  No Holder of any Bond
shall have any right to institute any Proceeding, judicial or otherwise, with
respect to this Indenture, or for the appointment of a receiver or trustee, or
for any other remedy hereunder, unless:

 

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

 

(ii)                                  the
Holders of not less than a majority of the Outstanding Amount of the Bonds have
made written request to the Trustee to institute such Proceeding in respect of
such Event of Default in its own name as Trustee hereunder;

 

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

 

(iv)                              the
Trustee for sixty (60) days after its receipt of such notice, request and offer
of indemnity has failed to institute such Proceedings; and

 

(v)                                 no
direction inconsistent with such written request has been given to the Trustee
during such 60-day period by the Holders of a majority of the Outstanding
Amount of the Bonds;

 

39

 

it being understood and intended that no one or more
Holders of Bonds shall have any right in any manner whatever by virtue of, or
by availing of, any provision of this Indenture to affect, disturb or prejudice
the rights of any other Holders of Bonds or to obtain or to seek to obtain
priority or preference over any other Holders or to enforce any right under
this Indenture, except in the manner herein provided.

 

In the event the Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Holders of
Bonds, each representing less than a majority of the Outstanding Amount of the
Bonds, the Trustee in its sole discretion may determine what action, if any,
shall be taken, notwithstanding any other provisions of this Indenture.

 

SECTION 5.07.                 Unconditional
Rights of Bondholders To Receive Principal, Premium, if any, and Interest.  Notwithstanding any other provisions in this
Indenture, the Holder of any Bond shall have the right, which is absolute and
unconditional,  (a) to receive
payment of (i) the interest, if any, on such Bond on the due dates thereof
expressed in such Bond or in this Indenture, (ii) the unpaid principal, if
any, of such Bonds on the Final Legal Maturity Date therefor or (iii) in
the case of redemption, receive payment of the unpaid principal and premium, if
any, and interest, if any, on such Bond on the Redemption Date therefor and (b) to
institute suit for the enforcement of any such payment, and such right shall
not be impaired without the consent of such Holder.

 

SECTION 5.08.                 Restoration
of Rights and Remedies.  If the
Trustee or any Bondholder has instituted any Proceeding to enforce any right or
remedy under this Indenture and such Proceeding has been discontinued or
abandoned for any reason or has been determined adversely to the Trustee or to
such Bondholder, then and in every such case the Issuer, the Trustee and the
Bondholders shall, subject to any determination in such Proceeding, be restored
severally and respectively to their former positions hereunder, and thereafter
all rights and remedies of the Trustee and the Bondholders shall continue as
though no such Proceeding had been instituted.

 

SECTION 5.09.                 Rights
and Remedies Cumulative.  No right or
remedy herein conferred upon or reserved to the Trustee or to the Bondholders
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.

 

SECTION 5.10.                 Delay
or Omission Not a Waiver.  No delay
or omission of the Trustee or any Bondholder to exercise any right or remedy
accruing upon any Default or Event of Default shall impair any such right or
remedy or constitute a waiver of any such Default or Event of Default or an
acquiescence therein.  Every right and
remedy given by this Article V or by law to the Trustee or to the
Bondholders may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee or by the Bondholders, as the case may be.

 

SECTION 5.11.                 Control
by Bondholders.  The Holders of a
majority of the Outstanding Amount of the Bonds (or, if less than all Classes
are affected, the affected Class or 

 

40

 

Classes) shall have the right to direct the time,
method and place of conducting any Proceeding for any remedy available to the
Trustee with respect to the Bonds or the Bonds of such Class or Classes or
exercising any trust or power conferred on the Trustee with respect to the
Bonds or the Bonds of such Class or Classes; provided, that

 

(i)                                     such
direction shall not be in conflict with any rule of law or with this
Indenture;

 

(ii)                                  subject
to the express terms of Section 5.04, any direction to the Trustee to sell
or liquidate the Collateral shall be by the Holders of Bonds representing not
less than one hundred percent (100%) of the Outstanding Amount of the Bonds;

 

(iii)                               if
the conditions set forth in Section 5.05 have been satisfied and the
Trustee elects to retain the Collateral pursuant to such Section, then any
direction to the Trustee by Holders of Bonds representing less than one hundred
percent (100%) of the Outstanding Amount of the Bonds to sell or liquidate the
Collateral shall be of no force and effect; and

 

(iv)                              the
Trustee may take any other action deemed proper by the Trustee that is not
inconsistent with such direction;

 

provided, however, that,
subject to Section 6.01, the Trustee need not take any action that it determines
might involve it in liability or might materially adversely affect the rights
of any Bondholders not consenting to such action.

 

SECTION 5.12.                 Waiver
of Past Defaults.  Prior to the
declaration of the acceleration of the maturity of the Bonds as provided in Section 5.02,
the Holders of Bonds of not less than a majority of the Outstanding Amount of
the Bonds may waive any past Default or Event of Default and its consequences
except a Default (a) in payment of principal of or premium, if any, or interest
on any of the Bonds on the Final Legal Maturity Date or (b) in respect of
a covenant or provision hereof which cannot be modified or amended without the
waiver or consent of the Holder of each Bond of each Class affected.  In the case of any such waiver, the Issuer,
the Trustee and the Holders of the Bonds shall be restored to their former
positions and rights hereunder, respectively; but no such waiver shall extend
to any subsequent or other Default or Event of Default or impair any right
consequent thereto.

 

Upon any such waiver, such Default shall cease to
exist and be deemed to have been cured and not to have occurred, and any Event
of Default arising therefrom shall be deemed to have been cured and not to have
occurred, for every purpose of this Indenture.

 

SECTION 5.13.                 Undertaking
for Costs.  All parties to this
Indenture agree, and each Holder of any Bond by such Holder’s 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
Indenture, or in any suit against the Trustee for any action taken 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,
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 

 

41

 

shall not apply to (a) any suit instituted by the
Trustee, (b) any suit instituted by any Bondholder, or group of
Bondholders, in each case holding in the aggregate more than 10 percent (10%)
of the Outstanding Amount of the Bonds or (c) any suit instituted by any
Bondholder for the enforcement of the payment of (i) interest on any Bond
on or after the due dates expressed in such Bond and in this Indenture, (ii) the
unpaid principal, if any, of any Bond on or after the Final Legal Maturity Date
therefor or (iii) in the case of redemption, the unpaid principal of and
premium, if any, and interest on any Bond on or after the Redemption Date
therefor.

 

SECTION 5.14.                 Waiver
of Stay or Extension Laws.  The Issuer
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 stay or extension law wherever enacted, now or at
any time hereafter in force, that may affect the covenants or the performance
of this Indenture; and the Issuer (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 5.15.                 Action
on Bonds.  The Trustee’s right to
seek and recover judgment on the Bonds or under this Indenture shall not be
affected by the seeking, obtaining or application of any other relief under or
with respect to this Indenture.  Neither
the lien of this Indenture nor any rights or remedies of the Trustee or the
Bondholders shall be impaired by the recovery of any judgment by the Trustee
against the Issuer or by the levy of any execution under such judgment upon any
portion of the Collateral.

 

SECTION 5.16.                 Performance
and Enforcement of Certain Obligations. 
(a)  Promptly following a request from the Trustee to do so
and at the Issuer’s expense, the Issuer agrees to take all such lawful action
as the Trustee may request to compel or secure the performance and observance
by the Seller and the Servicer, as applicable, of each of their obligations to
the Issuer under or in connection with the Sale Agreement and the Servicing
Agreement with respect to the Recovery Property, respectively, in accordance
with the terms thereof, and to exercise any and all rights, remedies, powers
and privileges lawfully available to the Issuer under or in connection with the
Sale Agreement and the Servicing Agreement, respectively, to the extent and in
the manner directed by the Trustee, including the transmission of notices of
default on the part of the Seller or the Servicer thereunder and the
institution of legal or administrative actions or proceedings to compel or
secure performance by the Seller or the Servicer of each of their obligations
under the Sale Agreement and the Servicing Agreement with respect to the
Recovery Property, respectively.

 

(b)                                 If
an Event of Default has occurred, the Trustee may, and, at the direction (which
direction shall be in writing or by telephone (confirmed in writing promptly
thereafter)) of the Holders of sixty-six and two-thirds percent (66-2/3%) of
the Outstanding Amount of the Bonds shall, subject to Article VI, exercise
all rights, remedies, powers, privileges and claims of the Issuer against the
Seller or the Servicer under or in connection with the Sale Agreement or the
Servicing Agreement with respect to the Recovery Property, respectively,
including the right or power to take any action to compel or secure performance
or observance by the Seller or the Servicer of each of their obligations to the
Issuer thereunder and to give any consent, request, 

 

42

 

notice, direction, approval, extension or waiver under
the Sale Agreement or the Servicing Agreement, respectively, and any right of
the Issuer to take such action shall be suspended.

 

ARTICLE VI

THE TRUSTEE

 

SECTION 6.01.                 Duties
of Trustee.  (a)  If an
Event of Default has occurred and is continuing, the Trustee shall exercise the
rights and powers vested in it by this Indenture and use the same degree of
care and skill in their exercise as a prudent person would exercise or use
under the circumstances in the conduct of such person’s own affairs.

 

(b)                                 Except
during the continuance of an Event of Default:

 

(i)                                     the
Trustee undertakes to perform such duties and only such duties as are
specifically set forth in this Indenture and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and

 

(ii)                                  in
the absence of bad faith on its part, the Trustee may conclusively rely, as to
the truth of the statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to the Trustee and conforming
to the requirements of this Indenture; however, the Trustee shall examine the
certificates and opinions to determine whether or not they conform to the
requirements of this Indenture.

 

(c)                                  The
Trustee may not be relieved from liability for its own negligent action, its
own negligent failure to act or its own willful misconduct, except that:

 

(i)                                     this
paragraph does not limit the effect of paragraph (b) of this Section;

 

(ii)                                  the
Trustee shall not be liable for any error of judgment made in good faith by a
Responsible Officer unless it is proved that the Trustee was negligent in
ascertaining the pertinent facts; and

 

(iii)                               the
Trustee shall not be liable with respect to any action it takes or omits to
take in good faith in accordance with a direction received by it pursuant to Section 5.11.

 

(d)                                 Every
provision of this Indenture that in any way relates to the Trustee is subject
to paragraphs (a), (b) and (c) of this Section.

 

(e)                                  The
Trustee shall not be liable for interest on any money received by it except as
the Trustee may agree in writing with the Issuer.

 

(f)                                    Money
held in trust by the Trustee need not be segregated from other funds except to
the extent required by law or the terms of this Indenture, the Sale Agreement
or the Servicing Agreement.

 

43

 

(g)                                 No
provision of this Indenture shall require the Trustee to expend or risk its own
funds or otherwise incur 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 to believe that repayments of such funds or indemnity
satisfactory to it against such risk or liability is not reasonably assured to
it.

 

(h)                                 Every
provision of this Indenture relating to the conduct or affecting the liability
of or affording protection to the Trustee shall be subject to the provisions of
this Section and to the provisions of the TIA.

 

(i)                                     In
the event that the Trustee is also acting as Paying Agent or Bond Registrar
hereunder, the protections of this Article VI shall also be afforded to
such Paying Agent or Bond Registrar.

 

SECTION 6.02.                 Rights
of Trustee.  (a)  The
Trustee may conclusively rely and shall be fully protected in relying on any
document believed by it to be genuine and to have been signed or presented by
the proper person.  The Trustee need not
investigate any fact or matter stated in the document.

 

(b)                                 Before
the Trustee acts or refrains from acting, it may require an Officer’s
Certificate or an Opinion of Counsel. 
The Trustee shall not be liable for any action it takes or omits to take
in good faith in reliance on the Officer’s Certificate or Opinion of Counsel.

 

(c)                                  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 or a custodian
or nominee, and the Trustee shall not be responsible for any misconduct or
negligence on the part of, or for the supervision of, any such agent (other
than its employees), attorney, custodian or nominee appointed with due care by
it hereunder.

 

(d)                                 The
Trustee shall not be liable for any action it takes or omits to take in good
faith which it believes to be authorized or within its rights or powers; provided,
however, that the Trustee’s conduct does not constitute willful
misconduct, negligence or bad faith.

 

(e)                                  The
Trustee may consult with counsel, and the advice or opinion of counsel with
respect to legal matters relating to this Indenture and the Bonds shall be full
and complete authorization and protection from liability in respect to any
action taken, omitted or suffered by it hereunder in good faith and in
accordance with the advice or opinion of such counsel.

 

SECTION 6.03.                 Individual
Rights of Trustee.  The Trustee in
its individual or any other capacity may become the owner or pledgee of Bonds
and may otherwise deal with the Issuer or its affiliates with the same rights
it would have if it were not Trustee. 
Any Paying Agent, Bond Registrar, co-registrar or co-paying agent may do
the same with like rights.  However, the
Trustee must comply with Sections 6.11 and 6.12.

 

SECTION 6.04.                 Trustee’s
Disclaimer.  The Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Bonds, it shall not be accountable for the Issuer’s use
of the proceeds from the Bonds, and it shall not be 

 

44

 

responsible for any statement of the Issuer in this
Indenture or in any document issued in connection with the sale of the Bonds or
in the Bonds other than the Trustee’s certificate of authentication.

