Document:

Exhibit
10.1

 

EXECUTION
COPY

 

THIRD AMENDED AND
RESTATED CREDIT AND

REIMBURSEMENT AGREEMENT

 

dated as of

 

March 17, 2004

 

among

 

THE AES CORPORATION,

as Borrower,

 

AES OKLAHOMA HOLDINGS,
L.L.C.,

AES HAWAII MANAGEMENT COMPANY, INC.,

AES WARRIOR RUN FUNDING, L.L.C.,

AND AES NEW YORK FUNDING, L.L.C.,

as Subsidiary Guarantors,

 

CITICORP USA, INC.,

as Administrative Agent,

 

CITIBANK, N.A.,

as Collateral Agent,

 

CITIGROUP GLOBAL MARKETS
INC., 

as Lead Arranger and Book Runner,

 

BANC OF AMERICA
SECURITIES LLC,

as Lead Arranger and Book Runner and as Co-Syndication Agent

(Initial Term Loan Facility),

 

DEUTSCHE BANK SECURITIES
INC.,

as Lead Arranger and Book Runner (Initial Term Loan Facility),

 

UNION BANK OF CALIFORNIA,
N.A.,

as Co-Syndication Agent (Initial Term Loan Facility) and as Lead Arranger and
Book Runner and as Syndication Agent

(Revolving Credit Facility),

 

LEHMAN COMMERCIAL PAPER
INC.,

as Co-Documentation Agent
(Initial Term Loan Facility),

 

UBS SECURITIES LLC,

as Co-Documentation Agent
(Initial Term Loan Facility),

 

SOCIÉTÉ GÉNÉRALE,

as Co-Documentation Agent
(Revolving Credit Facility),

 

CREDIT LYONNAIS NEW YORK
BRANCH,

as Co-Documentation Agent
(Revolving Credit Facility), and

 

THE BANKS LISTED
HEREIN

 

 

	
  TABLE OF CONTENTS

  	
   

  
	
   

  	
   

  
	
  ARTICLE I

  	
   

  
	
   

  	
   

  
	
  DEFINITIONS

  	
   

  
	
   

  	
   

  
	
  Section 1.01 Definitions

  	
   

  
	
  Section 1.02 Accounting Terms and Determinations

  	
   

  
	
  Section 1.03 Types of Borrowing

  	
   

  
	
  Section 1.04 Currency Equivalents Generally

  	
   

  
	
   

  	
   

  
	
  ARTICLE II

  	
   

  
	
   

  	
   

  
	
  THE
  CREDITS

  	
   

  
	
   

  	
   

  
	
  Section 2.01 Commitment to Lend

  	
   

  
	
  Section 2.02 Notice of Borrowing

  	
   

  
	
  Section 2.03 Revolving Letters of Credit

  	
   

  
	
  Section 2.04 Evidence of Debt

  	
   

  
	
  Section 2.05 Maturity of Loans

  	
   

  
	
  Section 2.06 Interest Rates

  	
   

  
	
  Section 2.07 Method of Electing Interest
  Rates

  	
   

  
	
  Section 2.08 Commitment Fee

  	
   

  
	
  Section 2.09 Termination or Reduction of
  Revolving Credit Loan Commitments

  	
   

  
	
  Section 2.10 Prepayment of the Loans

  	
   

  
	
  Section 2.11 General Provisions as to
  Payments

  	
   

  
	
  Section 2.12 Funding Losses

  	
   

  
	
  Section 2.13 Computation of Interest and
  Fees

  	
   

  
	
  Section 2.14 Revolving L/C Cash Collateral
  Account

  	
   

  
	
  Section 2.15 Computations of Outstandings;
  Determination of Available Amount of Alternative Currency Letters of Credit

  	
   

  
	
  Section 2.16 Alternative Currency Letter of
  Credit Issuances

  	
   

  
	
  Section 2.17 Increase in Term Loan
  Commitments

  	
   

  
	
   

  	
   

  
	
  ARTICLE III

  	
   

  
	
   

  	
   

  
	
  CONDITIONS

  	
   

  
	
   

  	
   

  
	
  Section 3.01 Closing

  	
   

  
	
  Section 3.02 Extension of Credit

  	
   

  
	
   

  	
   

  
	
  ARTICLE IV

  	
   

  
	
   

  	
   

  
	
  REPRESENTATIONS AND WARRANTIES

  	
   

  
	
   

  	
   

  
	
  Section 4.01 Corporate Existence and Power

  	
   

  

 

i

 

	
  Section 4.02 Corporate and Governmental
  Authorization and Filings; No Contravention

  	
   

  
	
  Section 4.03 Compliance with Laws

  	
   

  
	
  Section 4.04 Binding Effect

  	
   

  
	
  Section 4.05 Financial Information

  	
   

  
	
  Section 4.06 Litigation

  	
   

  
	
  Section 4.07 Compliance with ERISA

  	
   

  
	
  Section 4.08 Environmental Matters

  	
   

  
	
  Section 4.09 Taxes

  	
   

  
	
  Section 4.10 Material AES Entities

  	
   

  
	
  Section 4.11 Not an Investment Company

  	
   

  
	
  Section 4.12 Public Utility Holding Company
  Act

  	
   

  
	
  Section 4.13 Full Disclosure

  	
   

  
	
  Section 4.14 Collateral Documents and
  Collateral

  	
   

  
	
  Section 4.15 Existing Letters of Credit

  	
   

  
	
  Section 4.16 Solvency

  	
   

  
	
  Section 4.17 Pledged Subsidiaries

  	
   

  
	
  Section 4.18 Qualified Holding Companies Debt

  	
   

  
	
   

  	
   

  
	
  ARTICLE V

  	
   

  
	
   

  	
   

  
	
  COVENANTS

  	
   

  
	
   

  	
   

  
	
  Section 5.01 Information

  	
   

  
	
  Section 5.02 Payment of Obligations

  	
   

  
	
  Section 5.03 Maintenance of Property;
  Insurance

  	
   

  
	
  Section 5.04 Conduct of Business and
  Maintenance of Existence

  	
   

  
	
  Section 5.05 Compliance with Laws

  	
   

  
	
  Section 5.06 Inspection of Property, Books
  and Records

  	
   

  
	
  Section 5.07 Limitation on Debt

  	
   

  
	
  Section 5.08 Use of Proceeds

  	
   

  
	
  Section 5.09 Restricted Payments

  	
   

  
	
  Section 5.10 Negative Pledge

  	
   

  
	
  Section 5.11 Consolidations and Mergers

  	
   

  
	
  Section 5.12 Collateral Coverage Ratio

  	
   

  
	
  Section 5.13 Cash Flow Coverage

  	
   

  
	
  Section 5.14 Recourse Debt to Cash Flow
  Ratio

  	
   

  
	
  Section 5.15 Transaction with Affiliates

  	
   

  
	
  Section 5.16 Investments in Other Persons

  	
   

  
	
  Section 5.17 Upstreaming of Net Cash
  Proceeds by Subsidiaries

  	
   

  
	
  Section 5.18 Sales, Etc., of Assets

  	
   

  
	
  Section 5.19 Off Balance Sheet Obligations;
  Derivative Obligations

  	
   

  
	
  Section 5.20 Covenant to Give Security

  	
   

  
	
  Section 5.21 Further Assurances

  	
   

  

 

ii

 

	
  ARTICLE VI

  	
   

  
	
   

  	
   

  
	
  DEFAULTS

  	
   

  
	
   

  	
   

  
	
  Section 6.01 Events of Default

  	
   

  
	
  Section 6.02 Notice of Default

  	
   

  
	
  Section 6.03 Cash Collateral

  	
   

  
	
   

  	
   

  
	
  ARTICLE VII

  	
   

  
	
   

  	
   

  
	
  THE
  AGENT

  	
   

  
	
   

  	
   

  
	
  Section 7.01 Appointment and Authorization

  	
   

  
	
  Section 7.02 Agent and Affiliates

  	
   

  
	
  Section 7.03 Consultation with Experts

  	
   

  
	
  Section 7.04 Liability of Agent and
  Collateral Agent

  	
   

  
	
  Section 7.05 Indemnification

  	
   

  
	
  Section 7.06 Credit Decision

  	
   

  
	
  Section 7.07 Successor Agent or Collateral
  Agent

  	
   

  
	
  Section 7.08 Administrative Agent May File
  Proofs of Claim

  	
   

  
	
  Section 7.09 Agents’ Fee

  	
   

  
	
  Section 7.10 Amendment to the Collateral
  Trust Agreement

  	
   

  
	
  Section 7.11 Delivery of Information

  	
   

  
	
   

  	
   

  
	
  ARTICLE VIII

  	
   

  
	
   

  	
   

  
	
  CHANGE
  IN CIRCUMSTANCES

  	
   

  
	
   

  	
   

  
	
  Section 8.01 Basis for Determining Interest
  Rate Inadequate or Unfair

  	
   

  
	
  Section 8.02 Illegality

  	
   

  
	
  Section 8.03 Increased Cost and Reduced
  Return

  	
   

  
	
  Section 8.04 Taxes

  	
   

  
	
  Section 8.05 Base Rate Loans Substituted
  for Affected Euro-Dollar Loans

  	
   

  
	
   

  	
   

  
	
  ARTICLE IX

  	
   

  
	
   

  	
   

  
	
  SUBSIDIARY GUARANTY

  	
   

  
	
   

  	
   

  
	
  Section 9.01 The Subsidiary Guaranty

  	
   

  
	
  Section 9.02 Guaranty Absolute

  	
   

  
	
  Section 9.03 Discharge Only Upon Payment in
  Full, Reinstatement in Certain Circumstances

  	
   

  
	
  Section 9.04 Revolving L/C Cash Collateral Account

  	
   

  
	
  Section 9.05 Waiver by the Subsidiary
  Guarantors

  	
   

  
	
  Section 9.06 Subrogation

  	
   

  
	
  Section 9.07 Stay of Acceleration

  	
   

  
	
  Section
  9.08 Limitation of Liability

  	
   

  
	
  Section 9.09 Release of Subsidiary Guarantors

  	
   

  

 

iii

 

	
  Section 9.10 Representations and Warranties

  	
   

  
	
  Section 9.11 Covenants

  	
   

  
	
   

  	
   

  
	
  ARTICLE X

  	
   

  
	
   

  	
   

  
	
  MISCELLANEOUS

  	
   

  
	
   

  	
   

  
	
  Section 10.01 Notices

  	
   

  
	
  Section 10.02 No Waivers

  	
   

  
	
  Section 10.03 Expenses; Indemnification

  	
   

  
	
  Section 10.04 Sharing of Set-offs

  	
   

  
	
  Section 10.05 Amendments and Waivers

  	
   

  
	
  Section 10.06 Successors and Assigns

  	
   

  
	
  Section 10.07 No Margin Stock

  	
   

  
	
  Section 10.08 Governing Law; Submission to
  Jurisdiction

  	
   

  
	
  Section 10.09 Release of Collateral

  	
   

  
	
  Section 10.10 Counterparts; Integration;
  Effectiveness

  	
   

  
	
  Section 10.11 Confidentiality

  	
   

  
	
  Section 10.12 WAIVER OF JURY TRIAL

  	
   

  
	
  Section 10.13 Severability; Modification to
  Conform to Law

  	
   

  
	
  Section 10.14 Judgment Currency

  	
   

  
	
  Section 10.15 Revolving Fronting Banks

  	
   

  

 

iv

 

	
  Appendix
  I

  	
  –

  	
  Revolving
  Credit Loan Facility

  
	
   

  	
   

  	
   

  
	
  Appendix II

  	
  –

  	
  Initial
  Term Loan Facility

  
	
   

  	
   

  	
   

  
	
  Appendix III

  	
  –

  	
  Existing
  Letters of Credit

  
	
   

  	
   

  	
   

  
	
  Schedule
  I

  	
  –

  	
  Pledged
  Subsidiaries

  
	
   

  	
   

  	
   

  
	
  Schedule II

  	
  –

  	
  Assigned
  Agreements

  
	
   

  	
   

  	
   

  
	
  Schedule III

  	
  –

  	
  Non-Pledged
  Subsidiaries

  
	
   

  	
   

  	
   

  
	
  Schedule IV

  	
  –

  	
  Excluded
  AES Entities

  
	
   

  	
   

  	
   

  
	
  Schedule
  5.15

  	
  –

  	
  Existing
  Agreements with Affiliates

  
	
   

  	
   

  	
   

  
	
  Schedule V

  	
  –

  	
  Qualified Holding
  Companies

  
	
   

  	
   

  	
   

  
	
  Schedule VI

  	
  –

  	
  Existing Debt

  
	
   

  	
   

  	
   

  
	
  Schedule VII

  	
  –

  	
  Revolving
  Fronting Banks

  
	
   

  	
   

  	
   

  
	
  Exhibit A-1

  	
  –

  	
  Form of Revolving Credit Loan Note

  
	
   

  	
   

  	
   

  
	
  Exhibit A-2

  	
  –

  	
  Form of Term Loan Note

  
	
   

  	
   

  	
   

  
	
  Exhibit B-1

  	
  –

  	
  Form of Opinion of the
  General Counsel of the Borrower

  
	
   

  	
   

  	
   

  
	
  Exhibit B-2

  	
  –

  	
  Form of Opinion of
  Davis Polk & Wardwell, Special Counsel for the Borrower

  
	
   

  	
   

  	
   

  
	
  Exhibit B-3

  	
  –

  	
  Form of Opinion of Special Counsel for
  certain Subsidiaries of the Borrower

  
	
   

  	
   

  	
   

  
	
  Exhibit B-4

  	
  –

  	
  Form of Opinion of
  Morris, Nichols, Arsht & Tunnell, Delaware counsel for the Borrower

  
	
   

  	
   

  	
   

  
	
  Exhibit B-5

  	
  –

  	
  Form of Opinion of
  Maples and Calder, Cayman Islands counsel for the Borrower

  
	
   

  	
   

  	
   

  
	
  Exhibit B-6

  	
  –

  	
  Form of Opinion of
  Conyers Dill & Pearman, British Virgin Islands counsel for the Borrower

  
	
   

  	
   

  	
   

  
	
  Exhibit B-7

  	
  –

  	
  Form of Opinion of Shearman &
  Sterling, Special Counsel for the Agent

  
	
   

  	
   

  	
   

  
	
  Exhibit C-1

  	
  –

  	
  Form of Revolving Credit Loan Facility
  Assignment and Assumption Agreement

  

 

v

 

	
  Exhibit C-2

  	
  –

  	
  Form
  of Term Loan Facility Assignment and Assumption Agreement

  
	
   

  	
   

  	
   

  
	
  Exhibit C-3

  	
  –

  	
  Form of Third Party Fronting Bank
  Assignment and Assumption Agreement

  
	
   

  	
   

  	
   

  
	
  Exhibit D

  	
  –

  	
  Form of Revolving Fronting Bank Agreement

  

 

vi

 

THIRD AMENDED AND
RESTATED CREDIT AND

REIMBURSEMENT AGREEMENT

 

THIRD AMENDED AND RESTATED CREDIT AND REIMBURSEMENT
AGREEMENT dated as of March 17, 2004 (this “Agreement”)
among THE AES CORPORATION, a Delaware corporation (the “Borrower”), the SUBSIDIARY GUARANTORS
listed herein, the BANKS listed on the signature pages hereof, CITIGROUP GLOBAL
MARKETS INC., as Lead Arranger and Book Runner, BANC OF AMERICA SECURITIES LLC,
as Lead Arranger and Book Runner and as Co-Syndication Agent (for the Initial
Term Loan Facility (as hereinafter defined)), DEUTSCHE BANK SECURITIES INC, as
Lead Arranger and Book Runner (for the Initial Term Loan Facility), UNION BANK
OF CALIFORNIA, N.A., as Co-Syndication Agent (for the Initial Term Loan
Facility) and as Lead Arranger and Book Runner and as Syndication Agent (for
the Revolving Credit Facility (as hereinafter defined)),  LEHMAN COMMERCIAL PAPER INC.,  as Co-Documentation Agent (Initial Term
Loan Facility), UBS SECURITIES LLC, as Co-Documentation Agent (Initial Term
Loan Facility), SOCIÉTÉ GÉNÉRALE, as Co-Documentation Agent (Revolving Credit
Facility), CREDIT LYONNAIS NEW YORK BRANCH, as Co-Documentation Agent
(Revolving Credit Facility), CITICORP USA, INC., as Administrative Agent for
the Bank Parties (the “Agent”) and
CITIBANK, N.A., as Collateral Agent for the Bank Parties (the “Collateral Agent”).

 

PRELIMINARY STATEMENTS:

 

1.                                       The
Borrower is party to a Second Amended and Restated Credit and Reimbursement
Agreement dated as of July 29, 2003 (as amended, amended and restated,
supplemented or otherwise modified up to the date hereof, the “Existing Bank Credit Agreement”) among the
subsidiary guarantors listed therein, the banks listed on the signatures pages
thereof, Citigroup Global Markets, Inc., as Lead Arranger and Book Runner, Banc
of America Securities LLC, as Lead Arranger and Book Runner and as
Co-Syndication Agent (term loan facility), Deutsche Bank Securities Inc., as
Lead Arranger and Book Runner (term loan facility), Union Bank of California,
N.A., as Co-Syndication Agent (term loan facility) and as Lead Arranger and
Book Runner and as Syndication Agent (revolving credit facility),  Lehman Commercial Paper Inc.,  as Co-Documentation Agent (term loan
facility), UBS Securities LLC, as Co-Documentation Agent (term loan facility),
Société Générale, as Co-Documentation Agent (revolving credit facility), Credit
Lyonnaise New York Branch, as Co-Documentation Agent (revolving credit
facility), Citicorp USA, Inc., as Administrative Agent for the Bank Parties and
Citibank, N.A., as Collateral Agent for the bank parties.

 

2.                                       The
Borrower wishes to amend and restate the Existing Bank Credit Agreement to,
among other things, increase the Revolving Credit Loan Commitments (as
hereinafter defined) by up to $200,000,000, provide for a future increase in
the Term Loan Commitments (as hereinafter defined) and restructure certain
other provisions of the Existing Bank Credit Agreement.

 

NOW, THEREFORE, in consideration of the premises and
of the mutual covenants and agreements contained herein, the parties hereto
hereby agree to amend and restate

 

 

the Existing Bank
Credit Agreement, and the Existing Bank Credit Agreement is hereby amended and
restated, in its entirety as follows:

 

ARTICLE
I

 

DEFINITIONS

 

Section 1.01  Definitions.

 

The following terms, as used herein, have the
following meanings:

 

“Actionable Default”
means an Event of Default described in clauses (a), (g) and (h) of Section
6.01.

 

“Acquired Debt”
means Debt of a Person existing at the time the Person merges with or into any
Subsidiary or becomes a Subsidiary and not incurred in connection with, or in
contemplation of, such merger or such Person becoming a Subsidiary.

 

“Additional
Collateral Trust Agreement Collateral” means the “Additional
Collateral” referred to in the Collateral Trust Agreement.

 

“Additional Term
Loan Bank” means any Eligible Assignee who agrees, in accordance
with the provisions of Section 2.17, to commit to one of the Term Loan
Facilities existing at the time of the request for a Commitment Increase.

 

“Adjusted Free Cash Flow” means, as of the end of any fiscal year, an
amount equal to (i) the Adjusted Parent Operating Cash Flow for such fiscal
year plus (ii) the aggregate
amount of Net Cash Proceeds from Covered Asset Sales received by the Borrower
and permitted to be retained by the Borrower under the terms of this Agreement during
such fiscal year less (iii) the
aggregate amount of any Investments (other than Temporary Cash Investments)
made in cash by the Borrower during such fiscal year in accordance with the
terms of this Agreement, less
(iv) the aggregate principal amount of Debt repaid or prepaid with cash by the
Borrower during such fiscal year in accordance with the terms of this
Agreement, excluding (x) Debt in respect of Revolving Credit Loans and
Revolving Letters of Credit (unless the Revolving Credit Commitments are
permanently reduced in a corresponding amount in connection with such repayment
or prepayment), (y) Debt required to be repaid or prepaid with the Net Cash
Proceeds of Asset Sales in accordance with the requirements of Section 2.10(b)
and (z) repayments or prepayments of Debt financed by incurring other Debt less (v) the aggregate amount for such
fiscal year of Corporate Charges.

 

“Adjusted London Interbank Offered Rate” means, for any
Interest Period and subject to Section 2.02(a)(iv), a rate per annum equal to
the quotient obtained (rounded upward, if necessary, to the next higher 1/100th
of 1%) by dividing (i) the applicable London Interbank Offered Rate by
(ii) 1.00 minus the
Euro-Dollar Reserve Percentage.

 

“Adjusted Parent
Operating Cash Flow”  means,
for any period, (i) Parent Operating Cash Flow for such period less (ii) the sum of the following
expenses (determined

 

2

 

without
duplication), in each case to the extent paid by the Borrower during such
period and regardless of whether any such amount was accrued during such
period:

 

(A)                              income
tax expenses of the Borrower and its Subsidiaries; and

 

(B)                                corporate
overhead expenses.

 

“Administrative Questionnaire”  means, with respect to each Bank Party, an administrative
questionnaire in the form prepared by the Agent and submitted to the Agent
(with a copy to the Borrower) duly completed by such Bank.

 

“Adverse Alternative
Currency Letters of Credit” has the meaning set forth in Section
2.16.

 

“AES” means The AES Corporation, a
Delaware corporation, and its successors.

 

“AES Business” shall have the meaning set forth in
Section 5.07(b)(ii).

 

“AES BVI II”
means AES International Holdings II, Ltd., a company organized under the laws
of the British Virgin Islands.

 

“AES Electric”  means
Applied Energy Services Electric Limited, an English corporation, and its
successors.

 

“AES Hawaii Management” means AES Hawaii Management
Company, Inc., a Delaware corporation and a Subsidiary of the Borrower, and its
successors.

 

“AES Management Group” means (i) individuals who are
members of the board of directors or officers of the Borrower or the president
of any Material AES Entity; (ii) their respective spouses, children,
grandchildren, siblings and parents; (iii) trusts established for the sole or
principal benefit of Persons described in clauses (i) and (ii) above; (iv)
heirs, executors, administrators and personal or legal representatives of
Persons described in clauses (i) and (ii) above; and (v) any corporation
or other Person that is controlled by, and a majority of the equity interests
in which are directly owned by, Persons described in clauses (i) and
(ii) above.

 

“AES New York”
means AES New York Funding, L.L.C., a Delaware limited liability company and a
wholly-owned Subsidiary of the Borrower, and its successors.

 

“AES Oklahoma”  means
AES Oklahoma Holdings, L.L.C., a Delaware limited liability company and a
Subsidiary of the Borrower, and its successors.

 

“AES Warrior Run”  means
AES Warrior Run Funding, L.L.C., a Delaware limited liability company and a
Wholly-Owned Consolidated Subsidiary of the Borrower, and its successors.

 

“Affiliate” means (i) any Person that directly, or
indirectly through one or more intermediaries, controls the Borrower (a “Controlling Person”), or (ii) any
Person (other than the Borrower or a Subsidiary) which is controlled by or is
under common control with a

 

3

 

Controlling Person
or (iii) as to any Person (other than the Borrower and its Subsidiaries), any
other Person that, directly or indirectly, controls, is controlled by or is
under common control with such Person or is a director or officer of such
Person.  As used herein, the term
“control” means possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of a Person, whether through
the ownership of voting securities, by contract or otherwise.

 

“Agent” means Citicorp USA, Inc., in its capacity as
administrative agent for the Bank Parties hereunder, and its successors in such
capacity.

 

“Agreement”  has
the meaning specified in the recital of the parties to this Agreement.

 

“Alternative Currency” means (i) any lawful
currency (other than Dollars) that is freely transferable and convertible into
Dollars or (ii) with respect to any Revolving Letter of Credit issued by a
Revolving Fronting Bank, any other lawful currency (other than Dollars) that
such Revolving Fronting Bank agrees may be used as the designated currency of
such Revolving Letter of Credit; provided
that such Revolving Fronting Bank is able to provide, and continues to provide,
to the Agent the information required pursuant to Section 2.15(b) with
respect to such Revolving Letter of Credit.

 

“Alternative Currency Letter of Credit” means any
Revolving Letter of Credit having a stated amount denominated in an Alternative
Currency.

 

“Amendment No. 2 to
the Collateral Trust Agreement” means Amendment No. 2 to the
Collateral Trust Agreement dated as of the date hereof, by and among each
grantor thereunder, the Representatives (as defined in the Collateral Trust
Agreement) and the Corporate Trustee.

 

“Applicable Lending Office”  means,
with respect to any Bank Party, (i) in the case of its Base Rate Loans,
its Domestic Lending Office and (ii) in the case of its Euro-Dollar Loans,
its Euro-Dollar Lending Office.

 

“Arranger Parties”
means Citigroup Global Markets Inc., as Lead Arranger and Book Runner, Banc of
America Securities LLC, as Lead Arranger and Book Runner and as Co-Syndication
Agent (Initial Term Loan Facility), Deutsche Bank Securities Inc., as Lead
Arranger and Book Runner (Initial Term Loan Facility) and Union Bank of
California, N.A., as Co-Syndication Agent (Initial Term Loan Facility) and as
Lead Arranger and Book Runner and as Syndication Agent (Revolving Credit
Facility).

 

“Asset Sale”
means any sale, lease, transfer or other disposition (including any such
transaction effected by way of merger or consolidation or by way of an Equity
Issuance by a Subsidiary) by the Borrower or any of its Subsidiaries, but
excluding any transactions permitted by the provisions of Section 5.18 (other
than subsection (iv) thereof); provided
that a disposition of such assets not excluded during any fiscal year shall not
constitute an Asset Sale unless and until (and only to the extent that) the
aggregate Net Cash Proceeds from such disposition, when combined with all other
such dispositions previously made during such fiscal year, exceeds $10,000,000.

 

4

 

“Assigned Agreements”
has the meaning set forth in Section 4.14(d).

 

“Assignee” has the meaning set forth in
Section 10.06(c).

 

“Assignment and Assumption” means an assignment and assumption
agreement substantially in the form of Exhibit C-1, C-2 or C-3 hereto, as
applicable.

 

“Assumption
Agreement” has the meaning set forth in Section 2.17(d).