 

SECTION 6.05.                 Notice
of Defaults.  If a Default or Event
of Default occurs and is continuing and if it is actually known to a
Responsible Officer of the Trustee, the Trustee shall mail, as required by TIA Section 313(c),
to each Holder of Bonds notice of the Default or Event of Default within ninety
(90) days after it occurs.  Except in the
case of a Default or Event of Default in payment of principal of and premium,
if any, or interest on any Bond, the Trustee may withhold the notice if and so
long as a committee of its Responsible Officers in good faith determines that
withholding the notice is in the interests of Bondholders.

 

SECTION 6.06.                 Reports
by Trustee to Holders.

 

(a)                                  So
long as Bonds are Outstanding and the Trustee is the Bond Registrar and Paying
Agent, within the prescribed period of time for tax reporting purposes after
the end of each calendar year, the Trustee shall mail to each Person that was a
Holder during all or part of that calendar year a statement containing such
information concerning the Bonds as may be required to enable such Holders to
prepare its federal and state income tax returns.

 

(b)                                 On
or prior to each Payment Date or Special Payment Date therefor, the Trustee
will deliver to each Holder of Bonds as of the Record Date for such Payment
Date or Special Payment Date, the CPUC and each Rating Agency a statement as
provided and prepared by the Servicer which will include (to the extent
applicable) the following information as to the Bonds with respect to such
Payment Date, Special Payment Date or the period since the previous Payment
Date, as applicable:

 

(i)                                     the
amount paid to Holders in respect of principal;

 

(ii)                                  the
amount paid to Holders in respect of interest;

 

(iii)                               the
aggregate Outstanding Amount of the Bonds, after giving effect to payments to
be made in respect of principal reported under (i) above; and

 

(iv)                              the
difference, if any, between the amount specified in subsection (iii) above
and the principal amount scheduled to be outstanding on that Payment Date
according to the Expected Amortization Schedule.

 

(c)                                  The
Issuer shall send a copy of each of the Certificate of Compliance delivered to
it pursuant to Section 3.03 of the Servicing Agreement with respect to the
Recovery Property and the Annual Accountant’s Report delivered to it pursuant
to Section 3.04 of the Servicing Agreement with respect to the Recovery
Property to the Rating Agencies and the CPUC. 
A copy of such certificate and report may be obtained by any Bondholder
by a request in writing to the Trustee.

 

SECTION 6.07.                 Compensation
and Indemnity.

 

45

 

(a)                                  The
Issuer shall pay to the Trustee from time to time reasonable compensation for
its services.  The Trustee’s compensation
shall not be limited by any law on compensation of a trustee of an express
trust.  The Issuer shall reimburse the
Trustee for all reasonable out-of-pocket expenses incurred or made by it in
connection with the Bonds, including costs of collection, in addition to the
compensation for its services.  Such
expenses shall include the reasonable compensation and expenses, disbursements
and advances of the Trustee’s agents, counsel, accountants and experts.

 

(b)                                 The
Issuer shall indemnify the Trustee and its officers, directors, employees and
agents against any and all loss, liability or expense (including attorneys’
fees and expenses) incurred by it in connection with the administration of this
trust and the performance of its duties hereunder.  The Trustee shall notify the Issuer as soon
as is reasonably practicable of any claim for which it may seek indemnity.  Failure by the Trustee to so notify the
Issuer shall not relieve the Issuer of its obligations hereunder.  The Issuer shall defend the claim and the
Trustee may have separate counsel and the Issuer shall pay the fees and expenses
of such counsel.

 

(c)                                  Notwithstanding
any other provision of this Indenture, the Issuer need not reimburse any
expense or indemnify against any loss, liability or expense incurred by the
Trustee through the Trustee’s own willful misconduct, negligence or bad faith.

 

(d)                                 The
Issuer’s payment obligations to the Trustee pursuant to this Section shall
survive the discharge of this Indenture or the earlier resignation or removal
of the Trustee.  When the Trustee incurs
expenses after the occurrence of an Event of Default specified in Section 5.01(v) or
(vi) with respect to the Issuer, the expenses are intended to constitute
expenses of administration under Title 11 of the United States Code or any
other applicable federal or state bankruptcy, insolvency or similar law.

 

SECTION 6.08.                 Resignation;
Replacement of Trustee.  The Trustee
may resign at any time upon thirty (30) days’ written notice to the Issuer, provided
that no such resignation shall be effective until a successor trustee having
the qualifications set forth in Section 6.11 has been designated and has
accepted such trusteeship.  The Holders
of a majority in Outstanding Amount of the Bonds may remove the Trustee by so
notifying the Issuer and the Trustee and may appoint a successor Trustee.  The Issuer shall remove the Trustee if:

 

(i)                                     the
Trustee fails to comply with Section 6.11;

 

(ii)                                  the
Trustee is adjudged a bankrupt or insolvent;

 

(iii)                               a
receiver or other public officer takes charge of the Trustee or its property;
or

 

(iv)                              the
Trustee otherwise becomes incapable of acting.

 

If the Trustee resigns or is removed or if a vacancy
exists in the office of Trustee for any reason (the Trustee in such event being
referred to herein as the retiring Trustee), the Issuer shall promptly appoint
a successor Trustee.

 

46

 

A successor Trustee shall deliver a written acceptance
of its appointment to the retiring Trustee and to the Issuer.  Thereupon the resignation or removal of the
retiring Trustee shall become effective, and the successor Trustee shall have
all the rights, powers and duties of the Trustee under this Indenture.  The successor Trustee shall mail a notice of
its succession to Bondholders.  The
retiring Trustee shall promptly transfer all property held by it as Trustee to
the successor Trustee.

 

If a successor Trustee does not take office within
sixty (60) days after the retiring Trustee resigns or is removed, the
retiring Trustee or the Holders of a majority in Outstanding Amount of the
Bonds may petition any court of competent jurisdiction for the appointment of a
successor Trustee.

 

If the Trustee fails to comply with Section 6.11,
any Bondholder may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.

 

Notwithstanding the replacement of the Trustee
pursuant to this Section, the Issuer’s obligations under Section 6.07
shall continue for the benefit of the retiring Trustee.

 

SECTION 6.09.                 Successor
Trustee by Merger.  If the Trustee consolidates
with, merges or converts into, or transfers all or substantially all its
corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation or banking
association without any further act shall be the successor Trustee.

 

In case at the time such successor by merger,
conversion or consolidation to the Trustee shall succeed to the trusts created
by this Indenture any of the Bonds shall have been authenticated but not
delivered, any such successor to the Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Bonds so
authenticated; and in case at that time any of the Bonds shall not have been
authenticated, any successor to the Trustee may authenticate such Bonds either
in the name of any predecessor hereunder or in the name of the successor to the
Trustee; and in all such cases such certificates shall have the full force
which it is anywhere in the Bonds or in this Indenture provided that the certificate
of the Trustee shall have.

 

SECTION 6.10.                 Appointment
of Co-Trustee or Separate Trustee.  (a)  Notwithstanding
any other provisions of this Indenture, at any time the Trustee shall have the
power and may execute and deliver all instruments to appoint one or more
Persons to act as a co-trustee, or separate trustee, and to vest in such
Persons, in such capacity and for the benefit of the Bondholders, such title to
the Collateral, or any part hereof, and, subject to the other provisions of
this Section, such powers, duties, obligations, rights and trusts as the
Trustee may consider necessary or desirable. 
No co-trustee or separate trustee hereunder shall be required to meet
the terms of eligibility as a successor trustee under Section 6.11 and no
notice to Bondholders of the appointment of any co-trustee or separate trustee
shall be required under Section 6.08 hereof.

 

(b)                                 Every
separate trustee and co-trustee shall, to the extent permitted by law, be
appointed and act subject to the following provisions and conditions:

 

47

 

(i)                                     all
rights, powers, duties and obligations conferred or imposed upon the Trustee
shall be conferred or imposed upon and exercised or performed by the Trustee
and such separate trustee or co-trustee jointly (it being understood that such
separate trustee or co-trustee is not authorized to act separately without the
Trustee joining in such act), 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 (including the holding of title to the
Collateral or any portion thereof in any such jurisdiction) shall be exercised
and performed singly by such separate trustee or co-trustee, but solely at the
direction of the Trustee;

 

(ii)                                  no
trustee hereunder shall be personally liable by reason of any act or omission
of any other trustee hereunder; and

 

(iii)                               the
Trustee may at any time accept the resignation of or remove any separate
trustee or co-trustee.

 

(c)                                  Any
notice, request or other writing given to the Trustee shall be deemed to have
been given to each of the then separate trustees and co-trustees, as
effectively as if given to each of them. 
Every instrument appointing any separate trustee or co-trustee shall
refer to this Indenture and the conditions of this Article VI.  Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Trustee or separately, as may be provided therein, subject to all the
provisions of this Indenture, specifically including every provision of this
Indenture relating to the conduct of, affecting the liability of, or affording
protection to, the Trustee.  Every such
instrument shall be filed with the Trustee.

 

(d)                                 Any
separate trustee or co-trustee may at any time constitute the Trustee its agent
or attorney-in-fact with full power and authority, to the extent not prohibited
by law, to do any lawful act under or in respect of this Indenture on its
behalf and in its name.  If any separate
trustee or co-trustee shall die, become incapable of acting, resign or be
removed, all of its estates, properties, rights, remedies and trusts shall vest
in and be exercised by the Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.

 

SECTION 6.11.                 Eligibility;
Disqualification.  The Trustee shall
at all times satisfy the requirements of TIA 310(a) and Section 26(a)(1) of
the Investment Company Act of 1940.  The
Trustee shall have a combined capital and surplus of at least $50,000,000 as
set forth in its most recent published annual report of condition and it shall
have a long term debt rating of “Baa3” or better by Moody’s and “BBB-” or
better by Standard and Poor’s and Fitch. 
The Trustee shall comply with TIA 310(b), including the optional
provision permitted by the second sentence of TIA 310(b)(9); provided, however,
that there shall be excluded from the operation of TIA 310(b)(1) any
indenture or indentures under which other securities of the Issuer are
outstanding if the requirements for such exclusion set forth in TIA 310(b)(1) are
met.

 

SECTION 6.12.                 Preferential
Collection of Claims Against Issuer. 
The Trustee shall comply with TIA  311(a), excluding any creditor
relationship listed in TIA 311(b).  A 

 

48

 

Trustee who has resigned or been removed shall be
subject to TIA 311(a) to the extent provided therein.

 

SECTION 6.13.                 Representations
and Warranties of Trustee.  The
initial Trustee hereby represents and warrants that:

 

(a)                                  The
Trustee is a national bank, validly existing and in good standing under the
laws of the United States of America; and

 

(b)                                 The
Trustee has full power, authority and legal rights to execute, deliver and
perform this Indenture and the Basic Documents to which the Trustee is a party
and has taken all necessary action to authorize the execution, delivery, and
performance by it of this Indenture and such Basic Documents.

 

ARTICLE VII

BONDHOLDERS’ LISTS AND REPORTS

 

SECTION 7.01.                 Issuer
To Furnish Trustee Names and Addresses of Bondholders.  The Issuer will furnish or cause to be
furnished to the Trustee (a) not more than five days after the earlier of (i) each
Record Date and (ii) three months after the last Record Date, a list, in
such form as the Trustee may reasonably require, of the names and addresses of
the Holders of Bonds as of such Record Date, and (b) at such other times
as the Trustee may request in writing, within 30 days after receipt by the
Issuer of any such request, a list of similar form and content as of a date not
more than ten (10) days prior to the time such list is furnished; provided,
however, that so long as the Trustee is the Bond Registrar, no such list
shall be required to be furnished.

 

SECTION 7.02.                 Preservation
of Information; Communications to Bondholders.  (a)  The Trustee shall preserve, in
as current a form as is reasonably practicable, the names and addresses of the
Holders of Bonds contained in the most recent list furnished to the Trustee as
provided in Section 7.01 and the names and addresses of Holders of Bonds
received by the Trustee in its capacity as Bond Registrar.  The Trustee may destroy any list furnished to
it as provided in Section 7.01 upon receipt of a new list so furnished.

 

(b)                                 Bondholders
may communicate pursuant to TIA 312(b) with other Bondholders with respect
to their rights under this Indenture or under the Bonds.  In addition, upon the written request of any
Holder or group of Holders evidencing not less than ten percent (10%) of the
Outstanding Amount of the Bonds, the Trustee shall provide the Holder or Holders
the current list of Holders for purposes of communicating with other Holders
with respect to their rights hereunder.

 

(c)                                  The
Issuer, the Trustee and the Bond Registrar shall have the protection of TIA
312(c).