 

“Automatic Acceleration Event”means the occurrence, with respect to the Borrower, of any of
the Events of Default listed in clauses (g) and (h) of Section 6.01.

 

“Available Amount” means, for any Revolving Letter of
Credit on any date of determination, the maximum aggregate amount (which, in
the case of an Alternative Currency Letter of Credit, shall be the Dollar
Equivalent on such date of determination of such amount) available to be drawn
under such Revolving Letter of Credit at any time on or after such date, the
determination of such maximum amount to assume the compliance with and
satisfaction of all conditions for drawing enumerated therein.

 

“Bank” means each lender listed on the signature pages
hereof, each Assignee which becomes a Bank pursuant to Section 10.06(c),
each Incremental Term Loan Bank and their respective successors.  Without limiting the generality of the
foregoing sentence, the term “Banks” shall include the Term Loan Banks.

 

“Bank Party” means any Bank.

 

“Banks’ Ratable
Share” means (i) in respect of the Net Cash Proceeds received after
the Effective Date from Covered Asset Sales and the incurrence of any Debt
permitted by Section 5.07(a)(ix) or 5.07(b)(iv) relating to a bridge financing
of any Covered Asset Sale, a percentage of the Creditors’ Portion equal to a
fraction (x) the numerator of which is the Total Bank Exposure at such
time and (y) the denominator of which is the sum of the Total Bank
Exposure at such time plus the
aggregate principal amount of the Senior Secured Exchange Notes issued on or
prior to the date hereof and outstanding at such time plus (without duplication) the aggregate
principal amount of First Priority Secured Debt, the proceeds of which were
used to permanently reduce Total Bank Exposure or the Senior Secured Exchange
Notes and (ii) in connection with the incurrence of any Debt pursuant to
Section 5.07(b)(ii) (but only to the extent applicable pursuant to the proviso
thereof) or 5.07(b)(vi), a percentage equal to a fraction (x) the numerator of
which is the Total Bank Exposure at such time and (y) the denominator of
which is the sum of the Total Bank Exposure at such time plus the aggregate principal amount of
First Priority Secured Debt, the proceeds of which were used to permanently
reduce Total Bank Exposure.

 

“Bankruptcy Law” means any law relating to
bankruptcy, insolvency, winding up, reorganization, suspension of payments,
arrangement, liquidation, relief of debtors, receivership, compromise,
amalgamation, assignment for the benefit of creditors or composition or
readjustment of debts, or any equivalent or similar proceeding or action.

 

5

 

“Base Rate” means, for any day, a rate per annum equal
to the higher of (i)  the rate of interest publicly announced by Citicorp
USA, Inc. from time to time as its Base Rate for such day and (ii) the sum
of 1/2 of 1% plus the Federal Funds Rate for such day.

 

“Base Rate Borrowing” has the meaning set forth in the definition
of “Borrowing” herein.

 

“Base Rate Loan” means a Loan which bears interest at
the Base Rate pursuant to the applicable Notice of Borrowing or Notice of
Interest Rate Election or the provisions of Section 2.07(a) or
Article 8 plus the Base Rate
Margin.

 

“Base Rate Margin”
means (i) in respect of the Revolving Credit Loans and the Initial Term Loans,
a rate per annum equal to 3.00% (subject to the provisions of Section 2.06(f)
hereof) and (ii) in respect of the Incremental Term Loan Facility, a rate per
annum to be agreed by the Borrower, the Agent and the Incremental Term Loan
Banks.

 

“Benefit Arrangement”  means,
at any time, an employee benefit plan within the meaning of Section 3(3)
of ERISA which is not a Plan or a Multiemployer Plan and which is maintained or
otherwise contributed to by any member of the ERISA Group.

 

“Borrower”  has
the meaning specified in the recital of the parties to this Agreement.

 

“Borrowing”  means
(i) a borrowing hereunder consisting of Revolving Credit Loans made to the
Borrower at the same time by the Revolving Credit Loan Banks pursuant to
Section 2.01(a) or (ii) a borrowing hereunder consisting of Incremental
Term Loans made to the Borrower at the same time by the Incremental Term Loan
Banks pursuant to Section 2.17.  A
Borrowing is a “Base Rate Borrowing”
if such Loans are Base Rate Loans or a “Euro-Dollar
Borrowing” if such Loans are Euro-Dollar Loans.

 

“Bridge Debt”
has the meaning specified in the definition of “Creditor’s Portion”.

 

“BVI Cayman Pledge
Agreement” means the Pledge Agreement dated as of December 12, 2002,
made by AES BVI II in favor of the Collateral Trustees.

 

“BVI Collateral”
means the “Collateral” referred to in the BVI Cayman Pledge Agreement.

 

“Capital Commitment” means any contractual
commitment or obligation under an equity contribution or other agreement the
primary purpose of which is for the Borrower to provide to an AES Business a
portion of the capital required to finance construction projects, the
acquisition of additional assets or capital improvements being undertaken by
such AES Business.

 

“Capital Stock” means, with respect to any Person, any
and all shares, interests, participants or other equivalents (however
designated, whether voting or non-voting) of, or interests in (however
designated), the equity of such Person, including, without limitation, all
common stock and preferred stock and partnership and joint venture interests of
such Person.

 

6

 

“Cash Flow Coverage Ratio” means, for any period, the
ratio of (i) Adjusted Parent Operating Cash Flow for such period to
(ii) Corporate Charges for such period.

 

“CFC”
means any entity that is a controlled foreign corporation under Section 957 of
the Internal Revenue Code (or any successor provision thereto).

 

“Closing Date”  means
the date on or after the Effective Date on which the Agent shall have received
the fees and documents specified in or pursuant to Section 3.01.

 

“Collateral”
means the Creditor Group Collateral.

 

“Collateral Account”
has the meaning as set forth in the Collateral Trust Agreement.

 

“Collateral Agent”
means Citibank N.A., in its capacity as collateral agent for the Lender Parties
under the Financing Documents and its successors in such capacity.

 

“Collateral Coverage
Ratio” means, at any time, the ratio of (i) the Collateral Value at
such time to (ii) the sum of (in each case to the extent not collateralized by
cash or Temporary Cash Investments) (A) the aggregate principal amount of
Loans then outstanding, (B) the aggregate amount of the Unused Revolving
Credit Loan Commitments at such time, (C) the aggregate Available Amount
at such time, (D) the aggregate principal amount of Senior Secured
Exchange Notes then outstanding, (E) the “mark to market” value of all
outstanding Secured Hedge Agreements at such time in an amount up to
$50,000,000 (provided that at such time as the Sul Guarantee shall have been
paid in full or terminated, such amount shall be increased to $100,000,000),
(F) the amounts payable by the Borrower pursuant to any Secured Treasury
Management Service Agreement, (G) the aggregate amount payable by the Borrower
pursuant to the terms of the Sul Guarantee at such time in an amount up to
$50,000,000, and (H) the aggregate principal amount of First Priority Secured
Debt not described in the preceding clauses (A) through (G) permitted by
Section 5.10 (p) at such time.

 

“Collateral
Documents” means the Security Agreement, the Collateral Trust
Agreement, the BVI Cayman Pledge Agreement and any other agreement that creates
or purports to create a Lien in favor of the Collateral Trustees for the
benefit of the Secured Holders.

 

“Collateral Trust
Agreement” means the Collateral Trust Agreement dated as of December
12, 2002 made by the grantors thereunder in favor of the Collateral Trustees,
as amended by Amendment No. 1 dated as of July 29, 2003 and as further amended
from time to time.

 

“Collateral Trustees”  has the meaning as set forth in the
Collateral Trust Agreement.

 

“Collateral Value”
means, at any time, the aggregate book value at such time of the percentage of
Equity Interests pledged in favor of the Secured Holders (other than the Equity
Interests of the Excluded AES Entities); provided
that the book value of each Subsidiary whose Equity Interests are being pledged
shall be determined at such time (without giving effect to any accumulated
other comprehensive gain or loss) by the sum of (i) its contributed
capital less

 

7

 

(ii) its
intercompany receivables, plus
(iii) its pre-tax retained earnings, plus (iv)
its intercompany payables and less (v)
dividends paid to the Borrower by such Subsidiary; provided  further that
for purposes of determining IPALCO’s book value, IPALCO’s contributed capital
shall be calculated on a purchase accounting basis.

 

“Commitment Increase”
has the meaning set forth in Section 2.17(a).

 

“Conduit Lender”  means
any special purpose corporation organized and administered by any Bank for the
purpose of making Loans hereunder otherwise required to be made by such Bank
and designated by such Bank in a written instrument, subject to the consent of
the Agent and the Borrower (which, in each case, shall not be unreasonably
withheld or delayed); provided that
the designation by any Bank of a Conduit Lender shall not relieve the
designating Bank of any of its obligations to fund a Loan under the Agreement
if, for any reason, its Conduit Lender fails to fund any such Loan, and the
designating Bank (and not the Conduit Lender) shall have the sole right and
responsibility to deliver all consents and waivers required or requested under
this Agreement with respect to its Conduit Lender, and provided  further
that no Conduit Lender shall (i) be entitled to receive any greater amount
pursuant to Section 8.03, 8.04 or 10.03 than the designating Lender would have
been entitled to receive in respect of the extensions of credit made by such
Conduit Lender or (ii) be deemed to have any Revolving Credit Commitment
hereunder.

 

“Consolidated Subsidiary”  means,
at any date with respect to any Person, any Subsidiary of such Person or other
entity the accounts of which would be consolidated with those of such Person in
its consolidated financial statements if such statements were prepared as of
such date.

 

“Controlling Person” has the meaning set forth in the definition
of “Affiliate” herein.

 

“Corporate Charges”  means,
for any period, the sum of the following amounts (determined without
duplication), in each case to the extent paid by the Borrower during such
period and regardless of whether any such amount was accrued during such
period:

 

(i)                                     interest
expense of the Borrower for such period:

 

(A)                              including,
without limitation, interest expense attributable to (x) the accretion of original
issue discount on Debt issued at less than face value thereof and (y) any
interest added to the principal amount of Debt but;

 

(B)                                excluding
any interest expense to the extent that (x) the Borrower has the option or
obligation to pay or satisfy such interest expense by the issuance of Capital
Stock of the Borrower or other securities of the Borrower which would not
constitute Recourse Debt and (y) the Borrower has not paid or satisfied such
interest expense during such period with cash or by the issuance of Recourse
Debt; and

 

(ii)                                  rental
expense of the Borrower for such period;

 

8

 

(iii)                               dividends
paid on the Borrower’s Redeemable Stock during such period;

 

(iv)                              dividends
paid on the Existing Trust Preferred Securities; and

 

(v)                                 dividends
paid on the Borrower’s preferred stock during such period.

 

“Corporate Trustee”
means Wilmington Trust Company, a Delaware banking corporation, as Corporate
Trustee under the Collateral Trust Agreement and any successor in such
capacity.

 

“Covered Asset Sale” means any Asset Sale.

 

“Credit Agreement
Documents” has the meaning set forth in the Collateral Trust
Agreement.

 

“Credit Party”
has the meaning set forth in Section 8.03.

 

“Creditor Group Collateral” means the Security
Agreement Collateral, the Additional Collateral Trust Agreement Collateral and
the BVI Collateral.

 

“Creditors’ Portion” means, in respect of
any Net Cash Proceeds from (i) Covered Asset Sales or (ii) Debt permitted by
Section 5.07(a)(viii) or Section 5.07(b)(iv), in each case referred to in
clause (ii) relating to a bridge financing of any Covered Asset Sale (the “Bridge Debt”), the following:

 

(A)                              60%
of such Net Cash Proceeds from Covered Asset Sales and/or Bridge Debt, at any
time that the Recourse Debt to Cash Flow Ratio is greater to or equal to
5.0:1.0 or

 

(B)                                50%
of such Net Cash Proceeds from Covered Asset Sales and/or Bridge Debt, at any
time that the Recourse Debt to Cash Flow Ratio is less than 5.0:1.0.

 

“Debt”  of
any Person means at any date, without duplication, (i) all Obligations of
such Person for borrowed money; (ii) all Obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments;
(iii) all Obligations of such Person to pay the deferred purchase price of
property or services, except trade accounts payable arising in the ordinary
course of business; (iv) all Obligations of such Person as lessee which
are capitalized in accordance with generally accepted accounting principles;
(v) all Obligations (whether contingent or non-contingent) of such Person
to reimburse any bank or other Person in respect of amounts paid under a letter
of credit, surety or performance bond or similar instrument; (vi) all Debt
secured by a Lien on any asset of such Person, whether or not such Debt is
otherwise an obligation of such Person; (vii) all Debt of others Guaranteed by
such Person and (viii) all Redeemable Stock of such Person valued at the
greater of its voluntary or involuntary liquidation preference plus accrued and
unpaid dividends.  For purposes hereof,
contingent obligations of the type described in clause (v) of this
definition with respect to letters of credit not issued hereunder shall not be
treated as “Debt” hereunder to the extent that such obligations are cash
collateralized or to the extent that the issuer of any such letter of credit is
entitled to draw under a

 

9

 

Revolving Letter
of Credit issued hereunder which by its terms requires that Revolving L/C
Drawings under such letter of credit be applied only to reimburse such issuer
for amounts paid by such issuer under such letter of credit.  The obligations of the Borrower under any
Capital Commitment or under any agreement, in the form of indemnity or
contingent equity contribution agreement or otherwise, pursuant to which the
Borrower agrees to protect any Person, in whole or in part, from tax
liabilities, environmental liabilities, political risks, including currency
convertibility and transferability risk and changes in law, or construction
cost overruns shall not constitute Debt.

 

“Default”  means
any condition or event which constitutes an Event of Default or which with the
giving of notice or lapse of time or both would, unless cured or waived, become
an Event of Default.

 

“Derivatives Obligations” of any Person means all
obligations of such Person in respect of any rate swap transaction, basis swap,
forward rate transaction, commodity swap, commodity option, equity or equity
index swap, equity or equity index option, bond option, interest rate option,
foreign exchange transaction, cap transaction, floor transaction, collar
transaction, currency swap transaction, cross-currency rate swap transaction,
currency option or any other similar transaction (including any option with
respect to any of the foregoing transactions) or any combination of the
foregoing transactions.  For purposes of
determining the aggregate amount of Derivative Obligations on any date or the
Recourse Debt to Cash Flow Ratio on any date, the Derivative Obligations of the
applicable Person in respect of any Hedge Agreement shall be the maximum
aggregate amount (after giving effect to any netting agreements to the extent
such netting agreements are with the same Person to whom any such Derivative
Obligations are owed or with Affiliates of such Person) that the applicable
Person would be required to pay if such Hedge Agreement were terminated at such
time.

 

“Direct Exposure”
has the meaning set forth in Section 2.14(c).

 

“Disclosed Matters” means matters disclosed
in any SEC Filings made prior to March 15, 2004 or in written materials sent by
or on behalf of the Borrower to all of the Bank Parties prior to March 15,
2004.

 

“Dollar Equivalent” means, on any date of determination
with respect to any Alternative Currency Letter of Credit, (i) in
calculating the maximum aggregate amount available to be drawn under such
Alternative Currency Letter of Credit at any time on or after such date, the
amount thereof in Dollars most recently reported to the Agent pursuant to
Section 2.15 in calculating the amount of any Revolving L/C Drawing under
such Alternative Currency Letter of Credit, the aggregate amount of Dollars
paid by the relevant Revolving Fronting Bank to purchase the Alternative
Currency paid by such Revolving Fronting Bank in respect of such Revolving L/C
Drawing.

 

“Dollars”
has the meaning set forth in Section 2.16.

 

“Domestic Business Day” means any day except a Saturday,
Sunday or other day on which commercial banks in New York City are authorized
by law to close.

 

10

 

“Domestic Lending Office”  means,
as to each Bank Party, its office located at its address set forth in its
Administrative Questionnaire (or identified in its Administrative Questionnaire
as its Domestic Lending Office) or such other office as such Bank Party may
hereafter designate as its Domestic Lending Office by notice to the Borrower
and the Agent.

 

“Effective Date” means the date this Agreement becomes
effective in accordance with Section 10.10.

 

“Eligible Assignee” means any commercial
bank or financial institution (including, without limitation, any fund that
regularly invests in loans similar to the Term Loans) as approved (which
approval shall be required only so long as no Event of Default has occurred and
is continuing at the time of an assignment) by the Borrower (such approval not
to be unreasonably withheld or delayed); provided, however, that neither any Loan Party nor
any Subsidiary of a Loan Party shall qualify as an Eligible Assignee under this
definition.

 

“Environmental Laws”  means
any and all federal, state, local and foreign statutes, laws, judicial
decisions, regulations, ordinances, rules, judgments, orders, decrees, plans,
injunctions, permits, concessions, grants, franchises, licenses, agreements and
other governmental restrictions relating to the environment, the effect of the
environment on human health or to emissions, discharges or releases of
pollutants, contaminants, Hazardous Substances or wastes into the environment,
including, without limitation, ambient air, surface water, ground water or
land, or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants,
contaminants, Hazardous Substances or wastes or the clean-up or other
remediation thereof.

 

“Equity Credit Preferred Securities” means, at any date:

 

(i)                                     Debt
of the Borrower (A) that is owed to a Special Purpose Financing Subsidiary of
the Borrower; (B) that is issued in connection with the issuance by such
Special Purpose Financing Subsidiary of Trust Preferred Securities; (C) that is
subordinated in right of payment to other Debt of the Borrower of at least the
types and to at least the extent as was, on the date of issuance thereof, the
Junior Subordinated Debentures issued by AES in connection with the issuance by
AES Trust III of its $3.375 Term Convertible Securities, Series C, on
October 7, 1999 (or otherwise satisfactory to the Agent); (D) as to which, at such
date, AES has the right to defer the payment of all interest for the period of
at least 19 consecutive quarters beginning at such date and (E) except for
the Debt issued in connection with the Existing Trust Preferred Securities,
that does not mature, in whole or in part, and is not subject to any required
repayment or prepayment, any required sinking fund or similar payment or any
repayment or prepayment or sinking fund or similar payment at the option of the
holder thereof, prior to the fifth anniversary of the Termination Date; and

 

(ii)                                  Guarantees
by the Borrower of the obligations of the issuer of any Trust Preferred
Securities in respect of such Trust Preferred Securities; and

 

(iii)                               Mandatorily
convertible securities (such as those known as “DECS” (including tax deductible
DECS)) consisting of Debt of the Borrower that is subordinated in right of
payment to other Debt of the Borrower of at least the types and to at least the
extent as was, on

 

11

 

the date of issuance
thereof, the Junior Subordinated Debentures issued by the Borrower in
connection with the issuance by AES Trust III of its $3.375 Term
Convertible Securities, Series C, on October 7, 1999, (or otherwise
satisfactory to the Agent) and which is mandatorily convertible into, or
redeemable with the proceeds of, Capital Stock of the Borrower (other than
Redeemable Stock).

 

“Equity Interest”
means, with respect to any Person, shares of capital stock of (or other
ownership or profit interests in) such Person, warrants, options or other
rights for the purchase or other acquisition from such Person of shares of
capital stock of (or other ownership or profit interests in) such Person,
securities convertible into or exchangeable for shares of capital stock of (or
other ownership or profit interests in) such Person or warrants, rights or
options for the purchase or other acquisition from such Person of such shares
(or such other interests), and other ownership or profit interests in such
Person (including, without limitation, partnership, member or trust interests
therein), whether voting or nonvoting, and whether or not such shares,
warrants, options, rights or other interests are authorized or otherwise
existing on any date of determination.

 

“Equity Issuances” means, in respect of any Person, the
issuance or sale of Equity Interests of such Person other than any such
issuance to directors, officers or employees pursuant to employee benefit plans
in the ordinary course of business (including by way of exercise of stock
options).

 

“ERISA”  means
the Employee Retirement Income Security Act of 1974, as amended, or any
successor statute.

 

“ERISA Group”  means
the Borrower, its Subsidiaries and all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Borrower or any of its Subsidiaries,
are treated as a single employer under Section 414 of the Internal Revenue
Code.

 

“Euro-Dollar Borrowing” has the meaning set forth in the definition
of “Borrowing” herein.

 

“Euro-Dollar Business Day” means any Domestic Business
Day on which commercial banks are open for international business (including
dealings in dollar deposits) in London.

 

“Euro-Dollar Lending Office” means, as to each Bank
Party, its office, branch or affiliate located at its address set forth in its
Administrative Questionnaire (or identified in its Administrative Questionnaire
as its Euro-Dollar Lending Office) or such other office, branch or affiliate of
such Bank Party as it may hereafter designate as its Euro-Dollar Lending Office
by notice to the Borrower and the Agent.

 

“Euro-Dollar Loan” means a Loan which bears interest at
the Adjusted London Interbank Offered Rate pursuant to the applicable Notice of
Borrowing or Notice of Interest Rate Election plus
the Euro-Dollar Margin.

 

12

 

“Euro-Dollar Margin” means (i) in respect of the Revolving
Credit Loans and the Initial Term Loans, a rate per annum equal to 4.00%
(subject to the provisions of Section 2.06(f) hereof) and (ii) in respect of
the Incremental Term Loan Facility, a rate per annum to be agreed by the
Borrower, the Agent and the Incremental Term Loan Banks.

 

“Euro-Dollar Reserve Percentage” means for any day that
percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for determining the maximum reserve requirement for a member bank of
the Federal Reserve System in New York City with deposits exceeding five
billion dollars in respect of “Eurocurrency liabilities” (or in respect of any
other category of liabilities which includes deposits by reference to which the
interest rate on Euro-Dollar Loans is determined or any category of extensions
of credit or other assets which includes loans by a non-United States office of
any Bank to United States residents). 
The Adjusted London Interbank Offered Rate shall be adjusted automatically
on and as of the effective date of any change in the Euro-Dollar Reserve
Percentage.

 

“Event of Default” has the meaning set forth in
Section 6.01.

 

“Excess Revolving
L/C Collateral” has the meaning set forth in Section 2.14(d).

 

“Exchange Note
Holders” means the holders of the Senior Secured Exchange Notes.

 

“Excluded AES
Business” means any AES Business located in Brazil or Argentina; provided that the Borrower may by written
notice to the Agent make an election not to treat one or more AES Businesses in
Brazil or Argentina as an “Excluded AES Business”.  Once the Borrower elects not to treat an AES Business as an
“Excluded AES Business” it may not thereafter change or revoke such election
with respect to such AES Business without the consent of the Required Lenders.

 

“Excluded AES Entity”
means any Person set forth on Schedule IV, as such Schedule IV may be updated
pursuant to Section 5.01(l)(2) whose assets consist only of any of the Excluded
AES Businesses and direct or indirect Investments therein.

 

“Existing Bank Credit Agreement” has the meaning set forth in the first
preliminary statement hereto.

 

“Existing Letter of
Credit”  means a  “Letter
of Credit”  (as defined
in the Existing Bank Credit Agreement) issued under the Existing Revolving
Credit Facility that is outstanding on the Effective Date and listed on
Appendix III under the heading “Existing
Revolving Letters of Credit”.

 

“Existing Trust Preferred Securities”  means (i) the $3.375 Trust Preferred Securities,
Series C issued by AES Trust III on October 7, 1999 and (ii) the $3.00
Trust Convertible Preferred Securities issued by AES Trust VII on May 17, 2000.

 

“Extension of Credit”  means
(i) a Borrowing pursuant to Section 2.01 or Section 2.17 or
(ii) the issuance of a Revolving Letter of Credit pursuant to
Section 2.03.

 

13

 

“Facilities”
means the Revolving Credit Loan Facility, the Initial Term Loan Facility and
any Incremental Term Loan Facility made available to the Borrower pursuant to
Section 2.17.

 

“Federal Funds Rate”  means,
for any day, the rate per annum (rounded upward, if necessary, to the nearest
1/100th of 1%) equal to the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System arranged by
Federal funds brokers on such day, as published by the Federal Reserve Bank of
New York on the Domestic Business Day next succeeding such day; provided that (i) if such day is not
a Domestic Business Day, the Federal Funds Rate for such day shall be such rate
on such transactions on the next preceding Domestic Business Day as so
published on the next succeeding Domestic Business Day and (ii) if no such
rate is so published on such next succeeding Domestic Business Day, the Federal
Funds Rate for such day shall be the average rate quoted to Citicorp USA, Inc.
on such day on such transactions as determined by the Agent.

 

“Financing Documents”  means
this Agreement, the Collateral Documents and the Notes.

 

“Financing Parties”
means (i) the Bank Parties hereunder and (ii) Exchange Note Holders.

 

“First Priority
Secured Debt” means Debt of the Borrower secured by a first-priority
lien on the Creditor Group Collateral (subject to the limitations set forth in
Section 5.10(p)), provided that
Debt owed to an Affiliate of the Borrower shall not be First-Priority Secured
Debt.

 

“Foreign Subsidiary”
means a Pledged Subsidiary or a Subsidiary of a Pledged Subsidiary (other than
an Excluded AES Entity) organized under the laws of a jurisdiction other than
the United States or any State thereof.

 

“Form 10-K”
means the Borrower’s annual report on Form 10-K for the year ended December 31,
2003, as filed with the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934.

 

“Form 10-Q”
means the Borrower’s quarterly report on Form 10-Q for the quarter ended
September 30, 2003, as filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934.

 

“GAAP”
has the meaning set forth in Section 1.02.

 

“Group of Loans”  means,
at any time, a group of Loans consisting of (i) all Loans which are Base
Rate Loans at such time or (ii) all Euro-Dollar Loans having the same
Interest Period at such time; provided
that if a Loan of any particular Bank is converted to or made as a Base Rate
Loan pursuant to Article 8, such Loan shall be included in the same Group
or Groups of Loans from time to time as it would have been in if it had not
been so converted or made.

 

14

 

“Guarantee”  by
any Person means any obligation, contingent or otherwise, of such Person
directly or indirectly guaranteeing any Debt or other obligation of any other
Person and, without limiting the generality of the foregoing, any obligation,
direct or indirect, contingent or otherwise, of such Person (i) to purchase
or pay (or advance or supply funds for the purchase or payment of) such Debt or
other obligation (whether arising by virtue of partnership arrangements, by
agreement to keep-well, to purchase assets, goods, securities or services, to
take-or-pay or to maintain financial statement conditions or otherwise) or
(ii) entered into for the purpose of assuring in any other manner the
obligee of such Debt or other obligation of the payment thereof or to protect
such obligee against loss in respect thereof (in whole or in part); provided that the term Guarantee shall not
include endorsements for collection or deposit in the ordinary course of
business or, for the avoidance of doubt, obligations of the Borrower to provide
capital to an AES Business under a Capital Commitment.  The term “Guarantee” used as a verb has a
corresponding meaning.