 

SECTION 7.03.                 Reports
by Issuer.  (a)  The Issuer
shall:

 

49

 

(i)                                     so
long as the Issuer is required to file such documents with the SEC, file with
the Trustee, within fifteen (15) days after the Issuer is required to file
the same with the SEC, copies of the annual reports and of the information,
documents and other reports (or copies of such portions of any of the foregoing
as the SEC may from time to time by rules and regulations prescribe) which
the Issuer may be required to file with the SEC pursuant to Section 13 or
15(d) of the Exchange Act;

 

(ii)                                  file
with the Trustee and the SEC in accordance with rules and regulations
prescribed from time to time by the SEC such additional information, documents
and reports with respect to compliance by the Issuer with the conditions and
covenants of this Indenture as may be required from time to time by such rules and
regulations; and

 

(iii)                               supply
to the Trustee (and the Trustee shall transmit by mail to all Bondholders
described in TIA 313(c)) such summaries of any information, documents and
reports required to be filed by the Issuer pursuant to clauses (i) and
(ii) of this Section 7.03(a) as may be required by rules and
regulations prescribed from time to time by the SEC.

 

(b)                                 Unless
the Issuer otherwise determines, the fiscal year of the Issuer shall end on December 31
of each year.

 

SECTION 7.04.                 Reports
by Trustee.  If required by TIA 313(a),
within sixty (60) days after September 30 of each year, commencing
with the year after the issuance of the Bonds, the Trustee shall mail to each
Holder of Bonds as required by TIA 313(c) a brief report dated as of such
date that complies with TIA 313(a).  The
Trustee also shall comply with TIA 313(b); provided, however,
that the initial report so issued shall be delivered not more than
12 months after the initial issuance of the Bonds.

 

A copy of each report at the time of its mailing to
Bondholders shall be filed by the Trustee with the SEC and each stock exchange,
if any, on which the Bonds are listed. 
The Issuer shall notify the Trustee if and when the Bonds are listed on
any stock exchange.

 

ARTICLE VIII

 

ACCOUNTS, DISBURSEMENTS AND
RELEASES

 

SECTION 8.01.                 Collection
of Money.  Except as otherwise
expressly provided herein, the Trustee may demand payment or delivery of, and
shall receive and collect, directly and without intervention or assistance of
any fiscal agent or other intermediary, all money and other property payable to
or receivable by the Trustee pursuant to this Indenture.  The Trustee shall apply all such money
received by it as provided in this Indenture. 
Except as otherwise expressly provided in this Indenture, if any default
occurs in the making of any payment or performance under any agreement or
instrument that is part of the Collateral, the Trustee may take such action as
may be appropriate to enforce such payment or performance, subject to Article VI,
including the institution and prosecution of appropriate Proceedings.  Any such action shall be without prejudice to
any right to claim a Default or Event of Default under this Indenture and any
right to proceed thereafter as provided in Article V.

 

50

 

SECTION 8.02.                 Collection
Account.  (a)  Prior to the
Issuance Date, the Issuer shall open, at the Trustee’s Corporate Trust Office,
or at another Eligible Institution, a segregated trust account in the Trustee’s
name for the deposit of Estimated DRC Payments, DRC Payments, and all other
amounts received with respect to the Collateral (the “Collection Account”).  The Collection Account will consist of four
subaccounts:  a general subaccount (the “General
Subaccount”), a reserve subaccount (the “Reserve Subaccount”), an
overcollateralization subaccount (the “Overcollateralization Subaccount”),
and a capital subaccount (the “Capital Subaccount”).  Notwithstanding any other provision of this Section 8.02(a),
the Trustee shall be authorized to establish each of the General Subaccount,
the Reserve Subaccount, the Overcollateralization Subaccount, and the Capital Subaccount
as separate trust accounts in the Trustee’s name at an Eligible Institution; if
the Trustee does so, the General Subaccount, the Reserve Subaccount, the
Overcollateralization Subaccount, and the Capital Subaccount shall together be
deemed to constitute the Collection Account, and it shall not be necessary to
establish the Collection Account as a separate trust account.  Prior to depositing funds or U.S. Government
Obligations in the Collection Account pursuant to Section 4.02(b), the
Issuer shall establish a defeasance subaccount (“Defeasance Subaccount”)
for which such funds and/or U.S. Government Obligations shall be deposited, as
a subaccount of the Collection Account. 
All amounts in the Collection Account not allocated to any other
subaccount shall be allocated to the General Subaccount.  Prior to the initial Payment Date, all
amounts in the Collection Account (other than funds deposited into the Capital
Subaccount, up to the Required Capital Level) shall be allocated to the General
Subaccount.  All references to the
Collection Account shall be deemed to include reference to all subaccounts
contained therein.  Withdrawals from and
deposits to each of the foregoing subaccounts of the Collection Account shall
be made as set forth in Section 8.02(c), (d) and (e).  The Collection Account shall at all times be
maintained as an Eligible Deposit Account and only the Trustee shall have
access to the Collection Account for the purpose of making deposits in and
withdrawals from the Collection Account in accordance with this Indenture.  Funds in the Collection Account shall not be
commingled with any other moneys.  All
moneys deposited from time to time in the Collection Account, all deposits
therein pursuant to this Indenture, and all investments made in Eligible
Investments with such moneys, including all income or other gain from such
investments, shall be held by the Trustee in the Collection Account as part of
the Collateral securing the Bonds as herein provided.  Money in the Defeasance Subaccount shall be
invested solely in U.S. Government Obligations.

 

(b)                                 The
Trustee shall have sole dominion and exclusive control over all moneys in the
Collection Account and shall apply such amounts therein as provided in this Section 8.02.  The Trustee shall also pay from the
Collection Account any amounts requested to be paid by the Servicer pursuant to
Section 6.11(c)(ii) of the Servicing Agreement.

 

(c)                                  DRC
Collections shall be deposited in the General Subaccount as provided in Section 6.11
of the Servicing Agreement.  All
Indemnity Amounts shall be deposited in the General Subaccount.  All deposits to and withdrawals from the
Collection Account and all allocations to the subaccounts of such Collection
Account shall be made by the Trustee in accordance with the written
instructions provided by the Servicer in the Monthly Servicer’s Certificate and
the Quarterly Servicer’s Certificate, as applicable.

 

(d)                                 On
each Payment Date, the Trustee shall apply, first, all amounts on deposit in
the General Subaccount and, second, all amounts on deposit in the Reserve 

 

51

 

Subaccount, to the extent funds are available therein,
to pay or allocate the following amounts, in accordance with the Quarterly
Servicer’s Certificate, in the following priority:

 

(i)                                     amounts
owed by the Issuer to the Trustee (including legal fees and expenses and any
Indemnity Amount) shall be paid to the Trustee (subject to Section 6.07),
up to $200,000 in each calendar year, to the extent such amounts are not paid
from collections in connection with the Issuer’s Energy Recovery Bonds, Series 2005-1;

 

(ii)                                  amounts
owed by the Issuer to the independent directors of the Issuer in connection
with their acting as directors of the Issuer shall be paid to the independent
directors up to $5,000 in each calendar year, to the extent such amounts are
not paid from collections in connection with the Issuer’s Energy Recovery
Bonds, Series 2005-1;

 

(iii)                               the
Servicing Fee in respect of the Bonds for such Payment Date and all unpaid
Servicing Fees in respect of the Bonds for prior Payment Dates shall be paid to
the Servicer;

 

(iv)                              so
long as no Event of Default shall have occurred and be continuing or would
result from such payment, all other Operating Expenses and Indemnity Amounts
shall be paid to the Persons entitled thereto on a Pro Rata Basis (or if such
have been previously paid by the Issuer, to the Issuer in reimbursement
thereof), to the extent such amounts are not paid from collections in
connection with the Issuer’s Energy Recovery Bonds, Series 2005-1; provided,
that the amount paid in any calendar year from DRC Collections in respect of
the Bonds shall not exceed $400,000 (inclusive of the amounts paid under
clauses (i) and (ii) above);

 

(v)                                 any
overdue Quarterly Interest and Quarterly Interest then due on such Payment Date
shall be paid to Bondholders on a Pro Rata Basis;

 

(vi)                              principal
due and payable on the Bonds as a result of an Event of Default and an
acceleration of principal shall be paid to the Bondholders on a Pro Rata Basis;

 

(vii)                           principal
due and payable on each Class of Bonds on the Final Legal Maturity Date
(including any unpaid principal from prior Payment Dates) of such Class or
upon redemption shall be paid to Bondholders of such Class;

 

(viii)                        Quarterly
Principal for the Class of Bonds then scheduled to be paid according to
the Expected Amortization Schedule (including any unpaid principal from
prior Payment Dates) shall be paid to the Bondholders of such Class, but only
if all of the Bonds of a Class whose principal is scheduled to amortize
earlier than that Class have been paid in full;

 

(ix)                                the
amount, if any, by which the Required Capital Level exceeds the amount in the
Capital Subaccount as of such Payment Date shall be allocated to the Capital
Subaccount;

 

52

 

(x)                                   the
amount, if any, by which the Required Overcollateralization Level exceeds the
amount in the Overcollateralization Subaccount as of such Payment Date shall be
allocated to the Overcollateralization Subaccount;

 

(xi)                                unpaid
Operating Expenses and Indemnity Amounts not paid under clauses (i), (ii) and
(iv) above shall be paid to the Persons entitled thereto (or if such have
been previously paid by the Issuer, to the Issuer in reimbursement thereof) on
a Pro Rata Basis;

 

(xii)                             if
there is a positive balance after making the foregoing payments or allocations,
the Trustee shall release to the Issuer an amount equal to the lesser of such
balance and the investment earnings, net of any investment loss, on amounts in
the Capital Subaccount, free and clear of the lien of this Indenture; and

 

(xiii)                          the
balance, if any, shall be allocated to the Reserve Subaccount for use on
subsequent Payment Dates.

 

After principal of and premium, if any, and interest
on all Bonds, and all of the other foregoing amounts in clauses (i) through
(xiii) above have been paid in full, the balance, if any, in the Collection
Account (including all amounts in all subaccounts therein) shall be paid to the
Issuer, free and clear of the lien of this Indenture.

 

“Pro Rata Basis” means with respect to any Class of
Bonds a ratio, (A) in the case of clause (d)(v) above, the numerator
of which is the aggregate amount of interest payable with respect to such Class on
such Payment Date and the denominator of which is the sum of the aggregate
amounts of interest payable with respect to all Outstanding Classes on such
Payment Date; (B) in the case of clause (d)(vi) above, the numerator
of which is the aggregate amount of principal to be paid or payable pursuant to
such clause with respect to such Class on such Payment Date and the
denominator of which is the sum of the aggregate amounts of principal to be
paid or payable pursuant to such clause with respect to all Outstanding Classes
on such Payment Date and (C) in the case of clauses (d)(iv) and
(d)(xi) above, with respect to each Person entitled to payment, the numerator
of which is the amount payable to that Person under the applicable clause on
such payment date and the denominator of which is the sum of the aggregate
amounts to be paid or payable to all Persons under the applicable clause on
such payment date.

 

(e)                                  If
on any Payment Date funds on deposit in the General Subaccount and Reserve
Subaccount are insufficient to make the payments contemplated by clauses (i) through
(viii) of Section 8.02(d) above, the Trustee shall (i) first,
draw from amounts on deposit in the Overcollateralization Subaccount and (ii) second,
draw from amounts on deposit in the Capital Subaccount, in each case, up to the
amount of such shortfall in order to make the payments contemplated by clauses (i) through
(viii) of Section 8.02(d). 
Funds in such subaccounts may not be used for any other purpose, except
as expressly provided herein.

 

(f)                                    On
the Issuance Date, the Issuer shall deposit $4,222,305 into the Capital
Subaccount.

 

53

 

(g)                                 Notwithstanding
anything to the contrary contained in this Indenture, failure to have
sufficient funds available to maintain the Required Overcollaterization Level
or the Required Capital Level will not constitute a Default or an Event of
Default hereunder.

 

SECTION 8.03.                 General
Provisions Regarding the Collection Account.  (a)  So long as no Default or Event
of Default shall have occurred and be continuing, all or a portion of the funds
in the Collection Account shall be invested in Eligible Investments and
reinvested by the Trustee upon Issuer Order; provided, however,
that such Eligible Investments shall not (i) mature later than the
Business Day prior to the next Payment Date, or (ii) be sold, liquidated
or otherwise disposed of at a loss prior to the maturity thereof (unless they
are in default).  All income or other
gain from investments of moneys deposited in the Collection Account shall be
deposited by the Trustee in the General Subaccount, and any loss resulting from
such investments shall be charged to the General Subaccount.  In no event shall the Trustee be liable for
the selection of Eligible Investments. 
The Trustee shall have no liability in respect of losses incurred as a
result of the liquidation of any Eligible Investment prior to its stated
maturity or the failure of the Issuer to provide timely written investment
direction.  The Trustee shall have no
obligation to invest or reinvest any amounts held hereunder in the absence of
written investment direction pursuant to an Issuer Order.

 

(b)                                 Subject
to Section 6.01(c), the Trustee shall not in any way be held liable by
reason of any insufficiency in the Collection Account resulting from any loss
on any Eligible Investment included therein except for losses attributable to
the Trustee’s failure to make payments on such Eligible Investments issued by
the Trustee, in its commercial capacity as principal obligor and not as
trustee, in accordance with their terms.

 

(c)                                  If
(i) the Issuer shall have failed to give written investment directions for
any funds on deposit in the Collection Account to the Trustee by 11:00 a.m.
Eastern Time (or such other time as may be agreed by the Issuer and Trustee) on
any Business Day; or (ii) a Default or Event of Default shall have
occurred and be continuing but the Bonds shall not have been declared due and
payable pursuant to Section 5.02; then the Trustee shall, to the fullest
extent practicable, invest and reinvest funds in the Collection Account in one
or more investments which qualify as investments in money market funds
described under paragraph (d) of the definition of Eligible
Investments.

 

SECTION 8.04.                 Deposit
of Excess Costs of Issuance.  Within
six (6) months after the Closing Date, the Issuer shall notify and
transfer to the Trustee for deposit into the Reserve Subaccount proceeds from
the sale of the Bonds held by it to pay for costs of issuance with respect to
the Bonds but that are not needed to pay for such costs of issuance, together
with any interest earned thereon while such proceeds were held by the Issuer.

 

SECTION 8.05.                 Release
of Collateral.  (a)  The
Trustee may, and when required by the provisions of this Indenture shall,
execute instruments to release property from the lien of this Indenture, or
convey the Trustee’s interest in the same, in a manner and under circumstances
that are not inconsistent with the provisions of this Indenture.  No party relying upon an instrument executed
by the Trustee as provided in this Article VIII shall be bound to
ascertain the Trustee’s authority, inquire into the satisfaction of any
conditions precedent or see to the application of any moneys.

 

54

 

(b)                                 The
Trustee shall, at such time as there are no Bonds Outstanding, release any
remaining portion of the Collateral from the lien of this Indenture and release
to the Issuer or any other Person entitled thereto any funds then on deposit in
the Collection Account.  The Trustee
shall release property from the lien of this Indenture pursuant to this Section 8.05(b) only
upon receipt of an Issuer Request accompanied by an Officer’s Certificate, an
Opinion of Counsel and (if required by the TIA) Independent Certificates in
accordance with TIA 314(c) and 314(d)(1) meeting the applicable
requirements of Section 11.01.

 

SECTION 8.06.                 Opinion of
Counsel.  The Trustee shall receive
at least seven (7) days’ notice when requested by the Issuer to take
any action pursuant to Section 8.05(a), accompanied by copies of any
instruments involved, and the Trustee shall also require, as a condition to
such action, an Opinion of Counsel, in form and substance satisfactory to the
Trustee, stating the legal effect of any such action, outlining the steps
required to complete the same, and concluding that all conditions precedent to
the taking of such action have been complied with and such action will not
materially and adversely impair the security for the Bonds or the rights of the
Bondholders in contravention of the provisions of this Indenture; provided,
however, that such Opinion of Counsel shall not be required to express
an opinion as to the fair value of the Collateral.  Counsel rendering any such opinion may rely,
without independent investigation, on the accuracy and validity of any
certificate or other instrument delivered to the Trustee in connection with any
such action.  The provisions of this Section and
the last sentence of Section 8.05(b) shall not apply to releases
described in Section 8.02(d).

 

SECTION 8.07.                 Reports by
Independent Accountants.  As of the
Closing Date, the Issuer shall appoint a firm of Independent certified public
accountants of recognized national reputation for purposes of preparing and
delivering the reports or certificates of such accountants required by this
Indenture.  In the event such firm
requires the Trustee to agree to the procedures performed by such firm, the
Issuer shall direct the Trustee in writing to so agree; it being understood and
agreed that the Trustee will deliver such letter of agreement in conclusive
reliance upon the direction of the Issuer, and the Trustee makes no independent
inquiry or investigation to, and shall have no obligation or liability in
respect of, the sufficiency, validity or correctness of such procedures. Upon
any resignation by such firm the Issuer shall provide written notice thereof to
the Trustee and shall promptly appoint a successor thereto that shall also be a
firm of Independent certified public accountants of recognized national
reputation.  If the Issuer shall fail to
appoint a successor to a firm of Independent certified public accountants that
has resigned within fifteen (15)  days after such resignation, the
Trustee shall promptly notify the Issuer of such failure in writing.  If the Issuer shall not have appointed a
successor within ten (10) days thereafter the Trustee shall promptly
appoint a successor firm of Independent certified public accountants of
recognized national reputation; provided, that the Trustee shall have no
liability with respect to such appointment if the Trustee acted with due care
with respect thereto.  The fees of such
Independent certified public accountants and its successor shall be payable by
the Issuer.

 

55

 

ARTICLE IX

SUPPLEMENTAL INDENTURES

 

SECTION 9.01.                 Supplemental
Indentures Without Consent of Bondholders. 
(a)  Without the consent of the Holders of any Bonds, the
Issuer and the Trustee, when authorized by an Issuer Order and upon
satisfaction of the Rating Agency Condition, at any time and from time to time,
may enter into one or more indentures supplemental hereto (which shall conform
to the provisions of the Trust Indenture Act as in force at the date of the execution
thereof), in form satisfactory to the Trustee, for any of the following
purposes:

 

(i)                                     to
correct or amplify the description of the Collateral at any time subject to the
lien of this Indenture, or better to assure, convey and confirm unto the Trustee
the Collateral subject or required to be subjected to the lien of this
Indenture, or to subject to the lien of this Indenture additional property;

 

(ii)                                  to
evidence the succession, in compliance with the applicable provisions hereof,
of another person to the Issuer, and the assumption by any such successor of
the covenants of the Issuer herein and in the Bonds contained;

 

(iii)                               to
add to the covenants of the Issuer, for the benefit of the Holders of the
Bonds, or to surrender any right or power herein conferred upon the Issuer;

 

(iv)                              to
convey, transfer, assign, mortgage or pledge any property to or with the
Trustee;

 

(v)                                 to
cure any ambiguity, to correct or supplement any provision herein or in any
supplemental indenture which may be inconsistent with any other provision
herein or in any supplemental indenture or to make any other provisions with
respect to matters or questions arising under this Indenture or in any
supplemental indenture; provided, that such action shall not adversely
affect in any material respect the interests of the Holders of the Bonds;

 

(vi)                              to
evidence the succession, in compliance with this Indenture, of another Person
to the Trustee and provide for the acceptance of the appointment hereunder by a
successor trustee with respect to the Bonds and to add to or change any of the
provisions of this Indenture as shall be necessary to facilitate the
administration of the trusts hereunder by more than one trustee, pursuant to
the requirements of Article VI; or

 

(vii)                           to
modify, eliminate or add to the provisions of this Indenture to such extent as
shall be necessary to effect the qualification of this Indenture under the TIA
or under any similar federal statute hereafter enacted and to add to this
Indenture such other provisions as may be expressly required by the TIA.

 

The Trustee is hereby authorized to join in the
execution of any such supplemental indenture and to make any further
appropriate agreements and stipulations that may be therein contained.

 

56

 

(b)                                 The
Issuer and the Trustee, when authorized by an Issuer Order, may, also without
the consent of any of the Holders of the Bonds, enter into an indenture or
indentures supplemental hereto; provided, however, that (i) such
action shall not, as evidenced by an Opinion of Counsel, adversely affect in
any material respect the interests of the holders of Bonds then Outstanding and
(ii) the Rating Agency Condition shall have been satisfied with respect
thereto.

 

SECTION 9.02.                 Supplemental
Indentures with Consent of Bondholders. 
The Issuer and the Trustee, when authorized by an Issuer Order, also
may, with prior notice to the Rating Agencies and with the consent of the
Holders of not less than a majority of the Outstanding Amount of the Bonds or
of Holders of not less than a majority of the Outstanding Amount of the Bonds
of each Class to be affected, by Act of such Holders delivered to the
Issuer and the Trustee, enter into an indenture or indentures supplemental
hereto for the purpose of adding any provisions to, or changing in any manner
or eliminating any of the provisions of, this Indenture or of modifying in any
manner the rights of the Holders of the Bonds under this Indenture; provided,
however, that no such supplemental indenture shall, without the consent
of the Holder of each Outstanding Bond affected thereby, or of the Holder of
each Outstanding Bonds of each Class affected thereby:

 

(i)                                     change
the date of payment of any installment of principal of or premium, if any, or
interest on any Bond, or reduce the principal amount thereof, the interest rate
thereon or premium, if any, with respect thereto, change the provisions of this
Indenture relating to the application of collections on, or the proceeds of the
sale of, the Collateral to payment of principal of or premium, if any, or
interest on the Bonds, or change any place of payment where, or the coin or
currency in which, any Bond or the interest thereon is payable, or impair the
right to institute suit for the enforcement of the provisions of this Indenture
requiring the application of funds available therefor, as provided in Article V,
to the payment of any such amount due on the Bonds on or after the respective
due dates thereof (or, in the case of optional redemption, on or after the Redemption
Date);

 

(ii)                                  reduce
the percentage of the Outstanding Amount of the Bonds or of a Class, the
consent of the Holders of which is required for any such supplemental
indenture, or the consent of the Holders of which is required for any waiver of
compliance with the provisions of this Indenture or defaults hereunder and
their consequences provided for in this Indenture;

 

(iii)                               modify
or alter the provisions of the proviso to the definition of the term “Outstanding;”

 

(iv)                              reduce
the percentage of the Outstanding Amount of the Bonds required to direct the
Trustee to sell or liquidate the Collateral pursuant to Section 5.04;

 

(v)                                 modify
any provision of this Section except to increase any percentage specified
herein or to provide that certain additional provisions of this Indenture or
the Basic Documents cannot be modified or waived without the consent of the
Holder of each Outstanding Bond affected thereby;

 

57

 

(vi)                              modify
any of the provisions of this Indenture in such manner as to affect the
calculation of the amount of any payment of interest, principal or premium, if
any, due on any Bond on any Payment Date (including the calculation of any of
the individual components of such calculation);

 

(vii)                           permit
the creation of any lien ranking prior to or on a parity with the lien of this
Indenture with respect to any part of the Collateral or, except as otherwise
permitted or contemplated herein, terminate the lien of this Indenture on any
property at any time subject hereto or deprive the Holder of any Bond of the
security provided by the lien of this Indenture; or

 

(viii)                        cause any
material adverse federal income tax consequence to the Seller, the Issuer, the
members of the Issuer, the Trustee or the then existing Holders.

 

The Trustee may in its discretion determine whether or
not any Bonds of a Class would be affected by any supplemental indenture
and any such determination shall be conclusive upon the Holders of all Bonds of
such Class, whether theretofore or thereafter authenticated and delivered
hereunder.  The Trustee shall not be
liable for any such determination made in good faith.

 

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

 

Promptly after the execution by the Issuer and the
Trustee of any supplemental indenture pursuant to this Section, the Issuer
shall mail to the Rating Agencies and the Holders of the Bonds to which such
amendment or supplemental indenture relates a notice setting forth in general
terms the substance of such supplemental indenture.  Any failure of the Issuer to mail such notice,
or any defect therein, shall not, however, in any way impair or affect the
validity of any such supplemental indenture.

 

SECTION 9.03.                 Execution of
Supplemental Indentures.  In
executing, or permitting the additional trusts created by, any supplemental
indenture permitted by this Article IX or the modifications thereby of the
trusts created by this Indenture, the Trustee shall be entitled to receive, and
subject to Sections 6.01 and 6.02, shall be fully protected in relying
upon, an Opinion of Counsel stating that the execution of such supplemental
indenture is authorized or permitted by this Indenture.  The Trustee may, but shall not be obligated
to, enter into any such supplemental indenture that affects the Trustee’s own
rights, duties, liabilities or immunities under this Indenture or otherwise.

 

SECTION 9.04.                 Effect of
Supplemental Indenture.  Upon the
execution of any supplemental indenture pursuant to the provisions hereof, this
Indenture shall be and be deemed to be modified and amended in accordance
therewith with respect to each Class of Bonds affected thereby, and the
respective rights, limitations of rights, obligations, duties, liabilities and
immunities under this Indenture of the Trustee, the Issuer and the Holders of
the Bonds shall thereafter be determined, exercised and enforced hereunder
subject in all respects to such modifications and amendments, and all the terms
and conditions of any such supplemental 

 

58

 

indenture shall be
and be deemed to be part of the terms and conditions of this Indenture for any
and all purposes.

 

SECTION 9.05.                 Conformity
with Trust Indenture Act.  Every
amendment of this Indenture and every supplemental indenture executed pursuant
to this Article IX shall conform to the requirements of the Trust Indenture
Act as then in effect so long as this Indenture shall then be qualified under
the Trust Indenture Act.

 

SECTION 9.06.                 Reference in
Bonds to Supplemental Indentures. 
Bonds authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article IX may, and if required by
the Trustee shall, bear a notation in form approved by the Trustee as to any
matter provided for in such supplemental indenture.  If the Issuer or the Trustee shall so
determine, new Bonds so modified as to conform, in the opinion of the Trustee
and the Issuer, to any such supplemental indenture may be prepared and executed
by the Issuer and authenticated and delivered by the Trustee in exchange for
Outstanding Bonds.