 

“Guaranteed Obligations” has the meaning set
forth in Section 9.01.

 

“Hazardous
Substances” means any toxic, radioactive, caustic or otherwise
hazardous substance, including petroleum, its derivatives, by-products and
other hydrocarbons, or any substance having any constituent elements displaying
any of the foregoing characteristics.

 

“Hedge Agreement”
means any contract, instrument or agreement in respect of Derivative Obligations.

 

“Hedge Bank”
means any Bank Party or an Affiliate of a Bank Party in its capacity as a party
to a Secured Hedge Agreement.

 

“Increase Commitment
Date” has the meaning set forth in Section 2.17(b).

 

“Increase Date”
has the meaning set forth in Section 2.17(a).

 

“Incremental Term
Loan” means each term loan made by an Incremental Term Loan Bank
under the Incremental Term Loan Facility in accordance with the terms of
Section 2.17.

 

“Incremental Term
Loan Bank” means each Bank (including any Additional Term Loan Bank)
having an Incremental Term Loan.

 

“Incremental Term
Borrowings” means a borrowing consisting of simultaneous Incremental
Term Loans of the same type made by the Incremental Term Loan Banks.

 

“Incremental Term
Loan Commitment” means, with respect to each Incremental Term Loan
Bank, the amount set forth for such Bank in respect of the Incremental Term
Loan Facility in the Register maintained by the Agent pursuant to Section
10.06(g).

 

“Incremental Term
Loan Facility” has the meaning set forth in Section 2.17(a).

 

“Incremental Term
Loan Note” means a promissory note of the Borrower to the order of
any Incremental Term Loan Bank, in substantially the form of Exhibit A-2 hereto
(with

 

15

 

such modifications
as the Borrower and the Agent may agree are necessary to evidence the terms of
the Incremental Term Loan Facility), evidencing the indebtedness of the
Borrower to such Bank resulting from the Incremental Term Loan deemed to have
been made by such Lender.

 

“Incremental Term
Loan Termination Date” has the meaning set forth in the definition
of “Termination Date” herein.

 

“Indemnitee”  has
the meaning set forth in Section 10.03(b).

 

“Initial Term Loan”
means each “Term Loan” under the Existing Credit Agreement continued as an
Initial Term Loan hereunder in accordance with the terms of Section 2.01(b) and
each Initial Term Loan made as a result of a Commitment Increase in accordance
with the terms of Section 2.17.

 

“Initial  Term Loan Bank” means each Bank (including
any Additional Term Loan Bank) having an Initial Term Loan.

 

“Initial Term Loan
Commitment” means, with respect to each Initial Term Loan Bank, the
amount set forth opposite its name on Appendix II hereto or, if such Bank has
entered into one or more Assignment and Assumptions or Assumption Agreements or
is an Additional Term Loan Bank, the amount set forth for such Bank in respect
of the Initial Term Loan Facility in the Register maintained by the Agent
pursuant to Section 10.06(g).

 

“Initial  Term Loan Facility” means, at any time, the
aggregate amount of the Initial Term Loan Banks’ Initial Term Loans at such
time.

 

“Initial Term Loan
Note” means a promissory note of the Borrower to the order of any
Initial Term Loan Bank, in substantially the form of Exhibit A-2 hereto,
evidencing the indebtedness of the Borrower to such Bank resulting from the
Initial Term Loan deemed to have been made by such Lender.

 

“Initial  Term Loan Termination Date” has the meaning
set forth in the definition of “Termination Date” herein.

 

“Interest Period”  means,
with respect to each Euro-Dollar Loan, the period commencing on the date of
borrowing specified in the applicable Notice of Borrowing or on the date
specified in an applicable Notice of Interest Rate Election and ending one,
two, three, six or, with the consent of all affected Banks, nine or twelve
months thereafter, as the Borrower may elect in such notice; provided that:

 

(i)                                     any
Interest Period which would otherwise end on a day which is not a Euro-Dollar
Business Day shall be extended to the next succeeding Euro-Dollar Business Day
unless such Euro-Dollar Business Day falls in another calendar month, in which
case such Interest Period shall end on the next preceding Euro-Dollar Business
Day;

 

(ii)                                  any
Interest Period which begins on the last Euro-Dollar Business Day of a calendar
month (or on a day for which there is no numerically corresponding day in the

 

16

 

calendar month at the end
of such Interest Period) shall, subject to clause (iii) below, end on the last
Euro-Dollar Business Day of a calendar month; and

 

(iii)                               any
Interest Period that would otherwise end after the Termination Date shall end
on the Termination Date.

 

“Intermediate Holding Companies” has the meaning set forth in
Section 5.16(b).

 

“Internal Revenue Code”  means
the Internal Revenue Code of 1986, as amended, or any successor statute.

 

“Investment”  means
any investment in any Person, whether by means of share purchase, capital
contribution, loan, Guarantee, time deposit or otherwise (but not including any
demand deposit).

 

“IPALCO”
means Ipalco Enterprises, Inc., an Indiana corporation.

 

“Lender Parties”
has the meaning set forth in the Collateral Trust Agreement.

 

“Lien” means, with respect to any asset, any mortgage,
lien, pledge, charge, security interest or encumbrance of any kind, or any
other type of preferential arrangement that has the practical effect of
creating a security interest, in respect of such asset.  For the purposes of this Agreement, the
Borrower or any of its Subsidiaries shall be deemed to own subject to a Lien
any asset which it has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease or other title
retention agreement relating to such asset.

 

“Loan” means a Revolving Credit Loan or a Term Loan,
each of which may be a Base Rate Loan or a Euro-Dollar Loan and “Loans” means Revolving Credit Loans or Term
Loans, each of which may be Base Rate Loans or Euro-Dollar Loans or any
combination of the foregoing.

 

“Loan Party”
means each Obligor and AES BVI II.

 

“London Interbank Offered Rate”  means, for any Interest Period, the average (rounded
upward, if necessary, to the next higher 1/16th of 1%) of the respective rates
per annum at which deposits in dollars are offered to each of the Reference
Banks in the London interbank market at approximately 11:00 A.M. (London time)
two business days before the first day of such Interest Period in an amount
approximately equal to the principal amount of the Euro-Dollar Loan of such
Reference Bank to which such Interest Period is to apply and for a period of
time comparable to such Interest Period.

 

“Material Adverse Effect” means a material
adverse effect on (i) the business, consolidated results of operations,
consolidated financial condition or prospects of the Borrower and its
Subsidiaries taken as a whole, (ii) the ability of the Loan Parties to perform
their material obligations under any Financing Document or (iii) the rights of
and remedies available to any Bank Party under any Financing Document.

 

17

“Material AES Entity”  means
(i) any Subsidiary Guarantor and (ii) any other Person in which the
Borrower has a direct or indirect equity Investment if such Person’s
contribution to Parent Operating Cash Flow for the four most recently completed
fiscal quarters of the Borrower constitutes 15% or more of Parent Operating
Cash Flow for such period.

 

“Material Debt”  means,
with respect to any Person, Debt (other than the Loans and the Reimbursement
Obligations) of such Person arising in one transaction, in an aggregate
principal amount exceeding $50,000,000.

 

“Material Hedge Agreement” means, with respect to any Person, a Hedge
Agreement entered into by such Person in respect of which the Derivative
Obligations of such Person exceed $50,000,000.

 

“Material Obligation” means any obligation or liability in an
amount equal to or in excess of $50,000,000.

 

“Material Plan”  means
at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of
$50,000,000.

 

“Maximum Outstanding Exposure” has the meaning set forth in
Section 2.15(a).

 

“Minimum CP Rating”  means
(i) A-1 for Standard & Poor’s Ratings Services; (ii) P-1 for
Moody’s Investors Service, Inc.; (iii) F-1 for Fitch IBCA, Inc. and (iv)
D-1 for Duff & Phelps Credit Rating Co.

 

“Multiemployer Plan”  means
at any time an employee pension benefit plan within the meaning of
Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then
making or accruing an obligation to make contributions or has within the
preceding five plan years made contributions, including for these purposes any
Person which ceased to be a member of the ERISA Group during such five year
period.

 

“Net Cash Proceeds”: 
(A) with respect to an Equity Issuance by a Subsidiary or the incurrence
of Debt (a “Covered Transaction”),
means the aggregate amount of cash received from time to time (whether as
initial consideration or through payment or disposition of deferred
consideration) by the Borrower and its Subsidiaries from such Covered
Transaction after deducting therefrom (without duplication) (i) brokerage
commissions, underwriting fees and discounts, legal fees, finder’s fees and
other similar fees and commissions, (ii) in the case of a Covered Transaction
in the form of incurrence of Debt by a Subsidiary, the amount of any Debt of
such Subsidiary that, by the terms of the agreement or instrument governing
such Debt or applicable law, is required to be repaid or prepaid and is
actually so repaid or prepaid with all or a portion of the proceeds of such
Covered Transaction and (iii) any portion of the proceeds of such Covered
Transaction required to prepay or collateralize interest or dividends payable
in respect of such Covered Transaction during one six-month period; and

 

(B)           with
respect to any Asset Sale, means cash payments received (including any cash
payments received by way of deferred payment of principal pursuant to a note or
installment receivable or otherwise, but only as and when received (including
any cash received

 

18

 

upon sale or
disposition of such note or receivable), excluding any other consideration
received in the form of assumption by the acquiring Person of Debt or other
obligations relating to the property disposed of in such Asset Sale or received
in any other noncash form) therefrom, in each case, net of:

 

(i)            all
legal, title and recording tax expenses, commissions and other customary fees
and expenses incurred (including, without limitation, consent and waiver fees
and any applicable premiums, earn-out or working interest payments or payments
in lieu or in termination thereof), and all federal, state, provincial, foreign
and local taxes payable to the relevant tax authority (x) as a direct
consequence of such Asset Sale, (y) as a result of the required repayment of
any Debt in any jurisdiction other than the jurisdiction where the property
disposed of was located or (z) as a result of any repatriation to the U.S. of
any proceeds of such Asset Sale,

 

(ii)           a
reasonable reserve (which reserve if required by the applicable sale agreement,
shall be deposited into a third party escrow account with an escrow agent and
shall be maintained in such account until such time as the applicable
indemnification obligation expires or the amounts on deposit are required to make
indemnification payments) for any indemnification payments (fixed and
contingent) attributable to seller’s indemnities to the purchaser undertaken by
the Borrower or any of its Subsidiaries in connection with such Asset Sale (but
excluding any payments, which by the terms of the indemnities will not, under
any circumstances, be made prior to the Termination Date); provided that any amounts in such reserve
to the extent not paid to the purchaser as an indemnification payment after the
expiration of any applicable time period set forth in the agreements in respect
of such Asset Sale shall be treated as “Net Cash Proceeds” for all purposes of
this Agreement,

 

(iii)          all
payments made on any Debt which must by its terms or by applicable law be
repaid out of the proceeds from such Asset Sale, and

 

(iv)          all
required distributions and other required payments made to minority interest
holders in Subsidiaries or joint ventures as a result of such Asset Sale;

 

provided that for purposes of determining
Net Cash Proceeds received by a Subsidiary required to be applied pursuant to
Section 2.10, only that portion of such Net Cash Proceeds received by the
Borrower or a Qualified Holding Company whose Equity Interests have been
pledged to the Secured Holders pursuant to the Collateral Documents from such
Subsidiary in accordance with Section 5.17 shall be included.

 

“Non-Pledged
Subsidiaries” means (i) as of the Closing Date, each of the direct
Subsidiaries of the Borrower or of AES BVI II listed on Schedule III or (ii)
after the Closing Date, in addition to the “Non-Pledged Subsidiaries” set forth
on Schedule III, any newly formed or acquired direct (1) Subsidiary of the
Borrower whose aggregate assets have a fair market value not in excess of
$3,000,000 and, together with the fair market value of the assets of all
Non-Pledged Subsidiaries (other than any Subsidiary which is described in
clause (2) below), does not exceed $50,000,000 or (2) Subsidiaries of the
Borrower for which a grant or perfection of a Lien on such Subsidiary’s stock
would require approvals and consents from foreign and

 

19

 

domestic
regulators and from lenders to, and suppliers, customers or other contractual
counterparties of, such Subsidiary.

 

“Note” means a Revolving Credit Loan Note or a Term Loan
Note.

 

“Notice of Borrowing”  has
the meaning set forth in Section 2.02.

 

“Notice of Interest Rate Election” has the meaning set
forth in Section 2.07(a).

 

“Notice of Issuance” has the meaning set forth in Section 2.03(d).

 

“Obligation”
means, with respect to any Person, any payment, performance or other obligation
of such Person of any kind, including, without limitation, any liability of
such Person on any claim, whether or not the right of any creditor to payment
in respect of such claim is reduced to judgment, liquidated, unliquidated,
fixed, contingent, matured, disputed, undisputed, legal, equitable, secured or
unsecured, and whether or not such claim is discharged, stayed or otherwise
affected by any proceeding referred to in Section 6.01(g) or (h).  Without limiting the generality of the
foregoing, the Obligations of the Borrower and the Subsidiary Guarantors under
the Loan Documents include (i) the obligation to pay principal, interest,
Revolving Letter of Credit commissions, charges, expenses, fees, attorneys’
fees and disbursements, indemnities and other amounts payable by the Borrower
and such Subsidiary Guarantor under any Financing Document and (ii) the
obligation of the Borrower and such Subsidiary Guarantor to reimburse any
amount in respect of any of the foregoing that any Bank Party, in its sole
discretion, may elect to pay or advance on behalf of the Borrower and such
Subsidiary Guarantor.

 

“Obligors”  means
the Borrower and the Subsidiary Guarantors.

 

“Off Balance Sheet
Obligation” means, with respect to any Person, any Obligation of
such Person under a synthetic lease, tax retention operating lease, off-balance
sheet loan or similar off-balance sheet financing classified as an operating
lease in accordance with GAAP, if such Obligations would give rise to a claim
against such Person in a proceeding referred to in Section 6.01(h).

 

“Other Taxes”
has the meaning set forth in Section 8.04(b).

 

“Parent”  means,
with respect to any Bank Party, any Person controlling such Bank Party.

 

“Parent Operating Cash Flow”  means,
for any period, the sum of the following amounts (determined without
duplication), but only to the extent received in cash by the Borrower from a
Person during such period:

 

(i)            dividends paid to the Borrower by
its Subsidiaries during such period;

 

(ii)           consulting and management fees paid
to the Borrower for such period;

 

(iii)          tax sharing payments made to the
Borrower during such period;

 

20

 

(iv)          interest and other distributions paid
during such period with respect to cash and other Temporary Cash Investments of
the Borrower (other than with respect to amounts on deposit in the Revolving
L/C Cash Collateral Account); and

 

(v)           other cash payments made to the
Borrower by its Subsidiaries other than (A) returns of invested capital;
(B) payments of the principal of Debt of any such Subsidiary to the
Borrower and (C) payments in an amount equal to the aggregate amount
released from debt service reserve accounts upon the issuance of letters of
credit for the account of the Borrower and the benefit of the beneficiaries of
such accounts.

 

For purposes of determining Parent Operating Cash
Flow:

 

(1)           net cash payments received by a
Qualified Holding Company whose Equity Interests have been pledged to the
Secured Holders pursuant to the Collateral Documents during any period which
could have been (without regard for any cash held by such Qualified Holding
Company at the beginning of such period), but were not, paid as a dividend to
the Borrower during such period due to tax or other cash management
considerations may be included in Parent Operating Cash Flow for such period; provided that any amounts so included will
not be included in Parent Operating Cash Flow if and when paid to a Borrower in
any subsequent period; and

 

(2)           Net Cash Proceeds from Asset Sales,
Equity Issuances or the incurrence of Debt (but only to the extent that the Net
Cash Proceeds from such incurrence of Debt are paid to the Borrower or a
Qualified Holding Company as a return of capital) shall not be included in
Parent Operating Cash Flow for any period.

 

“Participant”  has the meaning set forth in Section 10.06(b).

 

“Payment Restriction”
means any provision in any agreement limiting the ability of any of the
Borrower’s Subsidiaries to declare or pay dividends or other distributions in
respect of its Equity Interests or repay or prepay any Debt owed to, make loans
or advances to, or otherwise transfer assets to or invest in, the Borrower or
any Subsidiary of the Borrower (whether through a covenant restricting
dividends, loans, asset transfers or investments, a financial covenant or
otherwise).

 

“PBGC”  means
the Pension Benefit Guaranty Corporation or any entity succeeding to any or all
of its functions under ERISA.

 

“Person”  means
an individual, a corporation, a partnership, an association, a trust or any
other entity or organization, including a government or political subdivision
or an agency or instrumentality thereof.

 

“Plan”  means
at any time an employee pension benefit plan (other than a Multiemployer Plan)
which is covered by Title IV of ERISA or subject to the minimum funding
standards under Section 412 of the Internal Revenue Code and either
(i) is maintained, or contributed to, by any member of the ERISA Group for
employees of any member of the ERISA Group or (ii) has at any time within
the preceding five years been maintained, or contributed to,

 

21

 

by any Person
which was at such time a member of the ERISA Group for employees of any Person
which was at such time a member of the ERISA Group.

 

“Pledged Debt” shall have the meaning specified in the
Security Agreement.

 

“Pledged Subsidiary” means a direct Subsidiary of the Borrower
or AES BVI II listed on Schedule I hereto, whose Equity Interests have
been pledged to the Collateral Trustees for the benefit of the Secured Holders
by the Borrower or AES BVI II, as applicable, pursuant to the Security
Agreement or the BVI Cayman Pledge Agreement.

 

“Power Supply Business”  means
an electric power or thermal energy generation or cogeneration facility or
related facilities, or an electric power transmission, distribution, fuel
supply and fuel transportation facilities, or any combination thereof (all
subject to relevant security, if any, under related project financing
arrangements), together with its or their related power supply, thermal energy
and fuel contracts as well as other contractual arrangements with customers,
suppliers and contractors.

 

“PUHCA” has the meaning set forth in Section 4.12.

 

“Qualified Holding Company”  means
any Wholly-Owned Consolidated Subsidiary of the Borrower that satisfies, and
all of whose direct or indirect holding companies (other than the Borrower) are
Wholly-Owned Consolidated Subsidiaries of AES that satisfy, the following
conditions:

 

(i)            its
direct and indirect interest in any AES Business shall be limited to the
ownership of Capital Stock or Debt obligations of a Person with a direct or
indirect interest in such AES Business;

 

(ii)           except
as a result of the Financing Documents (and permitted refinancings thereof), no
consensual encumbrance or restriction of any kind shall exist on its ability to
make payments, distributions, loans, advances or transfers to the Borrower;

 

(iii)          it
shall not have outstanding any Debt other than Guarantees of Debt under, or
Liens constituting Debt under, the Financing Documents (and permitted
refinancings thereof) and Debt to the Borrower or to other Qualified Holding
Companies (other than AES BVI II);

 

(iv)          it
shall engage in no business or other activity, shall enter into no binding
agreements and shall incur no obligations (other than agreements with, and
obligations to, the Borrower or other Qualified Holding Companies (other than
AES BVI II)) other than (A) the holding of the Capital Stock and Debt
obligations permitted under clause (i) above, including entering into
retention agreements and subordination agreements relating to such Capital
Stock and Debt, (B) the holding of cash received from its Subsidiaries and the
investment thereof in Temporary Cash Investments, (C) the payment of dividends
and other amounts to the Borrower, (D) ordinary business development
activities, (E) the making (but not the entering into binding obligations
to make) of Investments in AES Businesses owned by its Subsidiaries and (F) in
the case of AES Electric, the making of Investments in Power Supply Business
owned by NIGEN Limited and Medway Power Limited or the repayment of up to
GBP10,000,000 owed to AES

 

22

 

Barry as of the
date of this Agreement under any agreement by which it is bound as of the date
of this Agreement; and

 

(v)           is
listed on Schedule V hereto (as supplemented from time to time by written
notice to the Agent by the Borrower).

 

“Quarterly Payment Date”  means
each March 31, June 30, September 30 and December 31.

 

“Recourse Debt” means, on any date, the sum of (i) Debt
of the Borrower (other than Equity Credit Preferred Securities) plus (ii)
Derivative Obligations of the Borrower.

 

“Recourse Debt to Cash Flow Ratio”  means, for any period, the ratio of:

 

(i)            the
sum of the Recourse Debt as of the end of such period to;

 

(ii)           the Adjusted Parent Operating Cash
Flow during such period.

 

“Redeemable Stock”  means
any class or series of Capital Stock of any Person that by its terms or
otherwise is (i) required to be redeemed prior to the first anniversary of
the Termination Date, (ii) redeemable at the option of the holder of such
class or series of Capital Stock at any time prior to the first anniversary of
the Termination Date or (iii) convertible into or exchangeable for (unless
solely at the option of such person) Capital Stock referred to in clause
(i) or (ii) above or Debt having a scheduled maturity prior to the
first anniversary of the Termination Date; provided
that any Capital Stock that would not constitute Redeemable Stock but for
provisions thereof giving holders thereof the right to require such person to
repurchase or redeem such Capital Stock upon the occurrence of an “asset sale”
or a “change of control” occurring prior to the first anniversary of the
Termination Date shall not constitute Redeemable Stock if such Capital Stock
specifically provides that such person will not repurchase or redeem any such
Capital Stock pursuant to such provisions unless such repurchase or redemption
is permitted under the terms of this Agreement.

 

“Reference Banks”  means
the respective principal London offices of Citicorp USA, Inc., Bank of America,
N.A. and Union Bank of California, N.A. and “Reference
Bank” means any one
of such Reference Banks.

 

“Refunding Borrowing”  means
a Borrowing which, after application of the proceeds thereof, results in no net
increase in the Total Outstandings of any Revolving Credit Loan Bank.

 

“Register” has the meaning set forth in Section
10.06(f).

 

“Regulation U” means Regulation U of the Board
of Governors of the Federal Reserve System, as in effect from time to time.

 

“Reimbursement Obligations”  means
at any date the obligations then outstanding of the Borrower under
Section 2.03(f) to reimburse the Revolving Fronting Banks for Revolving
L/C Drawings under Revolving Letters of Credit.

 

23

 

“Related Fund”
means with respect to any Bank Party that is a fund that invests in bank loans,
any other fund that invests in commercial loans and is managed or advised by
the same investment advisor as such Bank party or by an Affiliate of such
investment advisor.

 

“Relevant Contingent
Exposure” has the meaning set forth in Section 2.14(c).

 

“Required Banks”
means, at any time, Bank Parties owed or holding at least a majority in
interest of the aggregate principal amount (based in the case of any Revolving
Letter of Credit denominated in an Alternative Currency other than Dollars, on
the Dollar Equivalent at such time) of the sum of (i) the aggregate principal
amount of the Loans outstanding at such time, (ii) the aggregate Revolving
Letter of Credit Liabilities outstanding at such time and (iii) the aggregate
Unused Revolving Credit Loan Commitments at such time.

 

“Required Revolving
Credit Loan Banks” means at any time the Revolving Credit Loan Banks
having at least a majority of the aggregate Total Exposures at such time.

 

“Responsible Officer”
means any duly authorized officer of the Borrower or any of its Subsidiaries.

 

“Revolving Credit Loan” has the meaning set forth in
Section 2.01(a).

 

“Revolving Credit
Loan Bank” means each Bank having a Revolving Credit Loan
Commitment.

 

“Revolving Credit
Loan Commitment” means, at any time, with respect to any Revolving
Credit Loan Bank at any time, the amount set forth opposite such Bank’s name on
Appendix I hereto under the caption “Revolving Credit Loan Commitment” or, if
such Bank has entered into one or more Assignment and Assumptions, the amount
set forth for such Bank in the Register maintained by the Agent pursuant to
Section 10.06(g) as such Bank’s “Revolving Credit Loan Commitment”, as such
amount may be reduced at or prior to such time pursuant to Sections 2.09 or
2.10.

 

“Revolving Credit
Loan Facility” means, at any time, the aggregate amount of the
Revolving Credit Loan Banks’ Revolving Credit Loan Commitments.

 

“Revolving Credit
Loan Note” means a promissory note of the Borrower to the order of
any Revolving Credit Loan Bank, in substantially the form of Exhibit A-1
hereto, evidencing the indebtedness of the Borrower to such Bank resulting from
the Revolving Credit Loans made or deemed to have been made by such Lender.

 

“Revolving Credit
Loan/Term Loan Obligations” shall have the meaning set forth in
Section 9.01(a).

 

“Revolving Credit Period”  means
the period from and including the Effective Date to but excluding the
Termination Date.

 

“Revolving Fronting Bank” means (i) with respect to each
Existing Letter of Credit deemed to have been issued pursuant to the second
sentence of Section 2.03(a), each Bank

 

24

 

listed as issuer thereof on Appendix III hereto, as the case may be, (ii)
each Revolving Credit Loan Bank listed on Schedule VII hereto and (iii) any
other Revolving Credit Loan Bank and/or any Third Party Fronting Bank which has
executed and delivered to the Agent a Revolving Fronting Bank Agreement
pursuant to Section 10.15, in each case, unless such Bank has been released
from its obligation as a Revolving Fronting Bank pursuant to Section 10.15(b).

 

“Revolving Fronting Bank Agreement” means an agreement, in substantially
the form of Exhibit E hereto.

 

“Revolving L/C Cash Collateral Account”  has the meaning set
forth in Section 2.14(a).

 

“Revolving L/C Collateral” has the meaning set forth in Section 2.14(b).

 

“Revolving L/C Drawing”  means a drawing effected under any
Revolving Letter of Credit.

 

“Revolving Letter of Credit”
means a letter of credit issued by a Revolving Fronting Bank pursuant to
Section 2.03(a) and shall also include each Existing Letter of Credit.

 

“Revolving Letter of Credit Commission Rate”  means a rate per
annum equal to 4.00%.