 

ARTICLE X

REDEMPTION OF BONDS

 

SECTION 10.01.           Optional Redemption
by Issuer.  The Issuer may redeem the
Bonds, in whole, at its option, without premium or penalty, only after the
latest Scheduled Maturity Date for all Classes of Bonds and only if the
Outstanding Amount of any such Bonds on or before the Redemption Date is less
than or equal to five percent (5%) of the initial principal amount of all
Bonds.  The redemption price in any case
shall be equal to the outstanding principal amount of the Bonds to be redeemed,
plus accrued and unpaid interest thereon at the Bond Interest Rate to the
Redemption Date (such price being called the “Optional Redemption Price”).  The Issuer may only redeem Bonds pursuant to
this Section 10.01 if the Issuer has adequate funds to do so and if such
exercise would not cause the Issuer to be insolvent.  If the Issuer shall elect to redeem the Bonds
pursuant to this Section 10.01, it shall furnish written notice (which
notice shall state all items listed in Section 10.02) of such election to
the Trustee and the Rating Agencies not less than twenty-five (25) days
nor more than fifty (50) days prior to the Redemption Date and shall deposit
with the Trustee not later than one (1) Business Day prior to the
Redemption Date the Redemption Price of the Bonds to be redeemed whereupon all
such Bonds shall be due and payable on the Redemption Date upon the furnishing
of a notice complying with Section 10.02 hereof to each Holder of the
Bonds pursuant to this Section 10.01.

 

SECTION 10.02.           Form of
Optional Redemption Notice.  Notice
of redemption under Section 10.01 hereof shall be given by the Trustee by
first-class mail, postage prepaid, mailed not less than five (5) days nor
more than forty-five (45) days prior to the Redemption Date to each Holder of
Bonds to be redeemed, as of the close of business on the Record Date preceding
the Redemption Date at such Holder’s address appearing in the Bond Register.

 

All notices of redemption shall state:

 

(1)                                  the
Redemption Date;

 

(2)                                  the
Optional Redemption Price; and

 

59

 

(3)                                  the
place where such Bonds are to be surrendered for payment of the Optional
Redemption Price (which shall be the office or agency of the Issuer to be
maintained as provided in Section 3.02 hereof).

 

Notice of redemption of the Bonds to be redeemed shall
be given by the Trustee in the name and at the expense of the Issuer.  Failure to give notice of redemption, or any
defect therein, to any Holder of any Bond selected for redemption shall not
impair or affect the validity of the redemption of any other Bond.

 

SECTION 10.03.           Bonds Payable on
Redemption Date or Payment Date. 
Notice of redemption having been given as provided in Section 10.02
hereof, the Bonds to be redeemed shall on the Redemption Date become due and payable
at the Optional Redemption Price and (unless the Issuer shall default in the
payment of the Optional Redemption Price) no interest shall accrue on the
Optional Redemption Price for any period on and after the Redemption Date.

 

SECTION 10.04.           Purchase in Lieu of
Redemption.

 

(a)                                  In
the event that the Bonds are called for optional redemption pursuant to Section 10.01
of this Indenture, such Bonds, or any portion thereof, may be purchased in lieu
of redemption, at the direction of the Issuer or its designee on the Purchase
in Lieu of Redemption Date therefor at a purchase price equal to the principal
amount thereof, plus any premium payable with respect to such Bonds if such
Bonds were redeemed on such Purchase in Lieu of Redemption Date, plus accrued interest,
if any, thereon to, but not including, such Purchase in Lieu of Redemption
Date.  In the event the Issuer or its
designee desires to cause a purchase of Bonds that have previously been called
for redemption, then not less than one Business Day prior to the designated
Purchase in Lieu of Redemption Date, the Issuer shall give written notice to
the Trustee of the aggregate principal amount of Bonds for which an election to
purchase pursuant to this Section 10.04 is being made.  Bonds to be purchased as described above
shall be purchased with funds of the Issuer or its designee which shall be
deposited, notwithstanding anything contained herein to the contrary, to the
Collection Account on or before the applicable Purchase in Lieu of Redemption
Date.  Bonds to be purchased but which
are not delivered to the Trustee on the Purchase in Lieu of Redemption Date
shall be deemed to have been purchased pursuant to the provisions of this Section 10.04.  Bonds purchased in lieu of redemption
pursuant to this Section 10.04 shall be deemed to be purchased by the
Issuer or its designee, as the case may be, and the Issuer or its designee, as
applicable, shall be the owner of such Bonds for all purposes under this
Indenture, and interest accruing on such Bonds on and after the Purchase in
Lieu of Redemption Date shall be payable solely to Issuer or its designee, as
applicable.  In any such event, the
Trustee shall authenticate (and the Issuer shall execute, if necessary) and
deliver to the Issuer or its designee, as applicable, a new Bond as provided in
Section 2.05.

 

(b)                                 It
is the intention of the parties hereto that the purchase of the Bonds pursuant
to this Section 10.04 shall not constitute a prepayment of the Bonds or a
merger or extinguishment of the indebtedness of the Issuer thereunder or the
Bonds so purchased and that such Bonds shall for all purposes be regarded as
Outstanding hereunder.

 

(c)                                  Notwithstanding
any other provision of this Indenture, in the event that the Issuer or its
designee purchases all of the Outstanding Bonds by the purchase in lieu of 

 

60

 

redemption of all
of the Outstanding Bonds pursuant to this Section 10.04 or otherwise, any
such Bonds shall not be remarketed or otherwise transferred, assigned or sold
to any person other than the Issuer or its designee, except with the prior
written approval of the Issuer.

 

(d)                                 If
money sufficient to pay the purchase price of Bonds to be purchased pursuant to
this Section 10.04 shall be held by the Trustee on the date such Bonds are
to be purchased, such Bonds shall be deemed to have been purchased for all
purposes of this Indenture, irrespective of whether or not such Bonds shall
have been delivered to the Trustee, and neither the former Holder of such Bonds
nor any other person shall have any claim thereon, under this Indenture or
otherwise, for any amount other than the purchase price thereof.

 

(e)                                  In
the event of non-delivery of any Bond to be purchased pursuant to this Section 10.04,
the Trustee shall segregate and hold uninvested the money for the purchase
price of such Bonds in trust, without liability for interest thereon, for the
benefit of the former Holders of such Bonds, who shall, except as provided in
the following sentence, thereafter be restricted exclusively to such money for
the satisfaction of any claim for the purchase price of such Bonds.  Subject to applicable laws with respect to
escheat of funds, any money which the Trustee shall segregate and hold in trust
for the payment of the purchase price of any Bond and remaining unclaimed for
two (2) years after the date of purchase shall be paid, upon the Issuer’s
written request, to the Issuer.  After
the payment of such unclaimed money to the Issuer, the former Holder of such
Bond shall look only to the Issuer for the payment thereof.

 

(f)                                    In
the event that Issuer or its designee exercises its right to purchase Bonds in
lieu of redemption pursuant to this Section 10.04, the Trustee agrees to
accept and hold all Bonds delivered to it for purchase in lieu of redemption in
trust for the benefit of the respective Bondholders which shall have so
delivered such Bonds until the purchase price of such Bonds shall have been
delivered to or for the account of or to the order of such Holders pursuant to
this Section 10.04.  Any Bonds
registered for transfer to the Issuer or its designee, as the case may be, and
delivered to the Trustee pursuant to this Section 10.04 shall, after
payment of the purchase price therefor, be held in trust by the Trustee for the
benefit of the Issuer or its designee, as applicable, until delivery to the
Issuer or its designee.

 

ARTICLE XI

MISCELLANEOUS

 

SECTION 11.01.           Compliance
Certificates and Opinions, etc.  (a)  Upon
any application or request by the Issuer to the Trustee to take any action
under any provision of this Indenture, the Issuer shall furnish to the Trustee (i) an
Officer’s Certificate stating that all conditions precedent, if any, provided
for in this Indenture relating to the proposed action have been complied with
and (ii) 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 Indenture, no
additional certificate or opinion need be furnished.

 

61

 

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

 

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

 

(ii)                                  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;

 

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

 

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

 

(b)                                 (i)  Prior
to the deposit of any Collateral or other property or securities with the
Trustee that is to be made the basis for the release of any property or
securities subject to the lien of this Indenture, the Issuer shall, in addition
to any obligation imposed in Section 11.01(a) or elsewhere in this
Indenture, furnish to the Trustee an Officer’s Certificate certifying or
stating the opinion of each person signing such certificate as to the fair
value (within ninety (90) days of such deposit) to the Issuer of the Collateral
or other property or securities to be so deposited.

 

(ii)                                  To
the extent required by the TIA, whenever the Issuer is required to furnish to
the Trustee an Officer’s Certificate certifying or stating the opinion of any
signer thereof as to the matters described in clause (i) above, the
Issuer shall also deliver to the Trustee an Independent Certificate as to the
same matters, if the fair value to the Issuer of the securities to be so
deposited and of all other such securities made the basis of any such
withdrawal or release since the commencement of the then-current fiscal year of
the Issuer, as set forth in the certificates delivered pursuant to clause (i) above
and this clause (ii), is ten percent (10%) or more of the Outstanding
Amount of the Bonds, but such a certificate need not be furnished with respect
to any securities so deposited, if the fair value thereof to the Issuer as set
forth in the related Officer’s Certificate is less than $25,000 or less than
one percent (1%) of the Outstanding Amount of the Bonds.

 

(iii)                               Whenever
any property or securities are to be released from the lien of this Indenture
other than pursuant to Section 8.02(d), the Issuer shall also furnish to
the Trustee an Officer’s Certificate certifying or stating the opinion of each
person signing such certificate as to the fair value (within ninety (90)
days of such release) of the property or securities proposed to be released and
stating that in the opinion of such person the proposed release will not impair
the security under this Indenture in contravention of the provisions hereof.

 

(iv)                              To
the extent required by the TIA, whenever the Issuer is required to furnish to
the Trustee an Officer’s Certificate certifying or stating the opinion of any 

 

62

 

signer thereof as to the matters described in clause (iii) above,
the Issuer shall also furnish to the Trustee an Independent Certificate as to
the same matters if the fair value of the property or securities and of all
other property with respect to the Bonds or securities released from the lien
of this Indenture (other than pursuant to Section 8.02(d) hereof)
since the commencement of the then-current calendar year, as set forth in the
certificates required by clause (iii) above and this clause (iv), equals
ten percent (10%) or more of the Outstanding Amount of the Bonds, but such
certificate need not be furnished in the case of any release of property or
securities if the fair value thereof as set forth in the related Officer’s Certificate
is less than $25,000 or less than one percent (1%) of the then Outstanding
Amount of the Bonds.

 

(v)                                 Notwithstanding
Section 2.11, Section 8.05, Section 8.06, or any other provision
of this Section, the Issuer may (A) collect, liquidate, sell or otherwise
dispose of the Recovery Property and the other Collateral as and to the extent
permitted or required by the Basic Documents and (B) make cash payments
out of the Collection Accounts as and to the extent permitted or required by
the Basic Documents.

 

SECTION 11.02.           Form of
Documents Delivered to Trustee.  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 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.

 

Any certificate or opinion of an Authorized Officer of
the Issuer may be based, insofar as it relates to legal matters, upon a
certificate or opinion of, or representations by, counsel, unless such officer
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to the matters upon which his or her
certificate or opinion is based are erroneous. 
Any such certificate of an Authorized Officer or Opinion of Counsel may
be based, insofar as it relates to factual matters, upon a certificate or
opinion of, or representations by, an officer of the Servicer, the Seller, the
Issuer or the Administrator, stating that the information with respect to such
factual matters is in the possession of the Servicer, the Seller, the Issuer or
the Administrator, unless such counsel knows, or in the exercise of reasonable
care should know, that the certificate or opinion or representations with
respect to such matters are erroneous.

 

Whenever in this Indenture, in connection with any
application or certificate or report to the Trustee, it is provided that the
Issuer shall deliver any document as a condition of the granting of such
application, or as evidence of the Issuer’s compliance with any term hereof, it
is intended that the truth and accuracy, at the time of the granting of such
application or at the effective date of such certificate or report (as the case
may be), of the facts and opinions stated in such document shall in such case
be conditions precedent to the right of the Issuer to have such application
granted or to the sufficiency of such certificate or report.  The foregoing shall not, however, be
construed to affect the Trustee’s right to rely upon the truth and accuracy of
any statement or opinion contained in any such document as provided in Article VI.

 

63

 

Where any Person is required to make, give or execute
two or more applications, requests, consents, certificates, statements,
opinions or other instruments under this Indenture, they may, but need not, be
consolidated and form one instrument.

 

SECTION 11.03.           Acts of Bondholders.  (a)  Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Bondholders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Bondholders in person or by agents duly appointed in writing; and except
as herein otherwise expressly provided such action shall become effective when
such instrument or instruments are delivered to the Trustee, and, where it is
hereby expressly required, to the Issuer. 
Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the “Act” of the
Bondholders signing such instrument or instruments.  Proof of execution of any such instrument or
of a writing appointing any such agent shall be sufficient for any purpose of
this Indenture and (subject to Section 6.01) conclusive in favor of the
Trustee and the Issuer, if made in the manner provided in this Section.

 

(b)                                 The
fact and date of the execution by any person of any such instrument or writing
may be proved in any manner that the Trustee deems sufficient.

 

(c)                                  The
ownership of Bonds shall be proved by the Bond Register.

 

(d)                                 Any
request, demand, authorization, direction, notice, consent, waiver or other
action by the Holder of any Bonds shall bind the Holder of every Bond issued
upon the registration 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
Issuer in reliance thereon, whether or not notation of such action is made upon
such Bond.

 

SECTION 11.04.           Notices, etc., to
Trustee, Issuer, Rating Agencies and CPUC. 
(a)  Any request, demand, authorization, direction, notice,
consent, waiver or Act of Bondholders or other documents provided or permitted
by this Indenture to be made upon, given or furnished to or filed with:

 

(i)                                     the
Trustee by any Bondholder or by the Issuer shall be sufficient for every
purpose hereunder if made, given, furnished or filed in writing by facsimile
transmission, first-class mail or overnight delivery service to or with the
Trustee at its Corporate Trust Office, or

 

(ii)                                  the
Issuer by the Trustee or by any Bondholder shall be sufficient for every
purpose hereunder if in writing and mailed, first-class, postage prepaid, to
the Issuer addressed to:  PG&E Energy
Recovery Funding LLC, 245 Market Street, Room 424,
San Francisco, California 94105, Attention:  President, or at any other address previously
furnished in writing to the Trustee by the Issuer.  The Issuer shall promptly transmit any notice
received by it from the Bondholders to the Trustee.

 

(b)                                 Notices
required to be given to the Rating Agencies or to the CPUC by the Issuer or the
Trustee shall be in writing, personally delivered or mailed by certified mail,
return receipt requested or sent by telecopy or other similar form of rapid
transmission to (i) in the case of Moody’s, to:  Moody’s Investors Service, Inc., ABS
Monitoring Department, 99 Church 

 

64

 

Street, New York,
New York 10007; telephone: (212) 553-3686,
facsimile (212) 553-0573, (ii) in the case of Standard &
Poor’s, to:  Standard & Poor’s
Ratings Services, 55 Water Street, 41st Floor, New York, New York
10041, Attention of Asset Backed Surveillance Department; telephone: (212) 438-2000, facsimile: (212) 438-2665,
(iii) in the case of Fitch, to Fitch, Inc., One State Street Plaza,
New York, NY 10004, Attention of ABS Surveillance; telephone: (212) 908-0500, facsimile: (212) 908-0355, (iv) in
the case of the CPUC, to California Public Utilities Commission, 505 Van Ness
Avenue, San Francisco, CA 94102, Attention of General Counsel, with copies to
the attention of the Executive Director and the Director of the Energy
Division, and (v) to each of the foregoing, at such other address as shall
be designated by written notice to the other parties.

 

SECTION 11.05.           Notices to
Bondholders; Waiver.  Where this
Indenture provides for notice to Bondholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class, postage prepaid to each Bondholder affected by such
event, at such Bondholder’s address as it appears on the Bond Register, not
later than the latest date, and not earlier than the earliest date, prescribed
for the giving of such notice.  In any
case where notice to Bondholders is given by mail, neither the failure to mail
such notice nor any defect in any notice so mailed to any particular Bondholder
shall affect the sufficiency of such notice with respect to other Bondholders,
and any notice that is mailed in the manner herein provided shall conclusively
be presumed to have been duly given.

 

Where this Indenture provides for notice in any
manner, such notice may be waived in writing by any Person entitled to receive
such notice, either before or after the event, and such waiver shall be the
equivalent of such notice.  Waivers of
notice by Bondholders 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 a waiver.

 

In case, by reason of the suspension of regular mail
service, it shall be impractical to mail notice of any event to Bondholders
when such notice is required to be given pursuant to any provision of this Indenture,
then any manner of giving such notice as shall be satisfactory to the Trustee
shall be deemed to be a sufficient giving of such notice.

 

Where this Indenture provides for notice to the Rating
Agencies, failure to give such notice shall not affect any other rights or
obligations created hereunder, and shall not under any circumstance constitute
a Default or Event of Default.

 

SECTION 11.06.           Conflict with Trust
Indenture Act.  If any provision
hereof limits, qualifies or conflicts with another provision hereof that is
required to be included in this Indenture by any of the provisions of the Trust
Indenture Act, such required provision shall control.

 

The provisions of TIA Sections 310 through 317
that impose duties on any person (including the provisions automatically deemed
included herein unless expressly excluded by this Indenture) are a part of and
govern this Indenture, whether or not physically contained herein.

 

65

 

SECTION 11.07.           Effect of Headings
and Table of Contents.  The Article and
Section headings herein and the Table of Contents are for convenience only
and shall not affect the construction hereof.

 

SECTION 11.08.           Successors and
Assigns.  All covenants and
agreements in this Indenture and the Bonds by the Issuer shall bind its
successors and assigns, whether so expressed or not.  All agreements of the Trustee in this
Indenture shall bind its successors.

 

SECTION 11.09.           Separability.  In case any provision in this Indenture or in
the Bonds shall 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 11.10.           Benefits of
Indenture.  Nothing in this Indenture
or in the Bonds, express or implied, shall give to any Person, other than the
parties hereto and their successors hereunder, and the Bondholders, any benefit
or any legal or equitable right, remedy or claim under this Indenture.

 

SECTION 11.11.           Legal Holidays.  In any case where the date on which any
payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Bonds or this Indenture) payment need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the date on which nominally due, and no interest shall
accrue for the period from and after any such nominal date.

 

SECTION 11.12.           Governing Law.  THIS INDENTURE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

 

SECTION 11.13.           Counterparts.  This Indenture 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.

 

SECTION 11.14.           Recording of
Indenture.  If this Indenture is
subject to recording in any appropriate public recording offices, such
recording is to be effected by the Issuer and at its expense accompanied by an
Opinion of Counsel (which may be counsel to the Trustee or any other counsel
reasonably acceptable to the Trustee) to the effect that such recording is
necessary either for the protection of the Bondholders or for the enforcement
of any right or remedy granted to the Trustee under this Indenture.

 

SECTION 11.15.           No Liability.  No recourse may be taken, directly or
indirectly, with respect to the obligations of the Issuer or the Trustee on the
Bonds or under this Indenture or any certificate or other writing delivered in
connection herewith or therewith, against (i) the Trustee or any member of
the Issuer in its individual capacity, (ii) any owner of a membership
interest in the Issuer or (iii) any shareholder, partner, owner,
beneficiary, agent, officer, director or employee of the Trustee, any member of
the Issuer or any owner of a membership interest in the Issuer in their
respective individual capacities, or of any successor or assign of any of them
in their respective individual capacities, except as any such Person may have
expressly agreed (it 

 

66

 

being understood
that the neither the Trustee nor any member of the Issuer has any such
obligations in their respective individual or corporate capacities).

 

SECTION 11.16.           No Recourse to
Issuer.  Notwithstanding any
provision of this Indenture to the contrary, Bondholders shall have no recourse
against the Issuer, but shall look only to the Collateral, with respect to any
amounts due to the Bondholders hereunder.

 

SECTION 11.17.           Inspection.  The Issuer agrees that, on reasonable prior
notice, it will permit, subject to the requirements of applicable law and the
CPUC Regulations, any representative of the Trustee, during the Issuer’s normal
business hours, to examine all the books of account, records, reports, and
other papers of the Issuer, to make copies and extracts therefrom, to cause
such books to be audited by Independent certified public accountants, and to
discuss the Issuer’s affairs, finances and accounts with the Issuer’s officers,
employees, and Independent certified public accountants, all at such reasonable
times and as often as may be reasonably requested.  The Trustee shall and shall cause its
representatives to hold in confidence all such information except to the extent
disclosure may be required by law (and all reasonable applications for
confidential treatment are unavailing) and except to the extent that the
Trustee may reasonably determine that such disclosure is consistent with its
obligations hereunder.  Notwithstanding
anything herein to the contrary, the foregoing shall not be construed to prohibit
(i) disclosure of any and all information that is or becomes publicly
known, or information obtained by the Trustee from sources other than the
Issuer, provided such parties are rightfully in possession of such information
and are not subject to a duty of confidentiality, (ii) disclosure of any
and all information (A) if required to do so by any applicable statute,
law, rule or regulation, (B) pursuant to any subpoena, civil
investigative demand or similar demand or request of any court or regulatory
authority exercising its proper jurisdiction, (C) in any preliminary or
final offering circular, registration statement or contract or other document
pertaining to the transactions contemplated by this Indenture or the Basic
Documents approved in advance by the Issuer or (D) to any affiliate, independent
or internal auditor, agent, employee or attorney of the Trustee having a need
to know the same, provided, that such parties agree to be bound by the
confidentiality provisions contained in this Section 11.17, or (iii) any
other disclosure authorized by the Issuer.

 

SECTION 11.18.           No Petition.  The Trustee, by entering into this Indenture,
and each Holder, by accepting a Bond (or interest therein) issued hereunder,
hereby covenant and agree, and each owner of a security entitlement to a Bond,
by accepting such security entitlement, is deemed to covenant and agree, with
the Issuer and each other that notwithstanding any prior termination of all
indentures for all bonds authorized to be issued by the Financing Order, but
subject to the CPUC’s right to order the sequestration and payment of revenues
arising with respect to the Recovery Property notwithstanding any bankruptcy,
reorganization or other insolvency proceedings with respect to the debtor,
pledgor or transferor of the Recovery Property pursuant to Section 848.3(e) and
(g) of the PU Code, they shall not, prior to the date that is one year and
one day after the termination of all indentures for all bonds authorized to be
issued by the Financing Order, acquiesce, petition or otherwise invoke or cause
the Issuer to invoke the process of any court or governmental authority for the
purpose of commencing or sustaining a case against the Issuer under any federal
or state bankruptcy, insolvency or similar law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar
official of the Issuer or any substantial part of the property of the Issuer or
ordering the winding 

 

67

 

up or liquidation
of the affairs of the Issuer.  The
Trustee and each Holder hereby further covenant and agree, and each owner of a
security entitlement to a Bond is hereby deemed to covenant and agree, with the
Issuer and each other that they shall not cooperate with or encourage others to
file a bankruptcy petition against the Issuer during the same period.  Nothing in this paragraph shall preclude, or
be deemed to estop, such Holder or owner of a security entitlement (A) from
taking or omitting to take any action prior to such date in (i) any case
or proceeding voluntarily filed or commenced by or on behalf of the Issuer
under or pursuant to any such law or (ii) any involuntary case or
proceeding pertaining to the Issuer that is filed or commenced by or on behalf
of a person other than such Holder or owner of a security entitlement and is
not joined in by such Holder (or any person to which such Holder shall have
assigned, transferred or otherwise conveyed any part of the obligations of the
Issuer hereunder) or owner of a security entitlement under or pursuant to any
such law, or (B) from commencing or prosecuting any legal action that is
not an involuntary case or proceeding under or pursuant to any such law against
the Issuer or any of its properties.

 

SECTION 11.19.           No Premium.  Notwithstanding any other provision of this
Indenture or any Bond, no premium is payable by the Issuer under any
circumstances with respect to any Bond.

 

[Signature page follows]

 

68

 

IN WITNESS WHEREOF, the Issuer and the Trustee have
caused this Indenture to be duly executed by their respective officers
thereunto duly authorized, all as of the date first above written.

 

	
   

  	
  PG&E ENERGY RECOVERY FUNDING LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Nicholas M. Bijur

  	
   

  
	
   

  	
  Name: 

  	
  Nicholas M. Bijur

  
	
   

  	
  Title:

  	
  Treasurer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  DEUTSCHE BANK NATIONAL TRUST

  COMPANY, as Trustee

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Ronald R. Reyes

  	
   

  
	
   

  	
  Name: 

  	
  Ronaldo R. Reyes

  
	
   

  	
  Title:

  	
  Vice President

  
					

 

 

EXHIBIT A

 

FORM OF BOND

 

SEE REVERSE FOR CERTAIN
DEFINITIONS

 

[FACE OF BOND]

 

UNLESS AND UNTIL IT
IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE REGISTERED
FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
CLEARING AGENCY TO THE NOMINEE OF THE CLEARING AGENCY OR BY A NOMINEE OF THE
CLEARING AGENCY TO THE CLEARING AGENCY OR ANOTHER NOMINEE OF THE CLEARING
AGENCY OR BY THE CLEARING AGENCY OR ANY SUCH NOMINEE TO A SUCCESSOR CLEARING
AGENCY OR A NOMINEE OF THE SUCCESSOR CLEARING AGENCY.  UNLESS THIS SECURITY IS PRESENTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK
CORPORATION (“DTC”), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE &
CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC
(AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.

 

THE PRINCIPAL OF THIS
BOND WILL BE PAID IN INSTALLMENTS AS SET FORTH HEREIN.  ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT
OF THIS BOND AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE
HEREOF.

 

THE HOLDER OF THIS
BOND HAS NO RECOURSE TO THE ISSUER HEREOF AND AGREES TO LOOK ONLY TO THE
COLLATERAL, AS DESCRIBED IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF FOR
PAYMENT OF ANY AMOUNTS DUE HEREUNDER.  IN
THE EVENT THE COLLATERAL PLEDGED TO SECURE THIS BOND HAS BEEN EXHAUSTED AND
THIS BOND HAS NOT BEEN PAID IN FULL, THEN ANY AND ALL AMOUNTS REMAINING DUE ON
THIS BOND SHALL BE EXTINGUISHED AND THIS BOND SHALL BE CANCELLED.  TO THE EXTENT THAT UNDER ANY APPLICABLE LAW
THE HOLDER OF THIS BOND OR THE OWNER OF A SECURITY ENTITLEMENT HERETO IS DEEMED
TO HAVE AN INTEREST IN OTHER ISSUER ASSETS, THE HOLDER HEREOF AND THE OWNER OF
A SECURITY ENTITLEMENT HERETO ARE EACH DEEMED TO HAVE AGREED THAT THEIR
INTEREST IN SUCH OTHER ISSUER ASSETS IS FULLY SUBORDINATE TO THE CLAIM AGAINST
SUCH OTHER ISSUER ASSETS OF THE PLEDGEES OR GRANTEES TO WHICH SUCH OTHER ISSUER
ASSETS ARE PLEDGED OR GRANTED AND ARE FURTHER DEEMED TO HAVE AGREED THAT THIS
AGREEMENT SHALL CONSTITUTE A SUBORDINATION AGREEMENT FOR PURPOSE OF SECTION 510(a) OF
THE UNITED STATES BANKRUPTCY CODE.