 

“Revolving Letter of Credit Liabilities”  means, at any time
and in respect of any Revolving Letter of Credit, the sum, without duplication,
of (i) the Available Amount of such Revolving Letter of Credit plus (ii) the aggregate unpaid amount
of all Reimbursement Obligations in respect of previous Revolving L/C Drawings
made under such Revolving Letter of Credit.

 

“Revolving Letter of
Credit Termination Date” has the meaning set forth in Section
2.03(h)(i).

 

“SEC Filings” means public
filings made by the Borrower with the Securities and Exchange Commission on
Form 8-K, Form 10-Q or Form 10-K, and any filed amendments to any of the
foregoing.

 

“Second-Priority
Secured Debt” means (i) the Borrower’s 83⁄4% Second Priority
Senior Secured Notes due 2013, (ii) the Borrower’s 9% Second Priority Notes
due 2015 and (iii) Debt of the Borrower that is secured by a Lien on the
Creditor Group Collateral that is pari passu
with the Lien securing the Notes described in clauses (i) or (ii) (or permitted
refinancings thereof).

 

“Secured Hedge
Agreement” means any Hedge Agreement permitted under Article V that
is entered into by and between the Borrower and any Hedge Bank.

 

“Secured Holders”
has the meaning set forth in the Collateral Trust Agreement.

 

25

 

“Secured Obligations”
has the meaning specified in the Collateral Trust Agreement.

 

“Secured Treasury
Management Service Agreements” means any agreement between the
Borrower or any of its Subsidiaries and a Bank Party or an Affiliate of a Bank
Party to provide treasury management services to the Borrower.

 

“Security Agreement”
means the Security Agreement dated as of December 12, 2002 made by the grantors
thereunder in favor of the Collateral Trustees, as amended by Amendment No. 1
dated as of July 29, 2003 and as further amended from time to time.

 

“Security Agreement
Collateral” means the “Collateral” referred to in the Security
Agreement.

 

“Senior Secured Exchange Notes” means the 10% Exchange Notes due December
15, 2005 issued by the Borrower pursuant to the Senior Secured Exchange Note
Indenture and any other Debt issued by the Borrower under the Senior Secured
Exchange Note Indenture.

 

“Senior Secured
Exchange Note Indenture” means that certain Indenture between the
Borrower and Wells Fargo Bank Minnesota, National Association, as Trustee to be
dated as of December 13, 2002.

 

“Senior Subordinated
Notes” means the 8.375% Senior Subordinated Notes due August 2007
and the 8.50% Senior Subordinated Notes due November 2007 issued by the
Borrower pursuant to the Senior Subordinated Notes Indentures.

 

“Senior Subordinated
Notes Indentures” means (i) that certain indenture between the Borrower and The Bank of New
York, as Trustee dated as of July 17, 1997 and (ii) that certain indenture
between the Borrower and Wells Fargo Bank Minnesota, National Association
(successor to The First National Bank of Chicago), as Trustee dated as of
October 29, 1997.

 

“Shared Collateral Documents” means the Security Agreement, the
Collateral Trust Agreement, the BVI Cayman Pledge Agreement and any other
agreement that creates or purports to create a Lien in favor of the Collateral
Trustees for the Lender Parties.

 

“Significant AES Entity” means (i) any Material AES
Entity, (ii) AES BVI II and (iii) any other Person (other than any Excluded
AES Entity) in which the Borrower has a direct or indirect equity Investment if
(A) such Person’s contribution to Parent Operating Cash Flow for the four most
recently completed fiscal quarters of the Borrower constitutes 10% or more of
Parent Operating Cash Flow for such period, or (B) on any date of
determination, the Borrower’s direct or indirect interest in the total assets
of such Person if such Person is a Consolidated Subsidiary or in the net assets
of such Person in all other cases is at least equal to 10% of the consolidated
assets of the Borrower and its Consolidated Subsidiaries, taken as a whole, on
such date of determination.

 

26

 

“Solvent”
and “Solvency” mean, with respect
to any Person on a particular date, that on such date (i) the fair value
of the property of such Person is greater than the total amount of liabilities,
including, without limitation, contingent liabilities, of such Person,
(ii) the present fair salable value of the assets of such Person is not
less than the amount that will be required to pay the probable liability of
such Person on its debts as they become absolute and matured, (iii) such
Person does not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person’s ability to pay such debts and liabilities as
they mature and (iv) such Person is not engaged in business or a
transaction, and is not about to engage in business or a transaction, for which
such Person’s property would constitute an unreasonably small capital.  The amount of contingent liabilities at any
time shall be computed as the amount that, in the light of all the facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability.

 

“Special Purpose Financing Subsidiary” means a
Consolidated Subsidiary that has no direct or indirect interest in a Power
Supply Business or other AES Business and was formed solely for the purpose of
issuing Equity Credit Preferred Securities.

 

“Subsidiary” means, with respect to any Person, any
corporation or other entity of which securities or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions are at the time directly or
indirectly owned by such Person.

 

“Subsidiary Guarantors”  means
AES Oklahoma, AES Hawaii Management, AES Warrior Run and AES New York.

 

“Subsidiary Guaranty”  has
the meaning set forth in Section 9.01.

 

“Sul Guarantee”
means the Guaranty in the Sponsor Agreement dated as of March 7, 2001 between
the Borrower and BankBoston, N.A. Nassau Branch, as agent (“BankBoston”) for the lenders under the Sul
Credit Agreement referred to below by the Borrower to Guarantee the obligations
of AES Cayman Guaiba, Ltd., a Cayman Islands corporation (the “Sul Borrower”) under the Credit Agreement dated as of March 6, 2001 (the “Sul Credit Agreement”), with BankBoston,
Banc of America Securities, LLC, Unibanco – Uniao de Bancos Brasilieros S.A.
and Westdeutsche Landesbank Girozentrale, New York Branch, and the lenders
named therein (as the same may be amended or amended and restated from time to
time) in an amount of up to a maximum aggregate amount of $50,000,000.

 

“Supermajority Banks”
means, at any time, Bank Parties owed or holding at least a 66 2/3% interest of
the aggregate principal amount (based in the case of any Revolving Letter of
Credit denominated in an Alternative Currency other than Dollars, on the Dollar
Equivalent at such time) of the sum of (i) the aggregate principal amount of
the Loans outstanding at such time, (ii) the aggregate Revolving Letter of
Credit Liabilities outstanding at such time and (iii) the aggregate Unused
Revolving Credit Loan Commitments at such time.

 

“Taxes”
has the meaning set forth in Section 8.04(a).

 

“Temporary Cash Investment”  means
any Investment (having a maturity of not greater than 60 days from the date of
issuance thereof) in (A)(i) direct obligations of the United

 

27

 

States or any
agency thereof, or obligations guaranteed by the United States or any agency
thereof; (ii) commercial paper rated at least the Minimum CP Rating by any
two of Standard & Poor’s Ratings Services, Moody’s Investors Service, Inc.,
Fitch IBCA, Inc. and Duff & Phelps Credit Rating Co., provided that one of such two Minimum CP
Ratings is by Standard & Poor’s Ratings Services or Moody’s Investors
Service, Inc.; (iii) time deposits with, including certificates of deposit
issued by, any office located in the United States of any bank or trust company
which is organized or licensed under the laws of the United States or any state
thereof and has capital, surplus and undivided profits aggregating at least
$500,000,000; (iv) medium term notes, auction rate preferred stock, asset
backed securities, bonds, notes and letter of credit supported instruments,
issued by any entity organized under the laws of the United States, or any
state or municipality of the United States and rated in any of the three
highest rated categories by Standard & Poor’s Ratings Services or Moody’s
Investors Service, Inc.; (v) repurchase agreements with respect to
securities described in clause (i) above entered into with an office of a
bank or trust company meeting the criteria specified in clause
(iii) above; (vi) Euro-Dollar certificates of deposit issued by any
bank or trust company which has capital and unimpaired surplus of not less than
$500,000,000 or (vii) with respect to a Subsidiary, any category of investment
designated as permissible investments under such Subsidiary’s loan
documentation; provided that in
each case (except clause (vii)) that such Investment matures within fifteen
months from the date of acquisition thereof by the Borrower or a Subsidiary and
(B) registered investment companies that are “money market funds” within the
meaning of Rule 2a-7 under the Investment Company Act of 1940.

 

“Term Loan” means each Initial Term Loan and each Incremental
Term Loan.

 

“Term Loan Bank”
means each Initial Term Loan Bank and each Incremental Term Loan Bank.

 

“Term Borrowings” means a borrowing consisting of simultaneous
Term Loans of the same type made by the appropriate Term Loan Banks.

 

“Term Loan
Commitments” means the Initial Term Loan Commitments of the Initial
Term Loan Banks at such time and the Incremental Term Loan Commitments of the
Incremental Term Loan Banks at such time.

 

“Term Loan Facilities” means the Initial Term Loan
Facility and the Incremental Term Loan Facility.

 

“Term Loan Notes”
means the Initial Term Loan Notes and the Incremental Term Loan Notes.

 

“Termination Date”  means
(i) July 31, 2007 in the case of the Revolving Credit Loan Facility, (ii) April
30, 2008 in the case of the Initial Term Loan Facility; provided, however,
that if, prior to July 31, 2007, the Senior Subordinated Notes have not been
refinanced to mature on a date after April 30, 2008, or repaid in full prior to
such date, then “Termination Date” in the case of the Initial Term Loan
Facility shall mean July 31, 2007 (the “Initial
Term Loan Termination Date”) and
(iii) the date agreed to by the Borrower, the Agent and the Incremental Term
Loan Banks in the case of any Incremental Term Loan Facility (the

 

28

 

“Incremental Term Loan Termination Date”); provided that the Incremental Term Loan
Termination Date shall not occur prior to the Initial Term Loan Termination
Date; provided, in each case,
that if the Termination Date occurs on a day that is not a Euro-Dollar Business
Day, the Termination Date shall occur on the next succeeding Euro-Dollar
Business Day unless such Euro-Dollar Business Day falls in another calendar
month, in which case the Termination Date shall be the next preceding
Euro-Dollar Business Day.

 

“Third Party Fronting Bank” means (i) the Agent, (ii) any Term
Loan Bank or any Affiliate of any Term Loan Bank (A) a majority of whose common
equity is owned, directly or indirectly, by such Term Loan Bank, (B) that
owns, directly or indirectly, a majority of the common equity of such Term Loan
Bank or (C) a majority of whose common equity is owned, directly or
indirectly, by a Person that owns, directly or indirectly, a majority of the
common equity of such Term Loan Bank and any Subsidiary of any Term Loan Bank a
majority of whose common equity is owned directly or indirectly, by such Term
Loan Bank, (iii) any commercial bank having total assets in excess of
$5,000,000,000, (iv) any savings and loan association or savings bank
organized under the laws of the United States, or any State thereof, and having
a net worth in excess of $250,000,000 or (v) any other Person approved by
the Agent, that shall, in the
case of any such Agent, Term Loan Bank, Affiliate, Parent, Subsidiary or other
financial institution or Person agree to issue letters of credit hereunder with
the consent of the Agent (which consent will be deemed to have been given
unless the Agent shall have notified the Borrower to the contrary within one
day of the Agent’s receipt of notice that such Bank, Affiliate, Parent,
Subsidiary or other financial institution or Person is to be a Third Party
Fronting Bank).

 

“Total Bank Exposure”
at any time means the sum of (i) the aggregate principal amount of the Loans
outstanding at such time plus
(ii) the aggregate amount of the Revolving Letter of Credit Liabilities at such
time plus (iii) the aggregate
amount of the Unused Revolving Credit Loan Commitments.

 

“Total Exposure” means at any time with respect to each
Revolving Credit Loan Bank, its Revolving Credit Loan Commitment or, if the
Revolving Credit Loan Commitments shall have terminated, its Total
Outstandings.

 

“Total Outstandings” means at any time, as to any
Revolving Credit Loan Bank, the sum of the aggregate outstanding principal
amount of such Revolving Credit Loan Bank’s Loans and its participation in the
Revolving Letter of Credit Liabilities and all unreimbursed Revolving L/C
Drawings.

 

“Total Term Loan
Commitments” means at any time in respect of a Term Loan Bank the
sum of such Term Loan Bank’s Initial Term Loan Commitment at such time plus
such Term Loan Bank’s Incremental Term Loan Commitment at such time.

 

“Trust Preferred Securities” means, at any date:

 

(i)            any Existing Trust Preferred
Securities, and

 

(ii)           any other equity interests in a
Special Purpose Financing Subsidiary of AES (such as those known as “TECONS”,
“MIPS” or “RHINOS”): (I) that are not 

 

29

 

(A) required to be
redeemed or redeemable at the option of the holder thereof prior to the fifth
anniversary of the Termination Date or (B) convertible into or exchangeable for
(unless solely at the option of AES) equity interests referred to in clause (A)
above or Debt having a scheduled maturity, or requiring any repayments or
prepayments of principal or any sinking fund or similar payments in respect of
principal or providing for any such repayment, prepayment, sinking fund or
other payment at the option of the holder thereof prior to the fifth
anniversary of the Termination Date and (II) as to which, at such date,
AES has the right to defer the payment of all dividends and other distributions
in respect thereof for the period of at least 19 consecutive quarters beginning
at such date.

 

“Unfunded Liabilities”  means,
with respect to any Plan at any time, the amount (if any) by which (i) the
value of all benefit liabilities under such Plan, determined on a plan
termination basis using the assumptions prescribed by the PBGC for purposes of
Section 4044 of ERISA, exceeds (ii) the fair market value of all Plan
assets allocable to such liabilities under Title IV of ERISA (excluding
any accrued but unpaid contributions), all determined as of the then most
recent valuation date for such Plan, but only to the extent that such excess
represents a potential liability of a member of the ERISA Group to the PBGC or
any other Person under Title IV of ERISA.

 

“United States” means the United States of America,
including the States and the District of Columbia, but excluding its
territories and possessions.

 

“Unused Revolving
Credit Loan Commitments” means, with respect to any Revolving Credit
Loan Bank at any time, (i) such Bank’s Revolving Credit Loan Commitment at such
time minus (ii) the sum of (A)
the aggregate principal amount of all Revolving Credit Loans outstanding at
such time and owed to such Revolving Credit Loan Bank plus (B) such Bank’s pro rata share
of the Revolving Letter of Credit Liabilities and all unreimbursed Revolving
L/C Drawings at such time.

 

“Wholly-Owned Consolidated Subsidiary”  means
any Consolidated Subsidiary all of the shares of Capital Stock or other
ownership interests of which (except directors’ qualifying shares and shares
owned by foreign nationals mandated by applicable law) are at the time directly
or indirectly owned by AES.

 

Section 1.02  Accounting Terms and Determinations.

 

Unless otherwise specified herein, all accounting
terms used herein shall be interpreted, all accounting determinations hereunder
shall be made, and all financial statements required to be delivered hereunder
shall be prepared, in accordance with generally accepted accounting principles
as in effect from time to time, applied on a basis consistent (except for
changes concurred in by the Borrower’s independent public accountants) with the
most recent audited consolidated financial statements of the Borrower and its
Consolidated Subsidiaries delivered to the Banks (“GAAP”); provided
that, if the Borrower notifies the Agent that the Borrower wishes to amend any
covenant in Article 5 to eliminate the effect of any change in generally
accepted accounting principles on the operation of such covenant (or if the
Agent notifies the Borrower that the Required Banks wish to amend
Article 5 for such purpose), then

 

30

 

the Borrower’s
compliance with such covenant shall be determined on the basis of generally
accepted accounting principles in effect immediately before the relevant change
in generally accepted accounting principles became effective, until either such
notice is withdrawn or such covenant is amended in a manner satisfactory to the
Borrower and the Required Banks.

 

Section 1.03  Types of Borrowing.

 

The term “Borrowing” denotes (a) the aggregation of
Loans made (or deemed to have been made) or to be made to the Borrower by one
or more Banks pursuant to Article 2 on the same day, all of which Loans
are of the same type (subject to Article 8) and, except in the case of
Base Rate Loans, have the same initial Interest Period or (b) if the
context so requires, the borrowing of such Loans.  Borrowings are classified for purposes hereof by reference to the
pricing of Loans comprising such Borrowing (e.g.,
a “Euro-Dollar Borrowing” is a Borrowing comprised of
Euro-Dollar Loans).  It is understood
and agreed that all Borrowings will be made in Dollars.

 

Section 1.04  Currency Equivalents Generally.

 

For purposes of this Agreement, the equivalent in any
Alternative Currency of an amount in Dollars shall be determined at the rate of
exchange quoted by the Agent in New York, at 11:00 A.M. (New York time) on the
date of determination, to prime banks in New York for the spot purchase in the
New York foreign exchange market of such amount of Dollars with such
Alternative Currency.

 

ARTICLE II

 

THE CREDITS

 

Section 2.01  Commitment to Lend.

 

(a)           Revolving Credit Facility.  (i) Each Revolving Credit Loan Bank
severally agrees, on the terms and conditions set forth in this Agreement, to
make loans (each a “Revolving Credit Loan”)
to the Borrower pursuant to this Section 2.01(a) from time to time during
the Revolving Credit Period in amounts such that the Total Outstandings of such
Revolving Credit Loan Bank at any time shall not exceed the amount of its
Revolving Credit Loan Commitment at such time. 
Each Borrowing under this subsection (a) shall be in an aggregate
principal amount of $5,000,000 or any larger multiple of $1,000,000 (except for
Refunding Borrowings and that any such Borrowing may be in the aggregate amount
available in accordance with Section 3.02(b)) and shall be made from the
several Revolving Credit Loan Banks ratably in proportion to their respective
Revolving Credit Loan Commitments. 
Within the foregoing limits, the Borrower may borrow under this Section
2.01(a), repay, or, to the extent permitted by Section 2.10, prepay
Revolving Credit Loans and reborrow at any time during the Revolving Credit
Period.

 

(ii)           Any
“Revolving Credit Loans” outstanding under the Existing Credit Agreement on the
Effective Date shall be continued as Revolving Credit Loans hereunder, and the
Revolving Credit Loan of each Revolving Credit Loan Bank hereunder as of the
Effective Date shall be as set forth on Appendix I hereto.

 

31

 

(b)           Initial Term Loan Facility.  Subject to the terms and conditions set
forth herein, on the Effective Date any “Term Loan” outstanding under the
Existing Credit Agreement shall be continued as an Initial Term Loan hereunder
and the Initial Term Loan of each Initial Term Loan Bank hereunder as of the
Effective Date shall be as set forth on Appendix II hereto.

 

(c)           Term Loan Facilities.  The Term Loans are not revolving in nature,
and amounts repaid or prepaid in respect thereof may not be reborrowed.

 

Section 2.02  Notice of Borrowing.

 

(a)           The Borrower shall give the Agent
notice (a “Notice of Borrowing”) not later than 11:00 A.M. (New
York City time) on (x) the date of each Base Rate Borrowing and (y) the
third Euro-Dollar Business Day before each Euro-Dollar Borrowing, specifying:

 

(i)            the date of such
Borrowing, which shall be a Domestic Business Day in the case of a Base Rate
Borrowing or a Euro-Dollar Business Day in the case of a Euro-Dollar Borrowing;

 

(ii)           the aggregate
amount of such Borrowing;

 

(iii)          whether the Loans
comprising such Borrowing are to bear interest initially at the Base Rate or
the Adjusted London Interbank Offered Rate; and

 

(iv)          in the case of a
Euro-Dollar Borrowing, the duration of the initial Interest Period applicable
thereto, subject to the provisions of the definition of “Interest Period.”

 

(b)           Upon receipt of a Notice of
Borrowing, the Agent shall promptly notify each Bank of the contents thereof
and of such Bank’s ratable share of such Borrowing and such Notice of Borrowing
shall not thereafter be revocable by the Borrower.

 

(c)           Not later than 2:00 P.M. (New York
City time) on the date of each Borrowing, each Bank shall (except as provided
in subsection (d) of this Section 2.02) make available its ratable share of
such Borrowing, in Federal or other funds immediately available in New York
City, to the Agent at its address referred to in Section 10.01.  Unless the Agent determines that any
applicable condition specified in Article 3 has not been satisfied, the
Agent will make the funds so received from the Banks available to the Borrower
requesting such Borrowing at the Agent’s aforesaid address.

 

(d)           If any Bank makes a new Loan
hereunder to the Borrower on a day on which the Borrower is to repay all or any
part of an outstanding Loan from such Bank, such Bank shall apply the proceeds
of its new Loan to make such repayment and only an amount equal to the
difference (if any) between the amount being borrowed and the amount being
repaid shall be made available by such Bank to the Agent as provided in
subsection (c) of this Section 2.02, or remitted by the Borrower to the Agent
as provided in Section 2.11, as the case may be.

 

(e)           Unless the Agent shall have received
notice from a Bank prior to the date of any Borrowing that such Bank will not
make available to the Agent such Bank’s share of such Borrowing, the Agent may
assume that such Bank has made such share available to the Agent on

 

32

 

the date of
such Borrowing in accordance with subsections (c) and (d) of this
Section 2.02 and the Agent may, in reliance upon such assumption, make
available to the Borrower on such date a corresponding amount.  If and to the extent that such Bank shall
not have so made such share available to the Agent, such Bank and the Borrower
severally agree to repay to the Agent forthwith on demand such corresponding
amount together with interest thereon, for each day from the date such amount
is made available to the Borrower until the date such amount is repaid to the
Agent, at (i) in the case of the Borrower, a rate per annum equal to the
higher of the Federal Funds Rate and the interest rate applicable thereto
pursuant to Section 2.06 and (ii) in the case of such Bank, the
Federal Funds Rate.  If such Bank shall
repay to the Agent such corresponding amount, such amount so repaid shall
constitute such Bank’s Loan included in such Borrowing for purposes of this
Agreement.

 

Section 2.03  Revolving Letters of Credit.

 

(a)           Issuance of Letters of Credit.  Subject to the terms and conditions hereof,
each Revolving Fronting Bank agrees to issue letters of credit under this
Section 2.03(a) upon the Borrower’s request and for the Borrower’s account
or the account of any of the Borrower’s Subsidiaries, from time to time during
the Revolving Credit Period; provided,
however, that in no event shall
(i) the aggregate Available Amount for all Revolving Letters of Credit exceed
the Revolving Credit Loan Facility at such time and (ii) a Revolving Letter of
Credit be issued with an Available Amount in excess of the Unused Revolving
Credit Commitments of the Revolving Credit Loan Banks at such time.  In addition, and notwithstanding any
reference in any Existing Letter of Credit to the Existing Bank Credit
Agreement, on and as of the Effective Date, (x) each Existing Letter of Credit
shall be deemed to be a Revolving Letter of Credit and to have been issued on
the Effective Date (by the Revolving Fronting Bank that issued or was deemed to
have issued such Existing Letter of Credit under the Existing Bank Credit
Agreement) pursuant to this Section 2.03(a), (y) participations in such
Existing Letters of Credit held by the Revolving Credit Loan Banks under the
Existing Credit Agreement shall be deemed to be cancelled and (z) the Revolving Credit Loan Banks under this
Agreement shall be deemed to hold participations in such Existing
Letters of Credit in the amount required so that the participations of such
Revolving Credit Loan Banks shall be in proportion to their respective
Revolving Credit Loan Commitments; provided,
however, that nothing in this
Section 2.03(a) shall extend, modify or otherwise affect the existing
expiry date under any such Existing Letter of Credit.  Notwithstanding the foregoing, (x) each Revolving Credit Loan
Bank that is a Revolving Fronting Bank, in its separate capacity as a Revolving
Fronting Bank, shall only be obligated to issue at any time Revolving Letters
of Credit having an aggregate face amount at any time that is equal to the
unused Revolving Credit Loan Commitment of such Revolving Credit Loan Bank at
such time and (y) each other Revolving Fronting Bank shall only be obligated to
issue Revolving Letters of Credit having an aggregate face amount at any time
that is equal to such Revolving Fronting Bank’s commitment at such time as set
forth in the relevant Revolving Fronting Bank Agreement.

 

(b)           Participations in Letters of
Credit.  Upon the issuance (or
deemed issuance) of each Revolving Letter of Credit by a Revolving Fronting
Bank pursuant to Section 2.03(a), such Revolving Fronting Bank shall be
deemed, without further action by any party hereto, to have sold to each
Revolving Credit Loan Bank (other than such Revolving Fronting Bank in the case
of Revolving Letters of Credit not issued by a Third Party Fronting

 

33

 

Bank) and each
such Revolving Credit Loan Bank shall be deemed, without further action by any
party hereto, to have purchased from such Revolving Fronting Bank a
participation in such Revolving Letter of Credit and the related Revolving
Letter of Credit Liabilities in the amount required so that the participations
of the Revolving Credit Loan Banks (including such Revolving Fronting Bank’s
retained participation in the case of Revolving Letters of Credit not issued by
a Third Party Fronting Bank) therein shall be in proportion to their respective
Revolving Credit Loan Commitments.

 

(c)           Required Terms.  Each Revolving Letter of Credit issued
hereunder shall:

 

(i)            by its terms expire
no later than five Domestic Business Days prior to the Termination Date for the
Revolving Credit Loan Facility; except
that a Revolving Fronting Bank, at it sole discretion and without recourse to
the Agent or any other Bank Party, may issue a Revolving Letter of Credit which
expires after the Termination Date for the Revolving Credit Loan Facility, provided that five Domestic Business Days
prior to the Termination Date for the Revolving Credit Loan Facility, the
Borrower shall pay to such issuing Revolving Fronting Bank an amount in
immediately available funds equal to the Available Amount of such Revolving
Letter of Credit, to be held by such issuing Revolving Fronting Bank as cash
collateral;

 

(ii)           be in a face amount
of (x) not less than $300,000 (or the equivalent thereof in an Alternative
Currency); provided that up to
five Revolving Letters of Credit may be issued with stated amounts less than
$300,000 (or the equivalent thereof in an Alternative Currency) and (y) not
more than the amount that would, after giving effect to the issuance thereof
(and the related purchase and sale of participations therein pursuant to
Section 2.03(b)) cause the Total Outstandings of any Revolving Credit Loan
Bank to equal its Revolving Credit Loan Commitment; and

 

(iii)          be in a form
acceptable to the relevant Revolving Fronting Bank.

 

(d)           Notice of Issuance.  Except in the case of Existing Letters of
Credit, the Borrower may request that a Revolving Letter of Credit be issued by
giving the Agent and the Revolving Fronting Banks for such Revolving Letter of
Credit a notice (a “Notice of Issuance”) at least two Domestic Business
Days before such Revolving Letter of Credit is to be issued (or such shorter
period of time as shall be acceptable to the Agent and the relevant Revolving
Fronting Banks), specifying:

 

(i)            the date of
issuance of such Revolving Letter of Credit;

 

(ii)           the expiry date of
such Revolving Letter of Credit (which shall comply with the requirements of
Section 2.03(c)(i));

 

(iii)          the proposed terms
of such Revolving Letter of Credit (or the proposed form thereof shall be
attached to such Notice of Issuance), including the face amount thereof (which
shall comply with the requirements of Section 2.03(c)(ii));

 

(iv)          the transaction that
is to be supported or financed with such Revolving Letter of Credit, including
identification of the Power Supply Business or other AES

 

34

 

Business, if
any, to which such transaction relates and the name of the proposed account
party for such Revolving Letter of Credit (which may be a Borrower and any subsidiary
of the Borrower); and

 

(v)           the identity of the
Revolving Fronting Banks for such Revolving Letter of Credit, which shall
comply with the definition of “Revolving Fronting Bank” hereunder.

 

Upon the receipt of a Notice of Issuance, the Agent
shall promptly notify each Revolving Credit Loan Bank of the contents thereof
and of the amount of such Revolving Credit Loan Bank’s participation in such
Revolving Letter of Credit and such Notice of Issuance shall not thereafter be
revocable by the Borrower.

 

(e)           Revolving L/C Drawings under
Revolving Letters of Credit.

 

(i)            Upon receipt from
the beneficiary of any Revolving Letter of Credit of demand for payment under
such Revolving Letter of Credit, the relevant Revolving Fronting Bank shall
determine in accordance with the terms of such Revolving Letter of Credit
whether such request for payment should be honored.

 

(ii)           If the relevant
Revolving Fronting Bank determines that a demand for payment by the beneficiary
of a Revolving Letter of Credit should be honored, such Revolving Fronting Bank
shall make available to the beneficiary in accordance with the terms of such
Revolving Letter of Credit the amount of the Revolving L/C Drawing under such
Revolving Letter of Credit.  Such
Revolving Fronting Bank shall thereupon promptly notify the Borrower and the
Agent of the amount of such Revolving L/C Drawing paid by it.  Upon receipt by the Agent of such notice
from the relevant Revolving Fronting Bank, the Agent shall promptly notify each
Revolving Credit Loan Bank of the amount of each such Revolving Credit Loan
Bank’s participation therein (which, in the case of any Revolving L/C Drawing
under an Alternative Currency Letter of Credit shall be the Dollar Equivalent
thereof).

 

(f)            Reimbursement and Other Payments
by the Borrower.

 

(i)            If any amount is
drawn under any Revolving Letter of Credit issued at the request of or for the
account of the Borrower or any Subsidiary of the Borrower, the Borrower
irrevocably and unconditionally agrees to reimburse the applicable Revolving
Fronting Bank in Dollars for all amounts paid by such Revolving Fronting Bank
upon such Revolving L/C Drawing (which, in the case of any Revolving L/C
Drawing under an Alternative Currency Letter of Credit shall be the Dollar
Equivalent thereof), together with any and all reasonable charges and expenses
which any Revolving Credit Loan Bank or Revolving Fronting Bank may pay or
incur relative to such Revolving L/C Drawing and all such amounts due from the
Borrower shall bear interest, payable on the date upon which such amounts shall
be due and payable, on the amount drawn for each day from and including the
date such amount is drawn to but excluding the date such reimbursement payment
is due and payable at a rate per annum equal to the rate applicable to Base
Rate Loans for such day.  If a Revolving
Fronting Bank makes any payment under a Revolving Letter of Credit, the
Borrower shall reimburse such

 

35

 

Revolving
Fronting Bank by paying such amount to the relevant Revolving Fronting Bank not
later than 12:00 noon (New York City time) on the day that such payment is
made, if the Borrower receives notice of such payment before 10:00 A.M. (New
York City time) on such day, or if such notice has not been received by the
Borrower before such time on such day, then not later than 12:00 noon (New York
City time) on (i) the Domestic Business Day that the Borrower receives such
notice, if such notice is received before 10:00 A.M. (New York City time) on
the day of receipt, or (ii) the next Domestic Business Day, if such notice is
not received before such time on the day of receipt; provided that if such payment is at least $1,000,000, the
Borrower may, subject to the conditions to borrowing set forth herein, request
in accordance with Section 2.02, that such payment be made with the proceeds of
a Base Rate Borrowing (which shall consist of Revolving Credit Loans) in an
equivalent amount and, to the extent so financed, the Borrower’s obligation to
make such payment shall be discharged and replaced by the resulting Base Rate
Borrowing (which shall consist of Revolving Credit Loans).  Any overdue reimbursement payment, or
overdue interest thereon, shall bear interest, payable on demand, for each day
until paid at a rate per annum equal to the sum of the rate applicable to Base
Rate Loans for such day plus 2%.

 

(ii)           Each payment to be
made by the Borrower pursuant to this Section 2.03(f) shall be made, in
Federal or other funds immediately available, to the applicable Revolving
Fronting Bank at its address referred to in Section 10.01.

 

(iii)          The obligations of
the Borrower to reimburse any Revolving Fronting Bank under this
Section 2.03(f) shall be absolute, unconditional and irrevocable, and
shall be performed strictly in accordance with the terms of this Agreement,
under all circumstances whatsoever, including without limitation the following
circumstances:

 

(A)          any lack of validity
or enforceability of any Financing Document;

 

(B)           any amendment or
waiver of or any consent to departure from any Financing Document (except, in
the case of an effective amendment to, waiver of or consent to a departure from
any provision of this Agreement, to the extent specified herein);

 

(C)           the existence of any
claim, set-off, defense or other right which the Borrower may have at any time
against the beneficiary of any Revolving Letter of Credit (or any Person or
entity for whom such beneficiary may be acting), the Agent, any Revolving
Fronting Bank or any Revolving Credit Loan Bank or any other Person or entity,
whether in connection with this Agreement, any other Financing Document or any
unrelated transaction;

 

(D)          any statement or any
other document presented under any Revolving Letter of Credit proving to be
forged, fraudulent, invalid or insufficient in any respect or any statement
therein being untrue or inaccurate in any respect whatsoever;

 

36

 

(E)           payment by a
Revolving Fronting Bank under any Revolving Letter of Credit against presentation
of a draft or document which does not comply with the terms of such Revolving
Letter of Credit; or

 

(F)           to the extent
permitted under applicable law, any other circumstance or happening whatsoever,
whether or not similar to any of the foregoing.

 

(g)           Payments by Revolving Credit Loan
Banks with Respect to Revolving Letters of Credit.

 

(i)            Each Revolving
Credit Loan Bank shall make available an amount equal to its ratable share of
any Revolving L/C Drawing under a Revolving Letter of Credit, in Federal or
other funds immediately available in New York City, to the applicable Revolving
Fronting Bank by 3:00 P.M. (New York City time) on the date on which the
Borrower is required to reimburse such Revolving Fronting Bank with respect to
such Revolving L/C Drawing pursuant to Section 2.03(f)(i), together with
interest on such amount for the period from and including the date of such
Revolving L/C Drawing to but excluding the date upon which such amount is to be
made available at the Federal Funds Rate on the date of such Revolving L/C
Drawing, at such Revolving Fronting Bank’s address referred to in
Section 10.01; provided that
each Revolving Credit Loan Bank’s obligation shall be reduced by its pro rata
share of any reimbursement theretofore paid by the Borrower in respect of such
Revolving L/C Drawing pursuant to Section 2.03(f)(i).  The applicable Revolving Fronting Bank shall
notify each Revolving Credit Loan Bank of the amount of such Revolving Credit
Loan Bank’s obligation (which, in the case of any payment under an Alternative
Currency Letter of Credit, shall be the Dollar Equivalent thereof) in respect
of any Revolving L/C Drawing under a Revolving Letter of Credit not later than
1:30 P.M. (New York City time) on the day such payment by such Revolving Credit
Loan Bank is due.  Each Revolving Credit
Loan Bank shall be subrogated to the rights of the applicable Revolving
Fronting Bank against the Borrower to the extent such payment due from such
Revolving Credit Loan Bank to such Revolving Fronting Bank is paid, plus
interest thereon, from and including the day such amount is due from such
Revolving Credit Loan Bank to such Revolving Fronting Bank to but excluding the
day the Borrower makes payment to such Revolving Fronting Bank pursuant to
Section 2.03(f)(i), whether before or after judgment, at a rate per annum
equal to the sum of 2% plus the
rate applicable to Base Rate Loans for such day.  In the event that, on the date of any Revolving L/C Drawing,
(x) Total Outstandings exceeds the Maximum Outstanding Exposure,
(y) the applicable Revolving Fronting Bank is not reimbursed by the
Borrower on such date for the entire amount of such Revolving L/C Drawing, and
(z) the Revolving Credit Loan Banks, pursuant to the last sentence of
subsection (iv) below, are not obligated to reimburse such Revolving Fronting
Bank for the entire amount of such Revolving L/C Drawing, the Agent shall,
solely for purposes of determining the portion of such Revolving L/C Drawing to
be reimbursed by each Revolving Credit Loan Bank, (A) allocate the respective
Revolving Credit Loan Commitments of the Revolving Credit Loan Banks to the
Revolving Letter of Credit Liabilities of each Revolving Letter of Credit on
such date on a pro rata basis (based upon (1) the proportion of the Revolving
Credit Loan Commitments to the aggregate amount

 

37

 

of the
Revolving Letter of Credit Liabilities of all outstanding Revolving Letters of
Credit and (2) each Revolving Credit Loan Bank’s pro rata share of the
Revolving Credit Loan Commitments), (B) based on such allocation, determine the
reimbursement obligation of each Revolving Credit Loan Bank with respect to
such Revolving L/C Drawing and (C) promptly notify each Revolving Credit Loan
Bank of the amount of its reimbursement obligation with respect to such
Revolving L/C Drawing.

 

(ii)           If any Revolving
Credit Loan Bank fails to pay any amount required pursuant to subsection
(i) of this Section 2.03(g) on the date on which such payment is due,
interest, payable on demand, shall accrue on such Revolving Credit Loan Bank’s
obligation to make such payment, for each day from and including the date such
payment becomes due to but excluding the date such Revolving Credit Loan Bank
makes such payment at a rate per annum equal to the Federal Funds Rate.  Any payment made by any Revolving Credit
Loan Bank after 3:00 P.M. (New York City time) on any Domestic Business Day
shall be deemed for purposes of the preceding sentence to have been made on the
next succeeding Domestic Business Day.

 

(iii)          If the Borrower
shall reimburse a Revolving Fronting Bank for any Revolving L/C Drawing under a
Revolving Letter of Credit after the Revolving Credit Loan Banks shall have
made funds available to such Revolving Fronting Bank with respect to such
Revolving L/C Drawing in accordance with subsection (i) of this
Section 2.03(g), such Revolving Fronting Bank shall promptly upon receipt
of such reimbursement distribute to each Revolving Credit Loan Bank its pro
rata share thereof, including interest, to the extent received by such
Revolving Fronting Bank.

 

(iv)          The several
obligations of the Revolving Credit Loan Banks to the Revolving Fronting Banks
hereunder shall be absolute, irrevocable and unconditional under any and all
circumstances whatsoever and shall not be affected by any circumstance,
including, without limitation, (1) any set-off, counterclaim, recoupment,
defense or other right which any such Revolving Credit Loan Bank or any other
Person may have against the Agent, any Revolving Fronting Bank or any other
Person for any reason whatsoever; (2) the occurrence or continuance of a
Default or an Event of Default or the termination of the Revolving Credit Loan
or any Revolving Letter of Credit; (3) any adverse change in the condition
(financial or otherwise) of any Obligor or any other Person; (4) any breach of
any Financing Document by any party thereto; (5) the fact that any condition
precedent to the issuance of, or the making of any payment under, any Revolving
Letter of Credit was not in fact met; (6) any violation or asserted violation
of law by any Revolving Credit Loan Bank or any affiliate thereof; or (7) to
the extent permitted under applicable law, any other circumstance, happening or
event whatsoever, whether or not similar to any of the foregoing.  Each payment by each Revolving Credit Loan
Bank to a Revolving Fronting Bank for its own account shall be made without any
offset, abatement, withholding or reduction whatsoever.  If a Revolving Fronting Bank is required at
any time (whether before or after the Termination Date) to return to the
Borrower or to a trustee, receiver, liquidator, custodian or other similar
official any portion of the payments made by the Borrower to such Revolving
Fronting Bank in payment of any Reimbursement Obligation or interest thereon
upon the insolvency of the Borrower, or the commencement of any case or
proceeding under any bankruptcy,

 

38

 

insolvency or
other similar law with respect to the Borrower, each Revolving Credit Loan Bank
shall, on demand of such Revolving Fronting Bank, forthwith return to such
Revolving Fronting Bank any amounts transferred to such Revolving Credit Loan
Bank by such Revolving Fronting Bank in respect thereof pursuant to this
subsection plus such Revolving
Credit Loan Bank’s pro rata share of any interest on such payments required to
be paid to the Person recovering such payments plus
interest on the amount so demanded from the day such demand is made, if such
demand is made by 2:00 P.M. (New York City time), or from the next following
Domestic Business Day, if such demand is made after 2:00 P.M. (New York City
time), to but not including the day such amounts are returned by such Revolving
Credit Loan Bank to such Revolving Fronting Bank at a rate per annum for each
day equal to (A) the Federal Funds Rate for the day of such demand and (B) the
Base Rate plus 1% for each day
thereafter.  Notwithstanding the
foregoing or any other provision contained herein, in no event shall any
Revolving Credit Loan Bank be obligated to make any payment to a Revolving
Fronting Bank to the extent that such payment would cause such Bank’s pro rata
share of the Total Outstandings hereunder to exceed such Bank’s Revolving
Credit Loan Commitment; provided
that the foregoing shall not affect the obligation of the Borrower (which is
absolute, unconditional and irrevocable) to reimburse each Revolving Fronting
Bank for the entire amount of each payment made by such Revolving Fronting Bank
under a Revolving Letter of Credit, including any amount thereof that is not
paid by any Revolving Credit Loan Bank to such Revolving Fronting Bank
(pursuant to this sentence or otherwise).

 

(h)           Revolving Letter of Credit
Commission; Issuance Fee.

 

(i)            Revolving Letter
of Credit Commission.  The Borrower
agrees to pay to the Agent a letter of credit commission with respect to each
Revolving Letter of Credit issued at its request or for its account, computed
for each day from and including the date of issuance of such Revolving Letter
of Credit through and including the last day a Revolving L/C Drawing is
available under such Revolving Letter of Credit (the “Revolving Letter of Credit Termination Date”), at the Revolving Letter of
Credit Commission Rate on the aggregate amount available for drawing under such
Revolving Letter of Credit from time to time (whether or not any conditions to
drawing can then be met), such fee to be for the account of the Revolving
Credit Loan Banks ratably in proportion to their Total Exposures.  Such fee shall be payable quarterly in
arrears on the last Domestic Business Day of each January, April, July and
October and upon the Termination Date.

 

(ii)           Issuance Fee.  The Borrower shall pay to each Revolving
Fronting Bank for its own account such fees with respect to each Revolving
Letter of Credit issued by such Revolving Fronting Bank for the account of the
Borrower as shall have been agreed between the Borrower and such Revolving
Fronting Bank.

 

(iii)          Limited
Liability of the Revolving Fronting Bank. 
As between a Revolving Fronting Bank, on the one hand, and the Borrower,
on the other, the Borrower assumes all risks of any acts or omissions of the
beneficiary and any transferee of any Revolving Letter of Credit with respect
to its use of such Revolving Letter of Credit. 
Neither a Revolving Fronting Bank nor any of its respective employees,
officers or

 

39

 

directors
shall be liable or responsible for:  (1)
the use which may be made of any Revolving Letter of Credit or for any acts or
omissions of any beneficiary or transferee in connection therewith; (2) the
validity, sufficiency or genuineness of documents, or of any endorsement(s)
thereon, even if such documents should in fact prove to be in any or all
respects invalid, insufficient, fraudulent or forged; (3) payment by the
Revolving Fronting Bank against presentation of documents which do not comply
with the terms of any Revolving Letter of Credit, including failure of any
documents to bear any reference or adequate reference to such Revolving Letter
of Credit; or (4) any other circumstance whatsoever in making or failing to
make payment under any Revolving Letter of Credit; provided that the Borrower shall have a claim against the
applicable Revolving Fronting Bank, and such Revolving Fronting Bank shall be
liable to the Borrower, to the extent, but only to the extent, of any direct,
as opposed to consequential or special, damages suffered by the Borrower which
are found in a final, unappealable judgment of a court of competent
jurisdiction to have been caused by (x) such Revolving Fronting Bank’s
willful misconduct or gross negligence in determining whether documents
presented under any Revolving Letter of Credit comply with the terms thereof or
(y) such Revolving Fronting Bank’s willful failure to pay, or gross
negligence resulting in a failure to pay, any Revolving L/C Drawing after the
presentation to it by the beneficiary (or any transferee of the Revolving
Letter of Credit) of a draft and other required documentation strictly
complying with the terms and conditions of the Revolving Letter of Credit.  In furtherance and not in limitation of the
foregoing, a Revolving Fronting Bank may accept documents that appear on their
face to be in order, without responsibility for further investigation.

 

(iv)          Revolving
Fronting Banks and Affiliates.  Each
Revolving Fronting Bank shall have the same rights and powers under the
Financing Documents as any other Bank and may exercise or refrain from exercising
the same as though they were not Revolving Fronting Banks (in each case to the
extent such Revolving Fronting Bank is also a Bank), and the Revolving Fronting
Banks and their respective affiliates may accept deposits from, lend money to,
and generally engage in any kind of business with the Borrower or any
Subsidiary or affiliate of the Borrower as if they were not Revolving Fronting
Banks hereunder.

 

(i)            Applicability of ISP98.  Unless otherwise expressly agreed by the
Revolving Fronting Bank and the Borrower when a Revolving Letter of Credit is
issued (or deemed issued), the rules of the “International Standby Practices
1998” published by the Institute of International Banking Law and Practice (or
such later version thereof as may be in effect at the time issuance) shall
apply to the Revolving Letter of Credit.

 

Section 2.04  Evidence of Debt.

 

(a)           Each Bank Party shall maintain in
accordance with its usual practice an account or accounts evidencing the
indebtedness of the Borrower to such Bank Party resulting from each Loan owing
to such Bank Party from time to time, including the amounts of principal and
interest payable and paid to such Bank Party from time to time hereunder.  The Borrower agrees that upon notice by any
Bank Party to the Borrower (with a copy of such notice to the Agent) to the
effect that a promissory note or other evidence of indebtedness is required or

 

40

 

appropriate in
order for such Bank Party to evidence (whether for purposes of pledge,
enforcement or otherwise) the Loans owing to, or to be made by, such Bank
Party, the Borrower shall promptly execute and deliver to such Bank Party, with
a copy to the Agent, a Revolving Credit Loan Note or a Term Loan Note, as
applicable, in substantially the form of Exhibits A-1 and A-2 hereto,
respectively, payable to the order of such Bank Party in a principal amount
equal to the Loans owing to, or to be made by, such Bank Party.  All references to Notes in the Financing
Documents shall mean Notes, if any, issued hereunder.

 

(b)           The Register maintained by the Agent
pursuant to Section 10.06(f) shall include a control account, and a subsidiary
account for each Bank Party, in which accounts (taken together) shall be
recorded (i) the date and amount of each Loan made hereunder (or deemed to be
made hereunder), whether such Loan bears interest at the Base Rate or the
Adjusted London Interbank Offered Rate, and, if appropriate, the Interest
Period applicable thereto; (ii) the terms of each Assignment and Assumption
delivered to and accepted by it; (iii) the amount of any principal or
interest due and payable or to become due and payable from the Borrower to each
Bank Party hereunder; and (iv) the amount of any sums received by the Agent
from the Borrower hereunder and each Bank Party’s share thereof.

 

(c)           Entries made in good faith by the
Agent in the Register pursuant to subsection (b) above, and by each Bank Party
in its account or accounts pursuant to subsection (a) above, shall be prima facie evidence of the amount of
principal and interest due and payable or to become due and payable from the
Borrower to, in the case of the Register, each Bank Party and, in the case of
such account or accounts, such Bank Party, under this Agreement, absent manifest
error; provided, however, that the failure of the Agent or
such Bank Party to make an entry, or any finding that an entry is incorrect, in
the Register or such account or accounts, shall not limit or otherwise affect
the obligations of the Borrower under this Agreement.

 

Section 2.05  Maturity
of Loans.  (a) Each Revolving Credit
Loan shall mature, and the principal amount thereof shall be due and payable
(together with interest accrued thereon), on the Termination Date in respect of
the Revolving Credit Facility, (b) each Initial Term Loan shall mature,
and the principal amount thereof shall be due and payable (together with
interest accrued thereon), on the Initial Term Loan Termination Date and (c)
each Incremental Term Loan shall mature, and the principal amount thereof shall
be due and payable (together with interest accrued thereon) on the Incremental
Term Loan Termination Date in respect of such Incremental Term Loan Facility.

 

Section 2.06  Interest Rates.

 

(a)           Each Base Rate Loan shall bear
interest on the outstanding principal amount thereof, for each day from the
date such Loan is made until it becomes due, at a rate per annum equal to the
Base Rate Margin applicable to such Loan plus
the Base Rate for such day.  Such
interest shall be payable quarterly in arrears on each Quarterly Payment Date.

 

(b)           Each Euro-Dollar Loan shall bear
interest on the outstanding principal amount thereof, for each day during each
Interest Period applicable thereto, at a rate per annum equal to the sum of the
Euro-Dollar Margin applicable to such Loan for such day plus the Adjusted London Interbank Offered
Rate applicable to such Interest Period. 
Such interest shall

 

41

 

be payable for
each Interest Period on the last day thereof and, if such Interest Period is
longer than three months, at intervals of three months after the first day
thereof.

 

(c)           Upon the occurrence and during the
continuance of an Event of Default described in Section 6.01(a) or an Event of
Default described in Section 6.01(g) or 6.01(h) with respect to the Borrower,
the Borrower shall pay interest on (x) (i) the outstanding principal amount of
each Base Rate Loan owing to each Bank Party, payable on demand, at a rate per
annum equal at all times to 2% per annum above the rate per annum required to
be paid on such Base Rate Loan pursuant to Section 2.06(a) above and (ii) to
the fullest extent permitted by law, the amount of any interest that is not
paid when due, from the date such amount shall be due until such amount shall
be paid in full, at a rate per annum equal to 2% per annum above the rate per
annum required to be paid on the Base Rate Loans on which such interest has
accrued pursuant to Section 2.06(a) above and (y)(i) the outstanding principal
amount of each Euro-Dollar Loan owing to each Bank Party payable on demand, at
a rate per annum equal at all times to a rate per annum equal to the higher of
(i) the sum of 2% plus the
Euro-Dollar Margin applicable to such Loan plus
the Adjusted London Interbank Offered Rate applicable to such Euro-Dollar Loan
and (ii) the sum of 2% plus
the Euro-Dollar Margin applicable to such Loan plus
the quotient obtained (rounded upward, if necessary, to the next higher 1/100th
of 1%) by dividing (x) the average (rounded upward, if necessary, to the next
higher 1/16th of 1%) of the respective rates per annum at which one day (or, if
such amount due remains unpaid more than three Euro-Dollar Business Days, then
for such other period of time not longer than three months as the Agent may
select) deposits in dollars in an amount approximately equal to such overdue
payment due to each of the Reference Banks are offered to such Reference Bank
in the London interbank market for the applicable period determined as provided
above by (y) 1.00 minus the
Euro-Dollar Reserve Percentage (or, if the circumstances described in clause
(a) or (b) of Section 8.01 shall exist, at a rate per annum equal to the
sum of 2% plus the relevant rate
applicable to Base Rate Loans) (the “Euro-Dollar
Default Rate”) and (ii) to the fullest extent permitted by law, the
amount of any interest that is not paid when due, from the date such amount
shall be due until such amount shall be paid in full, at a rate per annum equal
to the Euro-Dollar Default Rate for the Euro-Dollar Loans on which such
interest has accrued pursuant to Section 2.06(b) above.

 

(d)           The Agent shall determine each
interest rate applicable to the Loans and Reimbursement Obligations
hereunder.  The Agent shall give prompt
notice to the Borrower and the participating Banks of each rate of interest so
determined, and its determination thereof shall be conclusive in the absence of
manifest error.

 

(e)           Each Reference Bank agrees to use its
best efforts to furnish quotations to the Agent as contemplated by this
Section.  If any Reference Bank does not
furnish a timely quotation, the Agent shall determine the relevant interest
rate on the basis of the quotation or quotations furnished by the remaining
Reference Bank or Banks or, if none of such quotations is available on a timely
basis, the provisions of Section 8.01 shall apply.

 

(f)            The yield to maturity with respect
to any First Priority Secured Debt issued after the date hereof and consisting
of a term loan facility or similar bank credit facility (taking into account
upfront fees paid to the lenders under such new First Priority Secured Debt)
may be no more than 0.25% per annum greater than the yield to maturity with
respect to the Initial Term Loans on the Closing Date (and the Borrower agrees
that the pricing of the Initial

 

42

 

Term Loans (if
any) will be increased and or additional fees will be paid to the Banks (if
any) to the extent necessary to satisfy such requirement).

 

Section 2.07  Method of Electing Interest Rates.

 

(a)           The Loans included in each Borrowing
shall bear interest initially at the type of rate specified by the Borrower in
the applicable Notice of Borrowing. 
Thereafter, the Borrower may from time to time elect to change or continue
the type of interest rate borne by each Group of Loans (subject to
Section 2.07(d) and the provisions of Article 8), as follows:

 

(i)            if such Loans are
Base Rate Loans, the Borrower may elect to convert such Loans to Euro-Dollar
Loans as of any Euro-Dollar Business Day;

 

(ii)           if such Loans are
Euro-Dollar Loans, the Borrower may elect to convert such Loans to Base Rate
Loans as of any Domestic Business Day or elect to continue such Loans as
Euro-Dollar Loans for an additional Interest Period, subject to
Section 2.13 if any such conversion is effective on any day other than the
last day of an Interest Period applicable to such Loans.