 

THE HOLDER OF THIS
BOND, BY ACCEPTING THIS BOND (OR INTEREST HEREIN), HEREBY COVENANTS AND AGREES,
AND EACH OWNER OF A SECURITY ENTITLEMENT HERETO, BY ACCEPTING SUCH SECURITY
ENTITLEMENT, IS DEEMED TO COVENANT AND AGREE, WITH THE ISSUER, THE TRUSTEE AND
EACH OTHER THAT NOTWITHSTANDING ANY PRIOR TERMINATION OF ALL INDENTURES FOR ALL
BONDS AUTHORIZED TO BE ISSUED BY THE FINANCING ORDER, BUT SUBJECT TO THE CPUC’S
RIGHT TO ORDER THE SEQUESTRATION AND PAYMENT OF REVENUES ARISING WITH RESPECT
TO THE RECOVERY PROPERTY NOTWITHSTANDING ANY BANKRUPTCY, REORGANIZATION OR
OTHER 

 

A-1

 

INSOLVENCY
PROCEEDINGS WITH RESPECT TO THE DEBTOR, PLEDGOR OR TRANSFEROR OF THE RECOVERY
PROPERTY PURSUANT TO SECTION 848.3(e) AND (g) OF THE PU CODE,
THEY SHALL NOT, PRIOR TO THE DATE THAT IS ONE YEAR AND ONE DAY AFTER THE
TERMINATION OF ALL INDENTURES FOR ALL BONDS AUTHORIZED TO BE ISSUED BY THE
FINANCING ORDER, ACQUIESCE, PETITION OR OTHERWISE INVOKE OR CAUSE THE ISSUER TO
INVOKE THE PROCESS OF ANY COURT OR GOVERNMENTAL AUTHORITY FOR THE PURPOSE OF
COMMENCING OR SUSTAINING A CASE AGAINST THE ISSUER UNDER ANY FEDERAL OR STATE
BANKRUPTCY, INSOLVENCY OR SIMILAR LAW OR APPOINTING A RECEIVER, LIQUIDATOR, ASSIGNEE,
TRUSTEE, CUSTODIAN, SEQUESTRATOR OR OTHER SIMILAR OFFICIAL OF THE ISSUER OR ANY
SUBSTANTIAL PART OF THE PROPERTY OF THE ISSUER OR ORDERING THE WINDING UP
OR LIQUIDATION OF THE AFFAIRS OF THE ISSUER. 
THE HOLDER OF THIS BOND HEREBY FURTHER COVENANTS AND AGREES, AND EACH
OWNER OF A SECURITY ENTITLEMENT HERETO IS HEREBY DEEMED TO COVENANT AND AGREE,
WITH THE ISSUER, THE TRUSTEE AND EACH OTHER THAT THEY SHALL NOT COOPERATE WITH
OR ENCOURAGE OTHERS TO FILE A BANKRUPTCY PETITION AGAINST THE ISSUER DURING THE
SAME PERIOD.  NOTHING IN THIS PARAGRAPH
SHALL PRECLUDE, OR BE DEEMED TO ESTOP, THE HOLDER OF THIS BOND OR OWNER OF A
SECURITY ENTITLEMENT HERETO (A) FROM TAKING OR OMITTING TO TAKE ANY ACTION
PRIOR TO SUCH DATE IN (I) ANY CASE OR PROCEEDING VOLUNTARILY FILED OR COMMENCED
BY OR ON BEHALF OF THE ISSUER UNDER OR PURSUANT TO ANY SUCH LAW OR (II) ANY
INVOLUNTARY CASE OR PROCEEDING PERTAINING TO THE ISSUER THAT IS FILED OR
COMMENCED BY OR ON BEHALF OF A PERSON OTHER THAN THE HOLDER OF THIS BOND OR
OWNER OF A SECURITY ENTITLEMENT HERETO AND IS NOT JOINED IN BY THE HOLDER OF
THIS BOND (OR ANY PERSON TO WHICH SUCH HOLDER SHALL HAVE ASSIGNED, TRANSFERRED
OR OTHERWISE CONVEYED ANY PART OF THE OBLIGATIONS OF THE ISSUER UNDER THE
INDENTURE) OR OWNER OF A SECURITY ENTITLEMENT HERETO UNDER OR PURSUANT TO ANY
SUCH LAW, OR (B) FROM COMMENCING OR PROSECUTING ANY LEGAL ACTION THAT IS
NOT AN INVOLUNTARY CASE OR PROCEEDING UNDER OR PURSUANT TO ANY SUCH LAW AGAINST
THE ISSUER OR ANY OF ITS PROPERTIES.

 

NEITHER THE FULL FAITH AND CREDIT NOR THE
TAXING POWER OF THE STATE OF CALIFORNIA IS PLEDGED TO THE PAYMENT OF THE
PRINCIPAL OF, OR INTEREST ON, THIS BOND.

 

	
  REGISTERED

  	
  $

  	
   

  	
   

  
	
  No.

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  CUSIP NO.

  

 

PG&E
ENERGY RECOVERY FUNDING LLC

 

ENERGY
RECOVERY BONDS, SERIES 2005-2, CLASS A-   .

 

	
  Bond Interest Rate

  	
   

  	
  Original Principal Amount

  	
   

  	
  Final Legal Maturity Date

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

PG&E Energy Recovery Funding LLC, a
limited liability company organized and existing under the laws of the State of
Delaware (herein referred to as the “Issuer”), for value received, hereby
promises to pay to Cede & Co., or registered assigns, the Original
Principal Amount shown above in quarterly installments on the Payment Dates and
in the amounts specified on the reverse hereof or, if less, the amounts determined
pursuant to Section 8.02 of the Indenture, in each year, commencing on the
Payment Date (defined below) in June 2006 and ending on or before the
Final Legal Maturity Date and to pay interest, at the Bond Interest Rate shown
above, on each March 25, 

 

A-2

 

June 25, September 25
and December 25 or if any such day is not a Business Day, the next
succeeding Business Day (each a “Payment Date”), commencing on the Payment Date
in June 2006 and continuing until the earlier of the payment of the
principal hereof and the Final Legal Maturity Date, on the principal amount of
this Class A-     Bond.  Interest will accrue, in respect of each
Payment Date, from and including the 25th day of the month in which the prior
Payment Date occurs (or in the case of the first Payment Date in June 2006,
November 9, 2005) through but excluding the 25th day of the month in which
the current Payment Date occurs. 
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.  Such principal of and interest
on this Class A-     Bond shall be paid in the manner
specified on the reverse hereof.

 

The principal of and interest on this Class A-    
Bond are payable in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private
debts.  All payments made by the Issuer
with respect to this Class A-     Bond shall be
applied first to interest due and payable on this Class A-    
Bond as provided above and then to the unpaid principal of this Class A-    
Bond, all in the manner set forth in Section 8.02 of the Indenture.

 

Reference is made to the further provisions
of this Class A-     Bond set forth on the reverse
hereof, which shall have the same effect as though fully set forth on the face
of this Class A-     Bond.

 

Unless the certificate of authentication
hereon has been executed by the Trustee whose name appears below by manual
signature, this Class A-     Bond shall not be
entitled to any benefit under the Indenture referred to on the reverse hereof,
or be valid or obligatory for any purpose.

 

A-3

 

IN WITNESS WHEREOF, the Issuer has caused
this instrument to be signed, manually or in facsimile, by its Authorized
Officer.

 

	
  Date:

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PG&E ENERGY RECOVERY FUNDING LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
   

  	
  Authorized
  Officer

  	
   

  

 

A-4

 

TRUSTEE’S CERTIFICATE OF
AUTHENTICATION

 

	
  Dated:

  	
   

  	
   

  	
   

  

 

This Class
A-     Bond is one of the Bonds of the
Series 2005-2 Bonds, designated above and referred to in the within-mentioned
Indenture.

 

	
   

  	
  DEUTSCHE BANK NATIONAL TRUST COMPANY,

  
	
   

  	
  not in its individual capacity but solely
  as Trustee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
   

  	
  Authorized
  Signatory

  	
   

  

 

A-5

 

[REVERSE OF
BOND]

 

This Series 2005-2, Class A-    
Bond is one of a duly authorized issue of Bonds of the Issuer, designated as
its Energy Recovery Bonds, Series 2005-2 (herein called the “Bonds”),
issued in three Classes, including Class A-      
(herein called the “Class A-     Bonds”) of which this
Class A-     Bond is one, all issued under an
Indenture, dated as of November     , 2005 (herein
referred to as the “Indenture”), between the Issuer and Deutsche Bank National
Trust Company, as Trustee (the “Trustee”, which term includes any successor
trustee under the Indenture), to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the respective
rights and obligations thereunder of the Issuer, the Trustee and the Holders of
the Bonds.  All terms used in this Class A-    
Bond that are defined in the Indenture, as supplemented or amended, shall have the meanings
assigned to them in the Indenture.

 

The Class A-    
Bonds and the other Classes of Series 2005-2 Bonds issued by the Issuer
are and will be equally and ratably secured by the Collateral pledged as
security therefor as provided in the Indenture.

 

Pursuant to subdivision (g) of Section 848.1
of the California Public Utilities Code, the State of California (the “State”)
has pledged and agreed with the recovery corporation (as defined in subdivision
(h) of Section 848 of the California Public Utilities Code), the
owners of the Recovery Property and Holders that the State shall neither limit
nor alter the DRC Charge, the Recovery Property, the Financing Order or any
rights thereunder until the Bonds, together with the interest thereon, are
fully paid and discharged; provided, that nothing contained in that section shall
preclude the limitation or alteration if and when adequate provision shall be
made by law for the protection of the recovery corporation, the owners of the
Recovery Property and Holders.

 

The principal of this Class A-    
Bond shall be payable on each Payment Date, commencing on the Payment Date in June 2006,
only to the extent that amounts in the Collection Account are available
therefor, and only until the outstanding principal balance thereof on such
Payment Date (after giving effect to all payments of principal, if any, made on
such Payment Date) has been reduced to the principal balance specified in the
Expected Amortization Schedule which is attached to the Indenture as Schedule A,
unless payable earlier either because (x) an Event of Default (except for
a breach of the State pledge described in the immediately preceding paragraph)
shall have occurred and be continuing and the Trustee or the Holders of Bonds
representing not less than a majority of the Outstanding Amount of the Bonds
have declared the Bonds to be immediately due and payable in accordance with Section 5.02
of the Indenture (unless such declaration shall have been rescinded and
annulled in accordance with Section 5.02 of the Indenture), or
(y) the Issuer, at its option, shall have called for the redemption of the
Series 2005-2 Bonds pursuant to Section 10.01 of the Indenture.  However, actual principal payments may be
made in lesser than expected amounts and at later than expected times as
determined pursuant to Section 8.02 of the Indenture.  The entire unpaid principal amount of this Class A-    
Bond shall be due and payable on the earlier of the Final Legal Maturity Date
hereof and the Redemption Date, if any, herefor.  Notwithstanding the foregoing, the entire
unpaid principal amount of the Bonds shall be due and payable, if not then
previously paid, on the date on which an Event of Default (except for a breach
of the State pledge described in the immediately preceding paragraph) shall
have occurred and be continuing and the Trustee or the Holders of the Bonds
representing not less than a majority of the Outstanding Amount of the Bonds
have declared the Bonds to be immediately due and payable in the manner
provided in Section 5.02 of the Indenture (unless such declaration shall
have been rescinded and annulled in accordance with Section 5.02 of the
Indenture).  All principal payments on
the Class A-     Bonds shall be made pro rata to the Class A-    
Bondholders entitled thereto based on the respective principal amounts of the Class A-    
Bonds held by them.