 

Each such election shall be made by delivering a
notice (a “Notice of Interest Rate Election”) to the Agent not later than 11:00
A.M. (New York City time) on the third Euro-Dollar Business Day before the
conversion or continuation selected in such notice is to be effective (unless
the relevant Loans are to be converted from Euro-Dollar Loans to Base Rate
Loans, in which case such notice shall be delivered to the Agent not later than
11:00 A.M. (New York City time) on the date such conversion is to be
effective).  A Notice of Interest Rate
Election may, if it so specifies, apply to only a portion of the aggregate
principal amount of the relevant Group of Loans; provided that (i) such portion is allocated ratably
among the Loans comprising such Group and (ii) the portion to which such
Notice applies, and the remaining portion to which it does not apply, are each
at least $5,000,000 (unless such portion is comprised of Base Rate Loans).  If no such notice is timely received before
the end of an Interest Period for any Group of Euro-Dollar Loans, the Borrower
shall be deemed to have elected that such Group of Loans be converted to Base
Rate Loans at the end of such Interest Period.

 

(b)           Each Notice of Interest Rate Election
shall specify:

 

(i)            the Group of Loans
(or portion thereof) to which such notice applies;

 

(ii)           the date on which
the conversion or continuation selected in such notice is to be effective,
which shall comply with the applicable clause of Section 2.07(a) above;

 

(iii)          if the Loans
comprising such Group are to be converted, the new type of Loans and, if the
Loans resulting from such conversion are to be Euro-Dollar Loans, the duration
of the next succeeding Interest Period applicable thereto; and

 

(iv)          if such Loans are to
be continued as Euro-Dollar Loans for an additional Interest Period, the
duration of such additional Interest Period.

 

43

 

Each Interest Period specified in a Notice of Interest
Rate Election shall comply with the provisions of the definition of Interest
Period.

 

(c)           Promptly after receiving a Notice of
Interest Rate Election from the Borrower pursuant to Section 2.07(a)
above, the Agent shall notify each Bank of the contents thereof and such notice
shall not thereafter be revocable by any Borrower.

 

(d)           A Borrower shall not be entitled to
elect to convert any Loans to, or continue any Loans for an additional Interest
Period as, Euro-Dollar Loans if (i) the aggregate principal amount of any
Group of Euro-Dollar Loans created or continued as a result of such election
would be less than $5,000,000 or (ii) a Default shall have occurred and be
continuing when the Borrower delivers notice of such election to the Agent.

 

(e)           If any Loan is converted to a
different type of Loan, the applicable Borrower shall pay, on the date of such
conversion, the interest accrued to such date on the principal amount being converted.

 

Section 2.08  Commitment Fee.

 

The Borrower shall pay to the Agent, for the account
of the Revolving Credit Loan Banks, ratably in proportion to their Revolving
Credit Loan Commitments, a commitment fee of 1⁄2 of 1% per annum on the daily
amount by which the aggregate amount of the Revolving Credit Loan Commitments
exceeds the aggregate Total Outstandings. 
Such commitment fee shall accrue from and including the Effective Date
to but excluding the Termination Date (or earlier date of termination of the
Revolving Credit Loan Commitments in their entirety).  Accrued commitment fees under this Section 2.08 shall be
payable quarterly in arrears on each March 31, June 30, September 30 and
December 31 and upon the date of termination of the Revolving Credit
Commitments in their entirety.

 

Section 2.09  Termination or Reduction of Revolving
Credit Loan Commitments.

 

(a)           Optional.  The Borrower may, upon at least three
Domestic Business Days’ notice to the Agent, (i) terminate the Revolving
Credit Loan Commitments in their entirety at any time, if no Revolving Credit
Loans or Revolving Letters of Credit are outstanding at such time or
(ii) ratably reduce from time to time by an aggregate amount of $5,000,000
or any larger multiple thereof, the aggregate amount of the Revolving Credit
Loan Commitments in excess of the aggregate Total Outstandings.

 

(b)           Mandatory.  (i)  Scheduled Termination.  The Revolving Credit Loan Commitments shall
terminate on the Termination Date, and any Revolving Credit Loans and Reimbursement
Obligations then outstanding (together with accrued interest thereon) shall be
due and payable on such date.

 

(ii)           Net
Cash Proceeds of Asset Sales.  On
and after the date on which all of the Term Loan Facilities have been paid in
full, in the event that the Borrower shall at any time, or from time to time,
receive any Net Cash Proceeds from Covered Asset Sales, the Revolving Credit
Loan Commitments of the Revolving Credit Loan Banks shall, unless the Required
Banks otherwise agree, be ratably reduced by such amounts and at such times as
may be required to

 

44

 

avoid any
requirement that all or any portion of such Net Cash Proceeds be applied to
repay, prepay, repurchase or defease any Debt of the Borrower that is
subordinated in right of payment to the Debt of the Borrower under the
Financing Documents.

 

(c)           Reductions Permanent.  All reductions of the Revolving Credit Loan
Commitments pursuant to this Section 2.09 shall be permanent.

 

Section 2.10  Prepayment of the Loans.

 

(a)           Optional.  (i) 
Subject in the case of any Euro-Dollar Loans to Section 2.12, the
Borrower may, upon at least one Domestic Business Day’s notice to the Agent,
prepay any Loans that bear interest at the Base Rate or upon at least three
Euro-Dollar Business Days’ notice to the Agent, prepay any Euro-Dollar Loans,
in each case in whole at any time, or from time to time in part in amounts
aggregating $5,000,000 or any larger multiple of $1,000,000, by paying the
principal amount to be prepaid together with (x) accrued interest thereon to
the date of prepayment and (y) in the case of prepayments of Initial Term
Loans prior to July 29, 2004, a premium equal to 1.00% of the aggregate
principal amount so prepaid.

 

(ii)           Upon receipt of a notice of
prepayment pursuant to this Section 2.10, the Agent shall promptly notify each
Bank of the contents thereof and of such Bank’s ratable share of such
prepayment and such notice shall not thereafter be revocable by the Borrower.

 

(b)           Mandatory.  (i) 
The Borrower shall, on the third Business Day following the receipt by
the Borrower after the Effective Date of (A) Net Cash Proceeds from any
Covered Asset Sales, (B) Net Cash Proceeds from the incurrence of Debt
permitted by Section 5.07(a)(viii) relating to a bridge financing of any
Covered Asset Sale or (C) Net Cash Proceeds from the incurrence of Debt
permitted by Section 5.07(b)(iv) relating to a bridge financing of any Covered
Asset Sale, offer to prepay, on a pro rata basis, an aggregate principal amount
of the Term Loans in an amount equal to the Banks’ Ratable Share of such Net
Cash Proceeds and the Term Loan Banks shall have the option to accept or refuse
such prepayment in accordance with the provisions set forth in Section 2.10(c).  Upon the payment in full of the Term Loans,
the Borrower shall apply such Net Cash Proceeds to prepay the Revolving Credit
Loans outstanding at such time (without any reduction of Revolving Credit Loan
Commitments).

 

(ii)           The Borrower shall, on the third
Business Day following the date of receipt of Net Cash Proceeds from the
issuance of Debt by any Subsidiary of the Borrower permitted pursuant to
Section 5.07(b)(ii) (but only to the extent applicable pursuant to the proviso
thereof) and Section 5.07(b)(vi), offer to prepay an aggregate principal amount
of the Term Loans in an aggregate amount equal to the Banks’ Ratable Share of
an amount equal to (x) 100%, in the case of Debt issued by IPALCO, (y) for
so long as the Term Loan Facility is outstanding, 100% in the case of Debt
issued by any Subsidiary Guarantor and (z) in all other cases, an amount equal
to 75% of such Net Cash Proceeds (other than $200,000,000 of additional Debt of
the Subsidiaries of the Borrower incurred after the date hereof).  The Term Loan Banks shall have the option to
accept or refuse any prepayment pursuant to this Section 2.10(b)(ii) in
accordance with the provisions set forth in Section 2.10(c).  So long as Net Cash Proceeds referred to in
this Section 2.10(b)(ii) are received by the Borrower, the Borrower agrees to
use all reasonable efforts to cause all such Net Cash Proceeds permitted to be
distributed to be so

 

45

 

distributed.  Upon the payment in full of the Term Loans,
the Borrower shall apply such Net Cash Proceeds to prepay the Revolving Credit
Loans outstanding at such time (without any reduction of Revolving Credit Loan
Commitments).

 

(c)           Term Loan Opt-Out.  With respect to any prepayment of a Term
Loan Facility pursuant to Section 2.10(b) above, the Borrower shall notify the
Agent by 12:00 Noon (New York City time) on or before the third Business Day
after the Borrower is in receipt of the applicable Net Cash Proceeds of the
receipt of such Net Cash Proceeds and its offer to prepay the Term Loans on the
fourth Business Day following receipt of such notice by the Agent.  The Agent shall then notify each of the Term
Loan Banks of such offer.  Each Term
Loan Bank, at its option, may elect not to accept such prepayment.  Any Term Loan Bank declining such prepayment
shall give written notice to the Agent by 12:00 Noon (New York City time) on
the third Business Day immediately following the date the Term Loan Banks
receive notice of such prepayment.  If a
Term Loan Bank fails to give notice by 12:00 Noon as set forth in the
immediately preceding sentence, such Term Loan Bank shall be deemed to have
accepted the offer.  Any amounts that
would otherwise have been applied to prepay such declining Term Loan Bank shall
instead be retained by the Borrower.

 

Section 2.11  General Provisions as to Payments.

 

(a)           The Borrower shall make each payment
of principal of, and interest on, the Loans and Reimbursement Obligations and
of fees hereunder, not later than 12:00 Noon (New York City time) on the date when
due, in Federal or other funds immediately available in New York City, without
set-off, counterclaim or other deduction, to the Agent at its address referred
to in Section 10.01.  The Agent
will promptly distribute to each Bank Party its ratable share of each such
payment received by the Agent for the account of the Bank Parties.  Whenever any payment of principal of, or
interest on, the Base Rate Loans or Reimbursement Obligations or of fees shall
be due on a day which is not a Domestic Business Day, the date for payment
thereof shall be extended to the next succeeding Domestic Business Day.  Whenever any payment of principal of, or
interest on, the Euro-Dollar Loans shall be due on a day which is not a
Euro-Dollar Business Day, the date for payment thereof shall be extended to the
next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day
falls in another calendar month, in which case the date for payment thereof
shall be the next preceding Euro-Dollar Business Day.  If the date for any payment of principal is extended by operation
of law or otherwise, interest thereon shall be payable for such extended time.

 

(b)           Unless the Agent shall have received
notice from the Borrower prior to the date on which any payment is due from the
Borrower to the Bank Parties hereunder that the Borrower will not make such
payment in full, the Agent may assume that such Borrower has made such payment
in full to the Agent on such date and the Agent may, in reliance upon such
assumption, cause to be distributed to each Bank Party on such due date an
amount equal to the amount then due such Bank Party.  If and to the extent that the Borrower shall not have so made
such payment, each Bank Party shall repay to the Agent forthwith on demand such
amount distributed to such Bank Party together with interest thereon, for each
day from the date such amount is distributed to such Bank Party until the date
such Bank Party repays such amount to the Agent, at the Federal Funds Rate.

 

46

 

Section 2.12  Funding Losses.

 

If the Borrower makes any payment of principal with
respect to any Euro-Dollar Loan or any Euro-Dollar Loan is converted to a Base
Rate Loan (pursuant to Article 2, 6 or 8 or otherwise) on any day other
than the last day of an Interest Period applicable thereto, or the last day of
an applicable period fixed pursuant to Section 2.06(c), or if the Borrower
fails to borrow, prepay, convert or continue any Euro-Dollar Loans after notice
has been given to any Bank Party in accordance with Section 2.02(b),
2.07(c) or 2.10(a), the Borrower shall reimburse each Bank Party within 15 days
after demand for any resulting loss or expense incurred by it (or by an
existing or prospective Participant in the related Loan), including (without
limitation) any loss incurred in obtaining, liquidating or employing deposits
from third parties, but excluding loss of margin for the period after such
payment or conversion or failure to borrow, prepay, convert or continue; provided that such Bank Party shall have
delivered to the Borrower a certificate as to the amount of such loss or
expense, which certificate shall be conclusive in the absence of manifest
error.

 

Section 2.13  Computation of Interest and Fees.

 

Interest based on the Base Rate hereunder shall be
computed on the basis of a year of 365 days (or 366 days in a leap year) and
paid for the actual number of days elapsed (including the first day but
excluding the last day).  All other
interest and fees shall be computed on the basis of a year of 360 days and paid
for the actual number of days elapsed (including the first day but excluding
the last day).

 

Section 2.14  Revolving L/C Cash Collateral Account.

 

(a)           All amounts required to be deposited
as cash collateral with the Collateral Agent pursuant to Section 2.15 or
Section 6.03 shall be deposited in a cash collateral account (the “Revolving L/C Cash Collateral Account”) established by the Borrower with the Collateral Agent, to be
held, applied or released for application as provided in this Section 2.14
and Section 2.15.

 

(b)           The Borrower hereby grants to the
Collateral Agent for the ratable benefit of the Revolving Fronting Banks and
the other Lender Parties as their respective interests appear, a security
interest in the Borrower’s right, title and interest in and to the Revolving
L/C Cash Collateral Account and all funds and financial assets from time to
time credited thereto, all interest, dividends, distributions, cash,
instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of such funds
and financial assets, and all certificates and instruments, if any, from time
to time representing or evidencing the Revolving L/C Cash Collateral Account
and all of proceeds of any of the foregoing (the “Revolving L/C Collateral”), to secure all of the Borrower’s
Obligations hereunder and the other Credit Agreement Documents.

 

(c)           If and when any portion of the
Revolving Letter of Credit Liabilities on which any deposit of cash collateral
was based (the “Relevant Contingent
Exposure”) shall
become fixed (a “Direct Exposure”) as a result of the payment by a
Revolving Fronting Bank of a draft presented under any relevant Revolving
Letter of Credit, (including any such payment

 

47

 

under an
Alternative Currency Letter of Credit for which the relevant Revolving Fronting
Bank, as a result of fluctuations in currency exchange rates, is not reimbursed
in full by the Revolving Credit Loan Banks) the amount of such Direct Exposure
(but not more than the amount in the Revolving L/C Cash Collateral Account at
the time) shall be withdrawn by the Agent from the Revolving L/C Cash
Collateral Account and shall be paid to the relevant Revolving Fronting Bank to
be applied against such Direct Exposure and the Relevant Contingent Exposure
shall thereupon be reduced by such amount.

 

(d)           Interest and other payments and
distributions made on or with respect to the Revolving L/C Collateral held by
the Collateral Agent shall be for the account of the Borrower and shall
constitute additional Revolving L/C Collateral to be held by the Agent; provided that the Agent shall have no
obligation to invest any Revolving L/C Collateral on behalf of the Borrower or
any other Person.  Beyond the exercise
of reasonable care in the custody thereof, the Agent shall have no duty as to
any Revolving L/C Collateral in its possession or control or in the possession
or control of any agent or bailee or any income thereon or as to the
preservation of rights against prior parties or any other rights pertaining
thereto.  The Collateral Agent shall be
deemed to have exercised reasonable care in the custody and preservation of the
Revolving L/C Collateral in its possession if the Revolving L/C Collateral is
accorded treatment substantially equal to that which it accords its own
property, and shall not be liable or responsible for any loss or damage to any
of the Revolving L/C Collateral, or for any diminution in the value thereof, by
reason of the act or omission of any agent or bailee selected by the Collateral
Agent in good faith.  All expenses and
liabilities incurred by the Collateral Agent in connection with taking, holding
and disposing of any Revolving L/C Collateral (including customary custody and
similar fees with respect to any Revolving L/C Collateral held directly by the
Agent and the Revolving L/C Cash Collateral Account) shall be paid by the
Borrower from time to time upon demand. 
Upon an Actionable Default, the Collateral Agent shall be entitled to
apply (and, at the request of the Required Banks but subject to applicable law,
shall apply) Revolving L/C Collateral or the proceeds thereof to payment of any
such expenses, liabilities and fees. 
After the termination of the Revolving Credit Loan Commitments of the
Revolving Loan Credit Loan Banks, the termination of all Revolving Letters of
Credit and the repayment in full of all outstanding Reimbursement Obligations
in respect of the Revolving Letters of Credit, the Collateral Agent shall
transfer the remaining Revolving L/C Collateral or the proceeds thereof (the “Excess Revolving L/C Collateral”) to the Collateral
Account.  Notwithstanding any other term
or provision of this Agreement, and for the avoidance of doubt, the Revolving
L/C Collateral shall be paid first
to the relevant Revolving Fronting Bank in satisfaction of any Direct Exposures
or Relevant Contingent Exposures and no Revolving L/C Collateral shall be
released or disbursed to any party other than the relevant Revolving Fronting
Bank until the satisfaction of all Revolving Letter of Credit Liabilities and
the termination of the Revolving Credit Loan Commitments and all Revolving
Letters of Credit.

 

Section 2.15  Computations of Outstandings; Determination
of Available Amount of Alternative Currency Letters of Credit.

 

(a)           Whenever reference is made in this
Agreement to the Total Outstandings on any date under this Agreement, such
reference shall refer to the Total Outstandings on such date after giving
effect to all Extensions of Credit to be made on such date.  For purposes of calculating the Total
Outstandings on any date of determination, the aggregate Available

 

48

 

Amount in
respect of all Alternative Currency Letters of Credit shall be deemed to equal
the amount thereof most recently reported to the Agent pursuant to subsection
(b) below.  At no time shall the Total
Outstandings under this Agreement exceed the sum of (i) the aggregate
amount of the Revolving Credit Loan Commitments, plus (ii) the amounts on deposit in the Revolving L/C
Cash Collateral Account (such sum being referred to herein as the “Maximum Outstanding Exposure”).  References to the Unused Revolving Credit Loan
Commitments shall refer to the excess, if any, of the Revolving Credit Loan
Commitments over the Total Outstandings; and references to the unused portion
of any Revolving Credit Loan Commitment shall refer to the Unused Revolving
Credit Loan Commitment of such Bank.

 

(b)           Each Revolving Fronting Bank that
issues an Alternative Currency Letter of Credit shall (i) on the first
Domestic Business Day of each calendar month, deliver to the Agent a schedule
listing (A) each outstanding Alternative Currency Letter of Credit issued by
such Revolving Fronting Bank, (B) the maximum aggregate amount available to be
drawn under each such Alternative Currency Letter of Credit at any time on or
after such date (denominated in the applicable Alternative Currency, assuming
the compliance with and satisfaction of all conditions for Revolving L/C
Drawing enumerated therein) and (C) the equivalent in Dollars of such amount
(as determined by such Revolving Fronting Bank on the basis of exchange rates
available to or otherwise used by such Revolving Fronting Bank), together with
the applicable exchange rate utilized by such Revolving Fronting Bank and the
source thereof (it being agreed and understood that such applicable exchange
rate may be adjusted by a reasonable and customary volatility factor as agreed
by the Borrower and such Revolving Fronting Bank); (ii) on the date of
issuance of any Alternative Currency Letter of Credit (including, if any
Alternative Currency Letters of Credit are issued or deemed issued on the
Closing Date, on the Closing Date), deliver to the Agent a schedule listing the
information described in clauses (B) and (C) above; (iii) on the date of
any increase or decrease in the Available Amount of any Alternative Currency
Letter of Credit (other than any increase or decrease attributable solely to
currency exchange rate fluctuations), deliver to the Agent a schedule listing
the information described in clauses (B) and (C) above after giving effect to
such increase or decrease (as the case may be) and (iv) not later than one
Domestic Business Day after its receipt of a written request therefor from the
Agent or any Bank, deliver to the Agent a schedule listing the information
described in clauses (A), (B) and (C) above. 
The Agent shall promptly after its receipt thereof deliver a copy of
each such schedule to the Collateral Agent, the Borrower and the Banks.  For all purposes under this Agreement,
unless otherwise expressly set forth herein, the Available Amount in respect of
each Alternative Currency Letter of Credit shall be deemed to equal, on any
date of determination, the Dollar Equivalent thereof as most recently reported
to the Agent by the relevant Revolving Fronting Bank pursuant to this
subsection (b).

 

(c)           If, on (i) the date that any
schedule is delivered by a Revolving Fronting Bank to the Agent pursuant to
subsection (b) above; (ii) any date, after giving effect to reduction in
the Revolving Credit Loan Commitments or (iii) any other date, Total
Outstandings on such date (calculated pursuant to subsection (a) and (b) above)
exceeds the Maximum Outstanding Exposure, then within two Domestic Business
Days thereafter the Borrower shall be obligated to deposit cash collateral with
the Collateral Agent in the Revolving L/C Cash Collateral Account in an amount
equal to such excess to be held, applied or released for application as
provided in Section 2.14.

 

49

(d)                                 If
at any time the Maximum Outstanding Exposure exceeds the Total Outstandings
hereunder, the Borrower may provide a written notice to the Collateral Agent
requesting the Collateral Agent to withdraw such excess amount from the
Revolving L/C Cash Collateral Account and pay such amount to the Borrower, and,
provided that no Actionable
Default shall have occurred and be continuing, the Collateral Agent shall
promptly undertake such actions in accordance with the instructions of the
Borrower.  If an Actionable Default
shall have occurred and be continuing, the Collateral Agent shall not take any
of the foregoing actions and, if and when requested by the Required Banks, the
amounts held in the Revolving L/C Cash Collateral Account shall be withdrawn by
the Collateral Agent, and the proceeds thereof shall be first applied by the Collateral Agent to
repay the Total Outstandings and other due and unpaid amounts required to be
paid by the Borrower hereunder and second,
held, applied or transferred as provided in Section 2.14.

 

Section 2.16 
Alternative Currency Letter of Credit Issuances.

 

It is understood that, if
Revolving Letters of Credit are issued in an Alternative Currency, a
circumstance may arise where the United States dollars (“Dollars”) needed to reimburse a Revolving
Fronting Bank may exceed the Unused Revolving Credit Loan Commitment of the
Revolving Credit Loan Banks and the amounts on deposit in the Revolving L/C
Cash Collateral Account available for that purpose.  This situation could occur if an Alternative Currency exchange
rate between the currency of a Revolving Letter of Credit issuance and Dollars
changes between the date of issuance of, and the date of funding a Revolving
L/C Drawing on, an Alternative Currency Letter of Credit (or funding a deposit
to the Revolving L/C Cash Collateral Account to cover issuances in excess of
the Revolving Credit Loan Commitments) so that more Dollars are needed to
purchase the Alternative Currency on the date of funding of the Revolving L/C
Drawing on an Alternative Currency Letter of Credit (or funding a deposit to
the Revolving L/C Cash Collateral Account) than would have been needed to fund
a Revolving L/C Drawing made on the issuance date of such Revolving Letter of
Credit (i.e.,
the currency of issuance has appreciated against the Dollar between the date of
issuance and the date of funding or cash collateral deposit).  In such a circumstance, the Revolving
Fronting Banks agree as follows: 
(a) (x) Any shortfall under the Revolving Credit Loan Commitment to
purchase participations in Revolving L/C Drawings under Revolving Letters of
Credit shall be allocated pro rata
among the Revolving Fronting Banks who have issued Alternative Currency Letters
of Credit for which the currency of issuance has appreciated against the Dollar
(“Adverse
Alternative Currency Letters of Credit”); (y) the pro rata allocation shall be based on
the Dollar Equivalent of the face amount of each Adverse Alternative Currency
Letter of Credit, measured at the issuance date of each such Adverse
Alternative Currency Letter of Credit and (z) Revolving Credit Loan
Commitments shall not be used to purchase participations in Adverse Alternative
Currency Letters of Credit to the extent that use of those Revolving Credit
Loan Commitments covers any increase in the Dollar Equivalent of an Adverse
Alternative Currency Letters of Credit since the date of issuance of the
Revolving Letter of Credit if following such purchase remaining Unused
Revolving Credit Loan Commitments are insufficient to purchase participations
in the remaining outstanding Revolving Letters of Credit and (b) amounts
deposited in the Revolving L/C Cash Collateral Account shall be allocated first
to cover shortfalls to the extent existing on the last date of actual deposit
to the Revolving L/C Cash Collateral Account, or if later, the most recent date
of determination pursuant to Section 2.15(b), and second to any additional
shortfalls (allocated pro rata among such shortfalls); provided
that

 

50

 

funds on deposit in the
Revolving L/C Cash Collateral Account, if any, may not be applied to fund a
Revolving L/C Drawing on an Adverse Alternative Currency Letter of Credit to
the extent those funds have been allocated to cover an exposure existing on the
last date of deposit to the Revolving L/C Cash Collateral Account if following
the application a previously covered exposure is left without cash collateral.

 

Section 2.17  Increase in Term Loan
Commitments.  (a)  The Borrower may, at any time and from time
to time prior to the later of (x) the Initial Term Loan Termination Date and
(y) any Incremental Term Loan Termination Date, by notice to the Agent, request
the addition of one or more new term loan facilities (each, an “Incremental Term Loan Facility”) or one or
more increases in the Commitments under a Term Loan Facility existing at the
time of such request (each, a “Commitment
Increase”) in an aggregate amount up to $500,000,000 plus the sum of all amounts applied from
time to time after the Effective Date to permanently prepay Term Loans pursuant
to Section 2.10 hereof, to be effective as of a date that is at least 90
days prior to the scheduled Termination Date then in effect (each, an “Increase Date”) as specified in the related
notice to the Agent; provided,  however,
that (i) in no event shall the aggregate amount of such Commitment
Increases exceed $700,000,000, (ii) on the date of any request by the
Borrower for a Commitment Increase and on the related Increase Date, the
applicable conditions set forth in Section 3.02 and in clause (d) of
this Section 2.17 shall be satisfied and (iii) if the request is for an
Incremental Term Loan Facility, such Incremental Term Loan Facility shall
contain such other terms as may be agreed by the Borrower, the Agent and the
Incremental Term Loan Banks, provided
that (A) the final scheduled maturity date of the Incremental Term Loan
Facility shall in no event be prior to the Initial Term Loan Termination Date
and (B) no Bank shall have any obligation to participate in any Incremental
Term Loan Facility or any Commitment Increase.

 

(b)                                 The
Agent shall promptly notify the Initial Term Loan Banks of any request by the
Borrower for a Commitment Increase, which notice shall include (i) the
proposed amount of such requested Commitment Increase, (ii) the proposed
Increase Date and (iii) the date by which Initial Term Loan Banks wishing
to participate in the Commitment Increase must commit to an increase in the
amount of their respective Commitments (the “Increase Commitment Date”). 
Each Initial Term Loan Bank that is willing to participate in the
requested Commitment Increase shall, in its sole discretion, give written
notice to the Agent on or prior to the applicable Increase Commitment Date of
the amount by which it is willing either to increase its Initial Term Loan
Commitment or commit to the Incremental Term Loan Facility.  If the Initial Term Loan Banks notify the
Agent that they are willing to participate in a Commitment Increase by an
aggregate amount that exceeds the amount of the requested Commitment Increase,
the requested Commitment Increase shall be allocated among the Initial Term
Loan Banks willing to participate therein in such amounts as are agreed between
the Borrower and the Agent.

 

(c)                                  Promptly
following the applicable Increase Commitment Date, the Agent shall notify the
Borrower as to the amount, if any, by which the Initial Term Loan Banks are
willing to participate in the requested Commitment Increase.  If the aggregate amount by which the Initial
Term Loan Banks are willing to participate in the requested Commitment Increase
on any such Increase Date is less than the requested Commitment Increase, then
the Borrower may extend offers to one or more Eligible Assignees to participate
in any portion of the requested

 

51

 

Commitment
Increase that has not been committed to by the Initial Term Loan Banks as of
the applicable Increase Commitment Date; provided, however, that the Initial
Term Loan Commitment or Incremental Term Loan Commitment, as the case may be,
of each such Eligible Assignee shall be in an amount equal to at least
$1,000,000.

 

(d)                                 On
the applicable Increase Date, each Eligible Assignee that accepts an offer to
participate in a requested Commitment Increase in accordance with
Section 2.17(c) shall become a Bank party to this Agreement as of the
applicable Increase Date and the Initial Term Loan Commitment or the
Incremental Term Loan Commitment, as the case may be, of each Initial Term Loan
Bank participating in such Commitment Increase shall be so increased by such
amount (or by the amount allocated to such Initial Term Loan Bank pursuant to
the last sentence of Section 2.17(b)) as of such Commitment Increase Date;
provided,
however,
that the Agent shall have received on or before the applicable Increase Date
the following, each dated such date:

 

(i)                                     (A) certified
copies of resolutions of the Board of Directors (or a committee thereof) of the
Loan Parties approving the applicable Commitment Increase and the corresponding
modifications to this Agreement and (B) an opinion of counsel for each of
the Loan Parties (which may be an opinion of in-house counsel), each in form
and substance reasonably satisfactory to the Agent;

 

(ii)                                  an
assumption agreement from each Eligible Assignee, if any, in form and substance
satisfactory to the Borrower and the Agent (each an “Assumption
Agreement”), duly
executed by such Eligible Assignee, the Agent and the Borrower; and

 

(iii)                               confirmation
from each Initial Term Loan Bank of the increase in the amount of its Initial
Term Loan Commitment or Incremental Term Loan Commitment, as the case may be,
in a writing satisfactory to the Borrower and the Agent.

 

On the applicable
Increase Date, upon fulfillment of the conditions set forth in the immediately
preceding sentence of this Section 2.17(d) and the conditions set forth in
Section 3.02, (x) the Agent shall notify the Initial Term Loan Banks and
the Additional Term Loan Banks participating in such Commitment Increase and
the Borrower, on or before 11:00 A.M. (New York City time), by telecopier
or telex, of the occurrence of the applicable Commitment Increase to be
effected on the related Increase Date, (y) each Initial Term Loan Bank
participating in such Commitment Increase and each Additional Term Loan Bank
participating in such Commitment Increase shall make a single advance to the
Borrower in an amount equal to its agreed commitment in respect of the
Commitment Increase; provided
that after taking into account such advance, the aggregate principal amount of
the Term Loans of each such participating Term Loan Bank shall not exceed such
Term Loan Bank’s Total Term Loan Commitments and (z) the Agent shall record in
the Register maintained by the Agent pursuant to Section 10.06(g) the
relevant information with respect to each Initial Term Loan Bank and each
Additional Term Loan Bank participating in such Commitment Increase on such
date.

 

52

 

ARTICLE III

 

CONDITIONS

 

Section 3.01  Closing.

 

The closing hereunder
shall occur when all the following conditions have been satisfied:

 

(a)                                  The
Borrower shall have paid all accrued fees of the Agent, the Collateral Agent,
the Arranger Parties and the Banks and all accrued expenses of the Agent and
the Collateral Agent (including, without limitation, all fees and expenses of
counsel to the Agent payable pursuant to Section 10.03);

 

(b)                                 The
Agent shall have received, if requested, duly executed Notes of the Borrower
for the account of each Bank that has so requested, dated on or before the
Closing Date complying with the provisions of Section 2.04;

 

(c)                                  The
Agent shall have received (i) an opinion of the Assistant General Counsel
of the Borrower, substantially in the form of Exhibit B-1 hereto, (ii) an
opinion of Davis Polk & Wardwell, special counsel for the Borrower,
substantially in the form of Exhibit B-2 hereto, (iii) opinions of special
counsel for certain Subsidiaries of the Borrower in each of the jurisdictions
in which the Required Banks may reasonably request, substantially in the form
of Exhibit B-3 hereto, (iv) an opinion of Morris, Nichols, Arsht & Tunnell,
Delaware counsel for the Borrower, substantially in the form of Exhibit B-4
hereto, (v) an opinion of Maples and Calder, Cayman Islands counsel for
the Borrower, substantially in the form of Exhibit B-5 hereto, and (vi) an
opinion of Conyers Dill & Pearman, British Virgin Islands counsel for the
Borrower, substantially in the form of Exhibit B-6 hereto, each dated the Closing
Date (except for the opinions to be delivered pursuant to clause (iii) above
which shall be dated on or about the Closing Date) and covering such additional
matters relating to the transactions contemplated hereby as the Required Banks
may reasonably request;

 

(d)                                 The
Agent shall have received an opinion of Shearman & Sterling, special
counsel for the Agent, substantially in the form of Exhibit B-7 hereto, dated
the Closing Date and covering such additional matters relating to the
transactions contemplated hereby as the Required Banks may reasonably request;

 

(e)                                  The
Agent shall have received evidence, satisfactory to it, in the form of pro
forma calculations, that the making of Borrowings and the issuance (or deemed
issuance) of, and Revolving L/C Drawings under, the Revolving Letters of
Credit, under this Agreement are permitted under the terms of the Debt of the
Borrower outstanding on the Closing Date;

 

(f)                                    The
Agent shall have received executed counterparts of Amendment No. 2 to the
Collateral Trust Agreement reflecting such amendments as the Agent may deem
necessary.

 

(g)                                 The
Agent shall have received copies of the resolutions of the Board of Directors
(or, in the case of any limited liability companies, Board of Representatives
or the equivalent) of each Loan Party authorizing the execution, delivery and
performance by such

 

53

 

Loan Party of
the Financing Documents to which it is a party, certified by a duly authorized
officer of such Loan Party (which certificate shall state that such resolutions
are in full force and effect on the Closing Date);

 

(h)                                 The
Agent shall have received certified copies of all approvals, authorizations or
consents of, or notices to or registrations with, any governmental body or
agency required for each Loan Party, if necessary, to enter into the Financing
Documents to which it is a party;

 

(i)                                     The
Agent shall have received a certificate of a duly authorized officer of each
Loan Party certifying the names and true signatures of the officers of such
Loan Party authorized to sign the Financing Documents to which it is a party
and the other documents to be delivered by such Loan Party hereunder;

 

(j)                                     The
Agent shall have received a certificate signed by a duly authorized officer of
the Borrower dated the Closing Date, to the effect that: (i) the
representations and warranties contained in Article 4 hereof are true and
correct on and as of the Closing Date as though made on and as of such date;
and (ii) no Default has occurred and is continuing or would result from
the issuance of the Revolving Letters of Credit requested by the Borrower to be
issued on such date and the Borrowings requested by the Borrower to be made on
such date (including, without limitation, the deemed issuance of Revolving
Letters of Credit pursuant to the second sentence of Section 2.03(a));

 

(k)                                  The
Agent shall have received a certificate signed by a duly authorized officer of
the Borrower to the effect that the
execution, delivery and performance by each Loan Party of the Financing
Documents to which it is a party are within such Loan Party’s corporate or other organizational powers, have been
duly authorized by all necessary corporate or other organizational action,
require no action by or in respect of, or filing with, any governmental body,
agency or official (other than the filing of UCC-1 financing statements and
other filings required to perfect security interests) and do not contravene, or
constitute a default under, any provision of applicable law or regulation or of
the certificate of incorporation (or certificate of formation, as applicable)
or by-laws (or other organizational documents, as applicable) of such Loan Party or of any agreement,
judgment, injunction, order, decree or other instrument binding upon the Borrower or any of its Subsidiaries that could reasonably be
expected to result in a Material Adverse Effect or result in the creation or
imposition of any Lien on any asset of the Borrower or of AES BVI II or of any Material AES Entity or of any Pledged
Subsidiary (except for Liens created by the Financing Documents) provided that any foreclosure or other
exercise of remedies by the Collateral Trustees or the Collateral Agent will
require additional approvals and consents that have not been obtained from
foreign and domestic regulators and from lenders to, and suppliers, customers
or other contractual parties of one or more Subsidiaries and failure to obtain
such approval or consent could result in a default, or a breach of agreement or
other legal obligations of such Subsidiaries; and

 

(l)                                     The
Agent shall have received all documents it may reasonably request relating to
the existence of the Loan Parties, the corporate or other organizational
authority for and the validity of this Agreement and the other Financing
Documents, and any other matters relevant hereto, all in form and substance
satisfactory to the Agent.

 

54

 

The Agent shall promptly
notify the Borrower and the Banks of the Closing Date, and such notice shall be
conclusive and binding on all parties hereto.

 

Section 3.02  Extension of
Credit.

 

The obligation of each
Bank to make a Loan on the occasion of each Borrowing and the obligation of the
Revolving Fronting Banks to issue a Revolving Letter of Credit on the occasion
of each request therefor by the Borrower shall in each case be subject to the
satisfaction of the following conditions:

 

(a)                                  receipt
by the Agent of a Notice of Borrowing (except in the case of the deemed
issuance of Revolving Letters of Credit pursuant to the second sentence of
Section 2.03(a)) or a Notice of Issuance as required by Section 2.02
or 2.03, as the case may be;

 

(b)                                 the
fact that, immediately after such Extension of Credit, after giving effect to
all direct and indirect applications of the proceeds of such Extension of
Credit made substantially simultaneously with the extension thereof, the
aggregate Total Outstandings of any Revolving Credit Loan Bank will not exceed
its Revolving Credit Loan Commitment;

 

(c)                                  the
fact that the making of the Borrowings, the continuation of certain Loans and
the issuance of, and the Revolving L/C Drawings and the Revolving Letters of
Credit under this Agreement are permitted under the terms of the Debt of the
Borrower outstanding as of the date of the making of such Loan or the issuance
of, and the Revolving L/C Drawings under such Revolving Letter of Credit;

 

(d)                                 the
fact that, immediately before and after such Extension of Credit, no Default
shall have occurred and be continuing; and

 

(e)                                  the
fact that the representations and warranties of the Obligors contained in the
Financing Documents (except (i) in the case of a Refunding Borrowing, the
representations and warranties set forth in Section 4.05(b) and 4.06 as to
any matter which has heretofore been disclosed in writing by the Borrower to
the Bank Parties and (ii) in the case of the representations and warranties set
forth in Section 4.16 which shall be true on and as of the date hereof)
shall be true on and as of the date of such Extension of Credit.

 

Each Extension of Credit
hereunder shall be deemed to be a representation and warranty by the Borrower
on the date of such Extension of Credit as to the facts specified in clauses
(b) through (e) of this Section.

 

ARTICLE IV

 

REPRESENTATIONS AND WARRANTIES

 

The Borrower represents
and warrants that:

 

55

 

Section 4.01  Corporate Existence and
Power.

 

Each Loan Party is a
corporation (or limited liability company, as applicable) duly incorporated (or
formed, as applicable), validly existing and in good standing under the laws of
the jurisdiction of its incorporation (or formation) and has all corporate or
other organizational powers and all material governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted.

 

Section 4.02 
Corporate and Governmental Authorization and Filings; No
Contravention.

 

(a)                                  The
execution, delivery and performance by each Loan Party of the Financing
Documents to which it is a party are within such Loan Party’s corporate or other organizational powers, have been
duly authorized by all necessary corporate or other organizational action,
require no action by or in respect of, or filing with, any governmental body,
agency or official (other than the filing of UCC-1 financing statements and
other filings required to perfect security interests) and do not contravene, or
constitute a default under, any provision of applicable law or regulation or of
the certificate of incorporation (or certificate of formation, as applicable)
or by-laws (or other organizational documents, as applicable) of such Loan Party or of any agreement,
judgment, injunction, order, decree or other instrument binding upon the Borrower or any of its Subsidiaries that could reasonably be
expected to result in a Material Adverse Effect or result in the creation or
imposition of any Lien on any asset of the Borrower, AES BVI II or of any Material AES Entity or of any Pledged
Subsidiary (except for Liens created by the Financing Documents).

 

(b)                                 All
filings and other actions necessary to perfect the security interest granted by
each Loan Party in the Collateral created under the Collateral Documents have
been duly made or taken and are in full force and effect, and (w) the
Security Agreement creates in favor of the Collateral Trustees for the benefit
of the Secured Holders a valid and, together with such filings and other
actions, perfected first priority security interest in the Security Agreement
Collateral (subject to no Liens other than Liens permitted by the Financing
Documents), securing the payment of the Secured Obligations, and (x) the BVI
Cayman Pledge Agreement creates in favor of the Collateral Trustees for the
benefit of the Secured Holders a valid and, together with such other actions,
perfected first priority security interests in the BVI Collateral (subject to
no Liens other than Liens permitted by the Financing Documents), securing the
payment of the Secured Obligations and (y) the Collateral Trust Agreement
creates in favor of the Collateral Trustees for the benefit of the Secured
Holders, a valid and, together with such filings and other actions, perfected
first priority security interest in the Additional Collateral Trust Agreement
Collateral; provided that any
foreclosure or other exercise of remedies by the Collateral Trustees will
require additional approvals and consents that have not been obtained from
foreign and domestic regulators and from lenders to, and suppliers, customers
or other contractual counterparties of one or more Subsidiaries and failure to
obtain such approval or consent could result in a default, or a breach of
agreement or other legal obligations of such Subsidiaries.  The Borrower is the legal and beneficial
owner of the Security Agreement Collateral and the Additional Collateral Trust
Agreement Collateral and AES BVI II is the legal and beneficial owner of the
BVI Collateral, in each case free and clear of any Lien, except for Liens
permitted by the Financing Documents.

 

56

 

Section 4.03 
Compliance with Laws.

 

The Borrower is and each
of its Subsidiaries are in compliance with all applicable laws, ordinances,
rules, regulations, and requirements of governmental authorities (including,
without limitation, Environmental Laws and ERISA and the rules and regulations
thereunder) except for any non-compliance that could not reasonably be expected
to have a Material Adverse Effect.

 

Section 4.04  Binding Effect.

 

This Agreement
constitutes a valid and binding agreement of each Obligor and each other Financing Document, when executed and
delivered in accordance with this Agreement, will constitute a valid and
binding obligation of each Loan Party
that is a party thereto, in each case enforceable in accordance with its
terms.

 

Section 4.05 
Financial Information.

 

(a)                                  The
consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of December 31, 2003 and the
related consolidated statements of operations and cash flows for the fiscal
year then ended, reported on by Deloitte & Touche and set forth in the
Form 10-K, a copy of which has been delivered to each of the Bank Parties,
fairly present, in conformity with generally accepted accounting principles,
the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such
date and their consolidated results of operations and cash flows for such
fiscal year.

 

(b)                                 Except
for Disclosed Matters, since December 31, 2003 there has been no material
adverse change in the business, financial position, results of operations or
prospects of the Borrower and its Consolidated
Subsidiaries, considered as a whole.

 

Section 4.06  Litigation.

 

Except for Disclosed
Matters, there is no action, suit, investigation, litigation or proceeding
pending against, or to the knowledge of the Borrower threatened against or
affecting, the Borrower or any of its Subsidiaries
before any court or arbitrator or any governmental body, agency or
official in which there is a reasonable possibility of an adverse decision
which could have a Material Adverse Effect or which in any manner draws into
question the legality, validity or enforceability of any Financing Document, and there shall have
been no change in the status of, or in the financial effect on the Borrower or
its Subsidiaries from the actions, suits, investigations, litigations or
proceedings set forth in the Disclosed Matters that could reasonably be
expected to have a Material Adverse Effect.

 

Section 4.07 
Compliance with ERISA.

 

Each member of the ERISA Group has fulfilled its
obligations under the minimum funding standards of ERISA and the Internal
Revenue Code with respect to each Plan and is in compliance in all material
respects with the currently applicable provisions of ERISA and the Internal
Revenue Code with respect to each Plan. 
No member of the ERISA Group
has (a) sought a waiver of the minimum funding standard under
Section 412 of the Internal Revenue

 

57

 

Code in respect of any
Plan; (b) failed to make any contribution or payment to any Plan or
Multiemployer Plan or in respect of any Benefit Arrangement, or made any
amendment to any Plan or Benefit Arrangement, which has resulted or could
result in the imposition of a Lien or the posting of a bond or other security
under ERISA or the Internal Revenue Code or (c) incurred any liability in
excess of $100,000 under Title IV of ERISA other than a liability to the PBGC
for premiums under Section 4007 of ERISA.

 

Section 4.08 
Environmental Matters.

 

(a)                                  In
the ordinary course of its business, each of the Borrower and its Subsidiaries conducts an ongoing
review of the effect of Environmental Laws on the business, operations and
properties of the Borrower or such Subsidiary,
in the course of which it identifies and evaluates associated liabilities and
costs (including, without limitation, any capital or operating expenditures
required for clean-up or closure of properties presently or previously owned,
any capital or operating expenditures required for investigation, to achieve or
maintain compliance with environmental protection standards imposed by
Environmental Laws or as a condition of any license, permit or contract, any
related constraints on operating activities, including any periodic or
permanent shutdown of any facility or reduction in the level of or change in
the nature of operations conducted thereat, any costs or liabilities in
connection with off-site disposal of wastes or Hazardous Substances by the Borrower
or its Subsidiaries, and any
actual or potential liabilities to third parties, including employees, and any
related costs and expenses).  On the
basis of this review, the Borrower has reasonably concluded that such
associated liabilities and costs, including the costs of compliance with
Environmental Laws, are unlikely to have a Material Adverse Effect.

 

(b)                                 There
are no facts, circumstances or conditions that are reasonably likely to result
in liabilities arising under Environmental Laws that could have a material
adverse effect on the business, financial conditions, results of operations or
prospects of the Borrower and its Consolidated
Subsidiaries, considered as a whole.

 

Section 4.09  Taxes.

 

United States Federal
income tax returns of the Borrower and its Subsidiaries and any other material
tax returns filed by them have been examined and closed (other than for the
limited purposes of net operating loss carry-forwards) through the fiscal year
ended December 31, 1999 there are no ongoing or pending tax audits or
examinations, and no deficiencies or other claims for unpaid taxes are proposed
in respect of any taxes due from the Borrower, its Subsidiaries or any Material
AES Entity that could have a Material Adverse Effect.  The Borrower, its Subsidiaries and all Material AES Entities have
filed all United States Federal income tax returns and the Borrower, its
Subsidiaries and all Material AES Entities have filed all other material tax
returns which are required to be filed by them, all such United States Federal
income tax returns and all such other material returns are true, correct and
complete in all material respects and all taxes due as indicated on such
returns or pursuant to any assessment received by the Borrower or any
Subsidiary or any Material AES Entity have been paid, other than any such taxes
that are being diligently contested in good faith through appropriate
proceedings and for which adequate reserves have been established in accordance
with generally accepted accounting principals. 
The charges, accruals and reserves on the books of the

 

58

 

Borrower, its
Subsidiaries and all Material AES Entities in respect of taxes or other
governmental charges are, in the opinion of the Borrower, adequate.

 

Section 4.10 
Material AES Entities.

 

Each Material AES Entity is a corporation
(or limited liability company, as applicable) duly incorporated (or formed, as
applicable), validly existing and (other than any Material AES Entity that is not incorporated under the laws of
the United States or any political subdivision thereof) in good standing under
the laws of its jurisdiction of incorporation (or jurisdiction of formation, as
applicable).  Each Material AES Entity has all corporate
or other organizational powers and all material governmental licenses,
authorization, consents and approvals required to carry on its business as
proposed to be conducted and has all governmental licenses, authorizations,
consents and approvals required to have been obtained prior to the date hereof
and which are material to the operation of its business as proposed to be
conducted, except to the extent that the failure to obtain any such license,
authorization, consent or approval, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.

 

Section 4.11  Not an Investment Company.

 

None of the Obligors is an “investment company”
within the meaning of the Investment Company Act of 1940, as amended.

 

Section 4.12 
Public Utility Holding Company Act.

 

Neither the Borrower nor
any of its Subsidiaries is subject
to regulation as a “holding company” or a “subsidiary company” of a holding
company or an “affiliate” of a subsidiary or holding company or a “public
utility company” under Section 2(a) of the Public Utility Holding Company
Act of 1935, as amended (“PUHCA”),
except that the Borrower and certain of its Subsidiaries are exempt holding
companies under Section 3(a) of PUHCA by order of the Securities and
Exchange Commission.

 

Section 4.13  Full Disclosure.

 

All information
heretofore furnished by the Borrower to the Agent or any Bank Party for
purposes of or in connection with any Financing Document or any transaction
contemplated hereby or thereby is, and all such information hereafter furnished
by the Borrower to the Agent or any Bank Party will be, true and accurate in
all material respects on the date as of which such information is stated or
certified in the light of the circumstances under which such information was
provided (as modified or supplemented by other information so furnished, when
taken together as a whole and with the Disclosed Matters); provided that, with respect
to projected financial information, the Borrower represents only that such
information was prepared in good faith based on assumptions believed to be
reasonable at the time, it being recognized by the Bank Parties that such
projections as to future events are not to be viewed as facts and that actual
results during the period or periods covered by any such projections may differ
from the projected results.  The
Borrower has disclosed to the Bank Parties, in the Disclosed Matters or
otherwise in writing, any and all facts specific to the Borrower and its
Subsidiaries and known as of the date hereof to a responsible officer of the
Borrower that could reasonably be expected to

 

59

 

result in a Material
Adverse Effect, which materially and adversely affect or may affect (to the
extent any Borrower can now reasonably foresee), the business, operations or
financial condition of the Borrower and its Consolidated Subsidiaries, taken as a whole, or the ability of
any Obligor to perform its
obligations under the Financing
Documents.

 

Section 4.14  Collateral Documents and Collateral.

 

(a)                                  (i)
The execution, delivery, recordation, filing or performance by the Borrower and
AES BVI II of the Collateral Documents; (ii) the grant by the Borrower and AES
BVI II of the Liens granted by each of them pursuant to the Collateral Documents;
(iii) the perfection or maintenance of the Liens created under the
Collateral Documents (including the first priority nature thereof) and
(iv) the exercise by the Collateral Trustees of its remedies in respect of
the Collateral pursuant to the Collateral Documents, does not require any
consent, approval, authorization or other order of, or any notice to or filing
with, any court, regulatory body, administrative agency or other governmental
body (other than such filings required in order to perfect any security
interest granted by the Collateral Documents and other than any consent,
approval, authorization, order, notice or filing the failure of which to make
or obtain could not reasonably be expected to have a Material Adverse Effect),
and does not conflict with or constitute a breach of any of the terms or
provisions of, or a default under, the charter or by-laws of the Borrower, AES
BVI II, or any of the other Pledged Subsidiaries or any agreement, indenture or
other instrument to which the Borrower, AES BVI II or any of the other Pledged
Subsidiaries is a party or by which the Borrower, AES BVI II or any of the
other Pledged Subsidiaries or the Borrower’s, AES BVI II’s or the other Pledged
Subsidiaries’ respective property is bound, or violate or conflict with any
laws, administrative regulations or rulings or court decrees applicable to the
Borrower, AES BVI II, any of the other Pledged Subsidiaries or the Borrower’s,
AES BVI II’s or the other Pledged Subsidiaries’ respective property except for
any violation, breach, conflict or default that could not reasonably be
expected to have a Material Adverse Effect and except that in each of the
foregoing cases any foreclosure or other exercise of remedies by the Collateral
Trustees will require additional approvals and consents that have not been
obtained from foreign and domestic regulators and from lenders to, and
suppliers, customers or other contractual counterparties of, one or more
Subsidiaries and failure to obtain such approval or consent could result in a
default under, or a breach of, agreements or other legal obligations of such
Subsidiaries.

 

(b)                                 Each
of the representations and warranties of the Borrower and AES BVI II contained
in the Collateral Documents is true and correct.

 

(c)                                  Set
forth on Schedule I hereto is a complete and accurate list of all Pledged
Subsidiaries as of the date hereof, showing as of the date hereof (as to each
such Pledged Subsidiary) its legal name, its jurisdiction of incorporation, the
type and number of shares of each class of its Equity Interests authorized, and
the type and number outstanding, on the date hereof and the percentage of each
such class of its Equity Interests owned (directly or indirectly) by the Borrower and the certificate
number corresponding to each such Equity Interest.  All of the outstanding Equity Interests pledged to the Collateral
Trustees for the benefit of the Secured Holders pursuant to the Security
Agreement and the BVI Cayman Pledge Agreement in each Pledged Subsidiary have
been validly issued, are fully paid and non-

 

60

 

assessable and
are owned by the Borrower or
AES BVI II, as applicable, free and clear of all Liens, except those created
under the Financing Documents.