 

Payments of interest on this Class A-    
Bond due and payable on each Payment Date, together with the installment of
principal shall be made by check mailed first-class, postage prepaid, to the
Person whose name appears as the Registered Holder of this Class A-    
Bond (or one or more Predecessor Bonds) on the Bond Register as of the close of
business on the Record Date or in such other manner as may be provided in the
Indenture, except that with respect to Bonds registered on the Record Date in
the name of the Clearing Agency or its nominee, payments will be made by wire
transfer in immediately available funds to the account designated by the
Clearing Agency and except for the final installment of principal and interest
payable with respect to this Class A-     Bond on a
Payment Date which shall be payable as provided below.  Such checks shall be mailed to the Person
entitled thereto at the address of such Person as it appears on the Bond
Register as of the applicable Record Date without requiring that this Class A-    
Bond be submitted for notation of payment. 
Any reduction in the principal amount of 

 

A-6

 

this Class A-    
Bond (or any one or more Predecessor Bonds) effected by any payments made on
any Payment Date shall be binding upon all future Holders of this Class A-    
Bond and of any Bond issued upon the registration of transfer hereof or in
exchange hereof or in lieu hereof, whether or not noted hereon.  If funds are expected to be available, as
provided in the Indenture, for payment in full of the then remaining unpaid
principal amount of this Class A-     Bond on a
Payment Date, then the Trustee, in the name of and on behalf of the Issuer,
will notify the Person who was the Registered Holder hereof as of the Record
Date preceding such Payment Date by notice mailed no later than five days prior
to such final Payment Date and shall specify that such final installment will
be payable only upon presentation and surrender of this Class A-    
Bond and shall specify the place where this Class A-    
Bond may be presented and surrendered for payment of such installment.

 

As provided in the Indenture, the Bonds,
including the Class A-     Bonds, may be redeemed, in
whole at the option of the Issuer, without premium or penalty, only after the
latest Scheduled Maturity Date for all Classes of Bonds and only if the
Outstanding Amount of any such Bonds on or before the Redemption Date is less
than or equal to five percent of the initial principal amount of all
Bonds.  The redemption price shall be
equal to the outstanding principal amount of the Bonds to be redeemed, plus
accrued and unpaid interest thereon at the Bond Interest Rate to the Redemption
Date.

 

As provided in the Indenture and subject to certain
limitations set forth therein, the transfer of this Class A-    
Bond may be registered on the Bond Register upon surrender of this Class A-    
Bond for registration of transfer at the office or agency designated by the
Issuer pursuant to the Indenture, duly endorsed by, or accompanied by (a) a
written instrument of transfer in form satisfactory to the Trustee duly
executed by the Holder hereof or such Holder’s attorney duly authorized in
writing, with such signature guaranteed by an institution which is a member of
one of the following recognized Signature Guaranty Programs:  (i) The Securities Transfer Agent
Medallion Program (STAMP); (ii) The New York Stock Exchange Medallion
Program (MSP); (iii) The Stock Exchange Medallion Program (SEMP); or (iv) in
such other guarantee program acceptable to the Trustee or authorized by the
regulations of the SEC, and (b) such other documents as the Trustee may
require, and thereupon one or more new Class A-    
Bonds of Minimum Denominations and in the same aggregate principal amount will
be issued to the designated transferee or transferees.  No service charge will be charged for any
registration of transfer or exchange of this Class A-    
Bond, but the transferor may be required to pay a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection with any
such registration of transfer or exchange, other than exchanges pursuant to Section 2.04
or 9.06 of the Indenture not involving any transfer.

 

The Issuer shall not be required to make and
the Bond Registrar need not register transfers or exchanges of Bonds selected
for redemption or of any Bond for a period of 15 days preceding the due date
for any payment with respect to such Bond.

 

Each Bondholder, by acceptance of a Bond, covenants
and agrees that no recourse may be taken, directly or indirectly, with respect
to the obligations of the Issuer or the Trustee on the Bonds or under the
Indenture or any certificate or other writing delivered in connection
therewith, against (i) the Trustee or any member of the Issuer in its
individual capacity (ii) any owner of a membership interest in the Issuer
or (iii) any shareholder, partner, owner, beneficiary, agent, officer,
director or employee of the Trustee, any member of the Issuer or any owner of a
membership interest in the Issuer in their respective individual capacities or
of any successor or assign of any of them in their respective individual
capacities, except as any such Person may have expressly agreed (it being
understood that neither the Trustee nor any member of the Issuer has any such
obligations in their respective individual or corporate capacities).

 

Prior to the due presentment for registration
of transfer of this Class A-     Bond, the Issuer, the
Trustee and any agent of the Issuer or the Trustee may treat the Person in
whose name this Class A-     Bond is registered (as of
the day of determination) as the owner hereof for the purpose of receiving
payments of principal of and interest on this Class A-    
Bond and for all other purposes whatsoever, whether or not this Class A-    
Bond be overdue, and neither the Issuer, the Trustee nor any such agent shall
be affected by notice to the contrary.

 

The Indenture permits, with certain
exceptions as therein provided, the amendment thereof and the modification of
the rights and obligations of the Issuer and the rights of all Holders or
Holders of an affected Class under the Indenture at any time by the Issuer
with the consent of the Holders representing a majority of the 

 

A-7

 

Outstanding
Amount of all Bonds at the time Outstanding or of the Holders representing a
majority of the Outstanding Amount of such affected Class, as applicable.  The Indenture also contains provisions permitting
the Holders of Bonds representing specified percentages of the Outstanding
Amount of the Bonds, on behalf of the Holders of all the Bonds, to waive
compliance by the Issuer with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences.  Any such consent or waiver by the Holder of
this Class A-     Bond (or any one of more Predecessor
Bonds) shall be conclusive and binding upon such Holder and upon all future
Holders of this Class A-     Bond and of any Bond
issued upon the registration of transfer hereof or in exchange hereof or in
lieu hereof whether or not notation of such consent or waiver is made upon this
Class A-     Bond. 
The Indenture also permits the Trustee to amend or waive certain terms
and conditions set forth in the Indenture without the consent of Holders of the
Bonds issued thereunder.

 

The Indenture contains provisions for
defeasance at any time of (a) the entire indebtedness of the Issuer on
this Class A-     Bond and (b) certain restrictive
covenants and the related Events of Default, upon compliance by the Issuer with
certain conditions set forth therein, which provisions apply to this Class A-    
Bond.

 

The term “Issuer” as used in this Class A-    
Bond includes any successor to the Issuer under the Indenture.

 

The Issuer is permitted by the Indenture,
under certain circumstances, to merge or consolidate, subject to the rights of
the Trustee and the Holders of Bonds under the Indenture.

 

The Class A-    
Bonds are issuable only in registered form in denominations as provided in the
Indenture, subject to certain limitations therein set forth.

 

This Class A-    
Bond and the Indenture shall be construed in accordance with the laws of the
State of California, without reference to its conflict of law provisions, and
the obligations, rights and remedies of the parties hereunder and thereunder
shall be determined in accordance with such laws.

 

No reference herein to the Indenture and no
provision of this Class A-     Bond or of the Indenture
shall alter or impair the obligation of the Issuer, which is absolute and
unconditional, to pay the principal of and interest on this Class A-    
Bond at the times, place, and rate, and in the coin or currency herein
prescribed.

 

A-8

 

ASSIGNMENT

 

	
  Social Security or taxpayer I.D. or other
  identifying number of assignee

  	
   

  
	
   

  	
   

  
	
   

  
	
   

  
	
  FOR VALUE
  RECEIVED, the undersigned hereby sells, assigns and transfers unto

  	
   

  
	
   

  	
   

  
	
   

  
	
  (name and address of assignee)

  
	
   

  
	
  the within Class A-    
  Bond and all rights thereunder, and hereby irrevocably constitutes and
  appoints

  	
   

  
	
   

  
	
   

  	
  , attorney, to 

  
	
  transfer said Class A-    
  Bond on the books kept for registration thereof, with full power of
  substitution in the premises.

  
					

 

 

	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
  Signature Guaranteed:

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
					

 

*NOTE: The signature to this assignment must correspond with the name
of the registered owner as it appears on the face of the within Class A-    
Bond in every particular, without alteration, enlargement or any change
whatsoever.

 

A-9

 

SCHEDULE A

 

EXPECTED AMORTIZATION SCHEDULE

 

	
  Payment Date

  	
   

  	
  Class A-1

  Balance

  	
   

  	
  Class A-2

  Balance

  	
   

  	
  Class A-3

  Balance

  
	
  Closing Date

  	
   

  	
  $

  	
  351,000,000

  	
   

  	
  $

  	
  372,000,000

  	
   

  	
  $

  	
  121,461,000

  
	
  6/25/2006

  	
   

  	
  326,755,057

  	
   

  	
  372,000,000

  	
   

  	
  121,461,000

  
	
  9/25/2006

  	
   

  	
  290,911,106

  	
   

  	
  372,000,000

  	
   

  	
  121,461,000

  
	
  12/25/2006

  	
   

  	
  256,590,279

  	
   

  	
  372,000,000

  	
   

  	
  121,461,000

  
	
  3/25/2007

  	
   

  	
  227,428,748

  	
   

  	
  372,000,000

  	
   

  	
  121,461,000

  
	
  6/25/2007

  	
   

  	
  203,110,959

  	
   

  	
  372,000,000

  	
   

  	
  121,461,000

  
	
  9/25/2007

  	
   

  	
  174,088,344

  	
   

  	
  372,000,000

  	
   

  	
  121,461,000

  
	
  12/25/2007

  	
   

  	
  146,321,390

  	
   

  	
  372,000,000

  	
   

  	
  121,461,000

  
	
  3/25/2008

  	
   

  	
  119,463,950

  	
   

  	
  372,000,000

  	
   

  	
  121,461,000

  
	
  6/25/2008

  	
   

  	
  92,724,683

  	
   

  	
  372,000,000

  	
   

  	
  121,461,000

  
	
  9/25/2008

  	
   

  	
  61,075,974

  	
   

  	
  372,000,000

  	
   

  	
  121,461,000

  
	
  12/25/2008

  	
   

  	
  30,697,709

  	
   

  	
  372,000,000

  	
   

  	
  121,461,000

  
	
  3/25/2009

  	
   

  	
  1,834,921

  	
   

  	
  372,000,000

  	
   

  	
  121,461,000

  
	
  6/25/2009

  	
   

  	
  —

  	
   

  	
  345,832,174

  	
   

  	
  121,461,000

  
	
  9/25/2009

  	
   

  	
  —

  	
   

  	
  312,958,416

  	
   

  	
  121,461,000

  
	
  12/25/2009

  	
   

  	
  —

  	
   

  	
  281,309,497

  	
   

  	
  121,461,000

  
	
  3/25/2010

  	
   

  	
  —

  	
   

  	
  251,008,551

  	
   

  	
  121,461,000

  
	
  6/25/2010

  	
   

  	
  —

  	
   

  	
  221,427,192

  	
   

  	
  121,461,000

  
	
  9/25/2010

  	
   

  	
  —

  	
   

  	
  186,973,000

  	
   

  	
  121,461,000

  
	
  12/25/2010

  	
   

  	
  —

  	
   

  	
  153,716,268

  	
   

  	
  121,461,000

  
	
  3/25/2011

  	
   

  	
  —

  	
   

  	
  121,780,273

  	
   

  	
  121,461,000

  
	
  6/25/2011

  	
   

  	
  —

  	
   

  	
  90,575,138

  	
   

  	
  121,461,000

  
	
  9/25/2011

  	
   

  	
  —

  	
   

  	
  54,497,241

  	
   

  	
  121,461,000

  
	
  12/25/2011

  	
   

  	
  —

  	
   

  	
  19,582,161

  	
   

  	
  121,461,000

  
	
  3/25/2012

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  107,402,519

  
	
  6/25/2012

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  74,476,859

  
	
  9/25/2012

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  36,671,966

  
	
  12/25/2012

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  
										

 

 

SCHEDULE B

 

REQUIRED OVERCOLLATERALIZATION
LEVEL SCHEDULE

 

	
  Payment Date

  	
   

  	
  Required

  Overcollateralization Level

  
	
   

  	
   

  	
   

  	
   

  
	
  06/25/06

  	
   

  	
  $

  	
  156,382

  
	
  09/25/06

  	
   

  	
  312,763

  
	
  12/25/06

  	
   

  	
  469,145

  
	
  03/25/07

  	
   

  	
  625,527

  
	
  06/25/07

  	
   

  	
  781,908

  
	
  09/25/07

  	
   

  	
  938,290

  
	
  12/25/07

  	
   

  	
  1,094,672

  
	
  03/25/08

  	
   

  	
  1,251,053

  
	
  06/25/08

  	
   

  	
  1,407,435

  
	
  09/25/08

  	
   

  	
  1,563,817

  
	
  12/25/08

  	
   

  	
  1,720,198

  
	
  03/25/09

  	
   

  	
  1,876,580

  
	
  06/25/09

  	
   

  	
  2,032,962

  
	
  09/25/09

  	
   

  	
  2,189,343

  
	
  12/25/09

  	
   

  	
  2,345,725

  
	
  03/25/10

  	
   

  	
  2,502,107

  
	
  06/25/10

  	
   

  	
  2,658,488

  
	
  09/25/10

  	
   

  	
  2,814,870

  
	
  12/25/10

  	
   

  	
  2,971,252

  
	
  03/25/11

  	
   

  	
  3,127,633

  
	
  06/25/11

  	
   

  	
  3,284,015

  
	
  09/25/11

  	
   

  	
  3,440,397

  
	
  12/25/11

  	
   

  	
  3,596,778

  
	
  03/25/12

  	
   

  	
  3,753,160

  
	
  06/25/12

  	
   

  	
  3,909,542

  
	
  09/25/12

  	
   

  	
  4,065,923

  
	
  12/25/12

  	
   

  	
  4,222,305

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00093-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00093-of-00352.parquet"}]]