 

(d)                                 Set
forth on Schedule II hereto is a complete and accurate list of all
assigned agreements of the Borrower
and its Subsidiaries (the “Assigned Agreements”),
showing as of the date hereof the parties, subject matter and term
thereof.  Each such Assigned Agreement
has been duly authorized, executed and delivered by all parties thereto, has
not been amended or otherwise modified (except as otherwise permitted pursuant
to the Security Agreement), is in full force and effect (except as otherwise
permitted pursuant to the Security Agreement) and is valid and binding upon and
enforceable against all parties thereto, except as the enforceability thereof
may be limited by bankruptcy, insolvency or similar laws affecting creditors’
rights generally and by equitable principles of general applicability and, as
of the Closing Date, there exists no default under any Assigned Agreement by
any party thereto.

 

Section 4.15  Existing Letters of Credit.

 

Appendix III hereto
identifies each Existing Letter of Credit outstanding as of the date hereof and
as of the Effective Date.

 

Section 4.16  Solvency.

 

Each of AES BVI II, AES
New York, AES Oklahoma, AES Hawaii and AES Warrior Run is, individually, and
together with its Subsidiaries, taken as a whole, Solvent as of the date
hereof.

 

Section 4.17 
Pledged Subsidiaries.

 

Other than the
Non-Pledged Subsidiaries, the Pledged Subsidiaries listed on Schedule I
hereto most recently delivered to the Bank Parties in accordance with
Section 5.01(l), are, as of the date set forth on such Schedule, all of the
direct Subsidiaries of the Borrower and all of the direct Subsidiaries of AES
BVI II.

 

Section 4.18 
Qualified Holding Companies Debt.

 

None of the Qualified
Holding Companies is an obligor or a contingent obligor on any of the Debt
permitted by Section 5.07(b)(iii) or a contingent obligor on any of the
Debt permitted by Section 5.07(a)(ii), other than Debt permitted by the
definition of “Qualified Holding Company”.

 

ARTICLE V

 

COVENANTS

 

The Borrower agrees that,
so long as any Loan or any other Obligation of any Loan Party under any
Financing Document shall remain unpaid or any Revolving Credit Loan Bank has
any Revolving Credit Loan Commitment hereunder or any amount payable under any
Note remains unpaid or any Revolving Letter of Credit or any Reimbursement
Obligation remains outstanding:

 

61

 

Section 5.01  Information.

 

The Borrower will deliver
to each of the Bank Parties (it being understood that, (x) with respect to
clause (c) below, such information shall only be delivered to the Bank Parties
that on or prior to the date of delivery have previously requested such
information and (y) delivery to the Agent and the posting by the Agent of each
of the following items on an electronic website, in accordance with
Section 7.11, shall constitute delivery to each of the Bank Parties, and
the Agent hereby agrees to post on an electronic website or otherwise
distribute to the Bank Parties (subject to clause (x) above) any such item
delivered by the Borrower to the Agent):

 

(a)                                  as
soon as available and in any event within 120 days after the end of each fiscal
year of the Borrower, a consolidated and consolidating balance sheet of each
Obligor as of the end of such fiscal year, an unconsolidated balance sheet of
the Borrower as of the end of such fiscal year, the related consolidated,
consolidating and unconsolidated (as applicable) statements of operations for
such fiscal year and the related consolidated and unconsolidated statements of
cash flows for such fiscal year, setting forth in each case in comparative form
the figures for the previous fiscal year, said consolidated financial
statements to be reported on, in a manner acceptable to the Securities and
Exchange Commission, by Deloitte & Touche or other independent public
accountants of nationally recognized standing and such consolidating and
unconsolidated financial statements to be certified as to fairness of
presentation, generally accepted accounting principles (other than failure to
consolidate) and consistency by the chief executive officer, president, chief
financial officer or chief accounting officer of the Borrower;

 

(b)                                 as
soon as available and in any event within 60 days after the end of each of the
first three quarters of each fiscal year of the Borrower, a consolidated
balance sheet of each Obligor as of the end of such quarter and an
unconsolidated balance sheet of the Borrower as of the end of such fiscal
quarter and the related consolidated and unconsolidated statements of
operations for such quarter and for the portion of such Obligor’s fiscal year
ended at the end of such quarter and the related consolidated and
unconsolidated statements of cash flows for the portion of such Obligor’s
fiscal year ended at the end of such quarter, setting forth in the case of such
consolidated statements of operations and cash flows, in comparative form the
figures for the corresponding quarter and the corresponding portion of such
Obligor’s previous fiscal year, all certified (subject to normal year-end
adjustments) as to fairness of presentation, generally accepted accounting
principles and consistency by the chief executive officer, president, chief
financial officer or chief accounting officer of the Borrower;

 

(c)                                  upon
request by any such Bank Party made at least 30 days prior to the date that the
relevant financial statements are required to be delivered pursuant to clause
(a) or (b) above (it being understood that upon the first such request,
subsequent requests shall automatically be deemed to have been made for as long
as such requesting Bank Party continues to be a Bank Party hereunder), (1) as
soon as available and in any event no later than the date on which financial
statements are required to be delivered pursuant to clause (a) above, forecasts
prepared by management of the Borrower, in form satisfactory to the Agent, of
cash flow statements on a monthly basis for the fiscal year following such
fiscal year and on an annual basis for each fiscal year thereafter until the
Termination Date and (2) as soon as available and in any event no later than
the date financial statements are required to be delivered pursuant to

 

62

 

clause (a) and
(b) above, a statement of the monthly cash flows to the Borrower of each Subsidiary
of the Borrower for each of the twelve months ending prior to the date of such
financial statements;

 

(d)                                 simultaneously
with the delivery of each set of financial statements referred to in clauses
(a) and (b) above, a certificate of the chief executive officer, president,
chief financial officer or chief accounting officer of the Borrower
(i) setting forth in reasonable detail the calculations required to
establish whether the Borrower was in compliance with the requirements of
Sections 5.07, 5.09, 5.11, 5.12, 5.13, 5.14 and 5.16 on the date of such
financial statements; (ii) stating to the knowledge of the Borrower
whether any Default exists on the date of such certificate and, if any Default
then exists, setting forth the details thereof and the action which the
Borrower is taking or proposes to take with respect thereto and
(iii) accompanied by a schedule setting forth in reasonable detail a
description, including, where applicable, the expected and maximum dollar
amounts thereof, of all material contingent liabilities not disclosed in such
financial statements;

 

(e)                                  simultaneously
with the delivery of each set of financial statements referred to in clause (a)
above, a statement of the firm of independent public accountants which reported
on such statements (i) whether anything has come to their attention as a
result of their audit (which was not directed primarily toward obtaining
knowledge of noncompliance) to cause them to believe that the Borrower has
failed to comply with the terms, covenants, provisions or conditions as they
relate to accounting of financial matters addressed in Sections 5.07 to 5.17,
inclusive, and (ii) confirming the calculations set forth in the officer’s
certificate delivered simultaneously therewith pursuant to clause (d) above;

 

(f)                                    within
five days after any officer of the Borrower obtains knowledge of any Default,
if such Default is then continuing, a certificate of the chief executive
officer, president, executive vice-president or chief financial officer of the
Borrower setting forth the details thereof and the action which the Borrower is
taking or proposes to take with respect thereto;

 

(g)                                 promptly
upon the mailing thereof to the shareholders of the Borrower generally, copies
of all financial statements, reports and proxy statements so mailed;

 

(h)                                 promptly
upon the filing thereof, copies of all registration statements (other than the
exhibits thereto and any registration statements on Form S-8 or its
equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their equivalents)
which the Borrower shall have filed with the Securities and Exchange
Commission;

 

(i)                                     if
and when any member of the ERISA Group (i) gives or is required to give
notice to the PBGC of any “reportable event” (as defined in Section 4043
of ERISA) with respect to any Plan which might constitute grounds for a
termination of such Plan under Title IV of ERISA, or knows that the plan
administrator of any Plan has given or is required to give notice of any such
reportable event, a copy of the notice of such reportable event given or
required to be given to the PBGC; (ii) receives notice of complete or
partial withdrawal liability under Title IV of ERISA or notice that any
Multiemployer Plan is in reorganization, is insolvent or has been terminated, a
copy of such notice; (iii) receives notice from the PBGC under Title IV

 

63

 

of ERISA of an
intent to terminate, impose liability (other than for premiums under
Section 4007 of ERISA) in respect of, or appoint a trustee to administer
any Plan, a copy of such notice; (iv) applies for a waiver of the minimum
funding standard under Section 412 of the Internal Revenue Code, a copy of
such application; (v) gives notice of intent to terminate any Plan under Section 4041(c)
of ERISA, a copy of such notice and other information filed with the PBGC;
(vi) gives notice of withdrawal from any Plan pursuant to
Section 4063 of ERISA, a copy of such notice; or (vii) fails to make any
payment or contribution to any Plan or Multiemployer Plan or in respect of any
Benefit Arrangement or makes any amendment to any Plan or Benefit Arrangement
which has resulted or could result in the imposition of a Lien or the posting
of a bond or other security, a certificate of the chief executive officer,
president, chief financial officer or chief accounting officer of the Borrower
setting forth details as to such occurrence and the action, if any, which the
Borrower or the applicable member of the ERISA Group is required or proposes to
take;

 

(j)                                     by
12:00 Noon (New York City time) on the third Business Day after receipt by the
Borrower or any Subsidiary of the Borrower of Net Cash Proceeds from any Asset
Sale, any issuance of Bridge Debt or any issuance of Debt by any Subsidiary of
the Borrower permitted pursuant to Section 5.07(b)(ii) (but only to the
extent applicable pursuant to the proviso thereof) and
Section 5.07(b)(vi), a certificate of the chief executive officer,
president, chief financial officer or chief accounting officer of the Borrower
setting forth (i) a description of the transaction giving rise to such Net Cash
Proceeds, (ii) the amount of Net Cash Proceeds anticipated to be received on
such date or each of such dates (together with a schedule detailing the
calculations necessary to determine the amount of Net Cash Proceeds), (iii) the
amount of such Net Cash Proceeds that is anticipated to prepay the Term Loans
and (iv) in the case of the receipt by a Subsidiary of any such Net Cash
Proceeds, in the event that such Subsidiary is unable to transfer such Net Cash
Proceeds to the Borrower or a Qualified Holding Company whose Equity Interests
have been pledged to the Secured Holders pursuant to the Collateral Documents,
such certificate shall also set forth a reasonably detailed explanation of the
circumstances preventing such Subsidiary from transferring such Net Cash
Proceeds to the Borrower or a Qualified Holding Company whose Equity Interests
have been pledged to the Secured Holders pursuant to the Collateral Documents;

 

(k)                                  promptly
after receipt by the Borrower or any Subsidiary of the Borrower, a copy of each
complaint, order, citation, notice or other written communication from any
Person with respect to the existence or alleged existence of a material
violation of any applicable Environmental Law or the incurrence of any
liability, obligation, loss, damage, cost, expense, fine, penalty or sanction
or the requirement to commence any remedial action resulting from or in
connection with any air emission, water discharge, noise emission, Hazardous
Substance or any other environmental, health or safety matter at, upon, under
or within any of the properties now or previously owned, leased or operated by
the Borrower, any of its Subsidiaries or any Material AES Entity, or due to the
operations or activities of the Borrower, any Subsidiary of the Borrower, any
Material AES Entity or any other Person on or in connection with any such
property or any part thereof;

 

(l)                                     simultaneously
with the delivery of each set of financial statements referred to in clause (a)
and (b) above, (1) a revised Schedule I showing as of the last day of such
quarter all of the direct Subsidiaries of the Borrower and AES BVI II (other
than Non-Pledged

 

64

 

Subsidiaries) and
(2) a revised Schedule IV showing as of the last day of such quarter all
the Subsidiaries of the Borrower whose assets consist only of any of the
Excluded AES Business and direct or indirect Investments therein;

 

(m)                               promptly
upon request thereof, deliver to the Agent and the Collateral Trustees (A) a
list setting forth, for each Secured Agreement, (i) the aggregate
principal amount outstanding thereunder, (ii) the accrued and unpaid interest
thereunder, (iii) the accrued and unpaid fees (if any) thereunder,
(iv) the names of the Representatives (as defined in the Collateral Trust
Agreement) and of the Secured Holders (to the extent known to the Borrower)
thereunder, and all other unpaid amounts thereunder known to the Borrower,
owing to each such Representative, for its own account and on behalf of such
Secured Holders and (v) such other information regarding the Representatives,
such Secured Holders and the Secured Agreements as the Agent may reasonably
request and (B) the Payment Information (as defined in the Collateral Trust
Agreement); and

 

(n)                                 from
time to time such additional information regarding the financial position or
business of the Borrower and its Subsidiaries as the Agent, at the request of
any Bank Party, may reasonably request.

 

Section 5.02 
Payment of Obligations.

 

The Borrower will pay and
discharge all its material obligations and liabilities and will cause each
Subsidiary Guarantor (other than AES Warrior Run) and IPALCO (in each case, for
so long as each Person is a Subsidiary of the Borrower) to pay and discharge
all its Material Obligations, in each case, including, without limitation, tax
liabilities, except where the same may be contested in good faith by
appropriate proceedings, and will maintain, and will cause each Subsidiary of
the Borrower to maintain, in accordance with generally accepted accounting
principles, appropriate reserves for the accrual of any of the same.

 

Section 5.03 
Maintenance of Property; Insurance.

 

(a)                                  The
Borrower will keep, and will cause each of its Subsidiaries to keep, all
property useful and necessary in its business in good working order and
condition, ordinary wear and tear excepted.

 

(b)                                 The
Borrower will, and will cause each of its Subsidiaries to, maintain (either in
the name of the Borrower or in such Subsidiary’s own name) with financially
sound and responsible insurance companies, insurance of such types, in at least
such amounts and against at least such risks (and with such risk retention) as
are usually insured against in similar circumstances in the same general area
by companies of established repute engaged in the same or a similar business;
and will furnish to each Bank Party upon request information presented in
reasonable detail as to the insurance so carried.

 

Section 5.04 
Conduct of Business and Maintenance of Existence.

 

The Borrower (a) will
continue, and will cause each of AES BVI II, the Material AES Entities and the
Pledged Subsidiaries to continue, to engage in business of the same general
type as now conducted by the Borrower and its Subsidiaries; (b) will continue,
and will cause

 

65

 

AES BVI II, each Material
AES Entity and each Pledged Subsidiary to continue, to operate their respective
businesses on a basis substantially consistent with the policies and standards
of the Borrower, AES BVI II or such Material AES Entity or such Pledged
Subsidiary as in effect on the date hereof and (c) will preserve, renew and
keep in full force and effect, and will cause AES BVI II, each Material AES
Entity and each Pledged Subsidiary to preserve, renew and keep in full force
and effect their respective corporate existence and their respective rights,
privileges and franchises necessary or desirable in the normal conduct of
business; provided that nothing
in this Section 5.04 shall prohibit (i) the merger of a Subsidiary
into the Borrower or the merger or consolidation of a Subsidiary with or into
another Person if the Person surviving such consolidation or merger is a
Subsidiary and if, in each case, after giving effect thereto (x) no Default
shall have occurred and be continuing, (y) neither the Borrower or any
Subsidiary Guarantor shall be liable for any Debt of such Subsidiary except to
the extent it was liable for such Debt prior to giving effect to such merger
and (z) the transaction is otherwise permitted by Section 5.11,
(ii) any asset disposition by the Borrower or any of its Subsidiaries
permitted by Section 5.18 and (iii) the termination of the corporate
existence of any Subsidiary (other than a Subsidiary Guarantor) if the Borrower
in good faith determines that such termination is in the best interest of the
Borrower and is not materially disadvantageous to the Bank Parties.

 

Section 5.05 
Compliance with Laws.

 

The Borrower will comply,
and cause each of its Subsidiaries to comply, in all material respects with all
applicable laws, ordinances, rules, regulations, and requirements of
governmental authorities (including, without limitation, Environmental Laws and
ERISA and the rules and regulations thereunder) (a) except for such
non-compliance as would result solely in the payment of monetary compensation
by the Borrower or such Subsidiary in an amount not to exceed $15,000,000 in
the aggregate and (b) except where the necessity of compliance therewith is
contested in good faith by appropriate proceedings (and the pendency of such
proceedings themselves shall not have a material adverse effect on the Borrower
and its Subsidiaries, taken as a whole).

 

Section 5.06 
Inspection of Property, Books and Records.

 

The Borrower will keep,
and will cause each of its Subsidiaries to keep, proper books of record and
account in which full, true and correct entries shall be made of all dealings
and transactions in relation to its business and activities; and will permit,
and will cause each Significant AES Entity to permit, representatives of any
Bank Party at such Bank Party’s expense to visit and inspect any of their
respective properties, to examine and make abstracts from any of their
respective books and records and to discuss their respective affairs, finances
and accounts with their respective officers, employees and independent public
accountants, all at such reasonable times and as often as may reasonably be
desired.

 

Section 5.07 
Limitation on Debt.

 

The Borrower shall not,
and shall not permit any Subsidiary of the Borrower to, incur, assume, create
or suffer to exist any Debt, except for:

 

(a)                                  in
the case of the Borrower:

 

66

 

(i)                                     Debt
under the Financing Documents;

 

(ii)                                  Debt
existing on the date hereof and set forth on Schedule VI;

 

(iii)                               Debt
representing a refinancing, replacement or refunding of Debt permitted by
Section 5.07(a)(i), (ii), (iii), (vii) and (ix); provided that:

 

(A)                              (x)
the aggregate principal amount of such Debt outstanding or available will not
exceed the principal amount outstanding or available at the time of such
refinancing, replacement or refunding (plus fees and expenses, including any
premium and defeasance costs relating to such refinancing, replacement or
refunding), (y) the final maturity of such Debt is later than the Initial Term
Loan Termination Date (other than Debt that can be settled in the
Borrower’s Capital Stock (other than Redeemable Stock); provided that such Debt may only be settled in cash
prior to the Initial Term Loan Termination Date up to an aggregate principal
amount not to exceed $400,000,000 and not before July 29, 2006; provided further that the Debt being refinanced, replaced or
refunded has a final maturity date on or prior to the Initial Term Loan Termination Date) (z) (1)
such Debt shall not contain any Payment Restriction more restrictive than the
Payment Restrictions contained in the Debt being refinanced, replaced or
refunded or (2) in the opinion of the Borrower, such Payment Restrictions are
consistent with customary market terms for a financing of its nature and do not
adversely affect the ability of the Borrower to meet its payment Obligations
under the Financing Documents; and

 

(B)                                no
obligor shall be liable for any such Debt except to the extent that it was
liable for the Debt so refinanced, replaced or refunded, unless such liability
in respect of such Debt would otherwise be permitted by Section 5.07(b);

 

(iv)                              Debt
owing by the Borrower to a Consolidated Subsidiary of the Borrower so long as
such Debt is subordinated on terms reasonably satisfactory to the Agent to the
Debt of the Borrower under the Financing Documents;

 

(v)                                 any
Lien permitted by Section 5.10 that constitutes Debt not otherwise
permitted by this Section;

 

(vi)                              Letters
of credit, surety bonds, Guarantees and performance bonds supporting
obligations of Subsidiaries so long as, after giving effect to such letters of
credit, surety bonds, Guarantees and performance bonds (and the Investments
represented thereby), the Borrower would be in compliance with
Section 5.16;

 

(vii)                           other
Debt so long as (x) immediately before and after giving effect to the
incurrence and application of the proceeds thereof no Default shall have occurred
and be continuing, (y) the final scheduled maturity of such Debt shall in no
event be on or prior to the Initial Term Loan Termination Date and (z) such
Debt shall not have any scheduled amortization on or prior to the Initial

 

67

 

Term Loan Termination Date in an aggregate amount in excess of 10% of
the initial amount of such Debt;

 

(viii)                        Debt
incurred as a bridge financing for a proposed Asset Sale, provided that (x) the only direct or
contingent obligor in respect of such Debt is the holder of the asset that is
the subject of such Asset Sale, (y) the interest rate applicable to such
Debt does not exceed the then applicable market interest rate and (z) the Net
Cash Proceeds from the incurrence of such Debt shall be applied as set forth in
Section 2.10(b); and

 

(ix)                                Debt
incurred to refinance, replace or refund any of the obligations arising in
respect of the Existing Trust Preferred Securities, provided that (x) the only direct or contingent obligor
in respect of such Debt is the Borrower and (y) the final scheduled
maturity of such Debt shall be later than the Initial Term Loan Termination
Date; and

 

(b)                                 in
the case of the Borrower’s Subsidiaries:

 

(i)                                     Guarantees
of Debt of the Borrower under the Financing Documents, the Senior Secured
Exchange Notes and Debt permitted by clause (a)(iii) or (a)(vii) above, the
proceeds of which are applied to permanently reduce Total Bank Exposure or
prepay the Senior Secured Exchange Notes (it being understood that if, after
the date hereof, any Subsidiary Guarantees the Debt of the Borrower under the
Financing Documents, such Subsidiary may also Guarantee the Senior Secured
Exchange Notes and the Debt permitted by clause (a)(iii) or (a)(vii) above, the
proceeds of which are applied to permanently reduce Total Bank Exposure or
prepay the Senior Secured Exchange Notes);

 

(ii)                                  Debt
incurred by a Subsidiary:

 

(x)                                   (1)
to finance the acquisition, development, construction, operation, maintenance
(including modifications and upgrades to comply with applicable laws and
regulations) or working capital requirements (including letters of credit or
guarantees to fund debt service reserve accounts or similar accounts or for the
benefit of power purchase agreements or commodity hedging counterparties) of a
Power Supply Business or other business owned, operated or managed (including
on a joint basis with others), directly or indirectly, by the Borrower (an “AES Business”)
or (2) to finance the acquisition of “greenfields” and the construction,
operation, maintenance or working capital requirements (including modifications
and upgrades to comply with applicable laws and regulations) or working capital
requirements (including letters of credit or guarantees to fund debt service
reserve accounts or similar accounts or for the benefit of power purchase
agreements or commodity hedging counterparties) necessary to develop and
construct such “greenfields” and to operate them as an AES Business or (3) that
constitutes Acquired Debt; and

 

68

 

(y)                                 that
is not also the Debt of any other Subsidiary with an interest in any other AES
Business (except for (1) Debt incurred or assumed by Intermediate Holding
Companies which, at the time such Debt was incurred or assumed, in the
aggregate, contributed less than 50% of the Parent Operating Cash Flow for the
immediately preceding four fiscal quarters or (2) Debt incurred or assumed by
Subsidiaries of the Borrower (other than Intermediate Holding Companies), which,
at the time such Debt was incurred or assumed, in the aggregate, contributed
less than 15% of the Parent Operating Cash Flow for the immediately preceding
four fiscal quarters and are projected by the Borrower at the time such Debt is
incurred or assumed to contribute less than 15% of the Parent Operating Cash
Flow for the immediately succeeding four fiscal quarters); provided that Excluded AES Entities can
guarantee, or be co-obligors with respect to, Debt of other Excluded AES
Entities;

 

provided,
however, that to the extent that
the Debt incurred pursuant to this Section 5.07(b)(ii) is not used for the
purposes set forth in clauses (x)(1), (x)(2) or (x)(3) above, unless such Debt
is permitted by another provision hereunder, the portion of Net Cash Proceeds
of such Debt not used for such purposes shall be received by the Borrower or a
Qualified Holding Company whose Equity Interests have been pledged to the
Secured Holders pursuant to the Collateral Documents and such Net Cash Proceeds
shall be applied to prepay the Debt hereunder pursuant to and in the amounts
and order of priority set forth in Section 2.10(b);

 

(iii)                               Debt
existing on the date hereof;

 

(iv)                              Debt
incurred by a Subsidiary as a bridge financing for a proposed Asset Sale, provided that (x) the only direct or
contingent obligor in respect of such Debt is the holder of the asset that is
the subject of such Asset Sale, (y) the interest rate applicable to such Debt
does not exceed the then applicable market interest rate and (z) the Net
Cash Proceeds from the incurrence of such Debt shall be applied as set forth in
Section 2.10(b);

 

(v)                                 Debt
owing to the Borrower or a Consolidated Subsidiary of the Borrower; provided that Debt owed to the Borrower
shall constitute Pledged Debt (to the extent such Debtor is required to pledge
such Debt pursuant to the Collateral Documents) and delivered to the Collateral
Trustees pursuant to the terms of the Security Agreement; provided  further
that any such Debt is permitted under Section 5.16;

 

(vi)                              Debt
incurred by a Subsidiary, the Net Cash Proceeds of which are received by the
Borrower or a Qualified Holding Company whose Equity Interests have been
pledged to the Secured Holders pursuant to the Collateral Documents and (x) in
the case of Debt incurred by IPALCO, an amount equal to the Banks’ Ratable
Share of 100% of such Net Cash Proceeds, (y) in the case of Debt issued by any
Subsidiary Guarantor, an amount equal to 100% of such Net Cash Proceeds and (z)
in the case of any other Subsidiary, an amount equal to the

 

69

 

Banks’ Ratable share of 75% of such Net Cash Proceeds (other than
$200,000,000 of additional Debt of the Subsidiaries incurred after the date
hereof), in each case, shall be applied to prepay the Debt hereunder pursuant
to and in the amount and order of priority set forth in Section 2.10(b);

 

(vii)                           Debt
representing a refinancing, replacement or refunding of Debt permitted by
clauses (b)(ii), (b)(iii), (b)(iv), (b)(vi) and (b)(vii); provided that:

 

(A)                              (x)
the aggregate principal amount of such Debt outstanding or available will not
exceed the principal amount outstanding or available at the time of such
refinancing, replacement or refunding (plus fees and expenses, including any
premium and defeasance costs) relating to such refinancing, replacement or
refunding and (y) the Payment Restrictions in such Debt (1) shall be no more
restrictive than the Payment Restrictions contained in the Debt being
refinanced, replaced or refunded or (2) in the opinion of the Borrower, are
consistent with customary market terms for a financing of its nature and do not
adversely affect the ability of the Borrower to meet its payment Obligations
under the Financing Documents;

 

(B)                                after
giving effect to the issuance of such Debt, no Default shall have occurred and
be continuing under Section 5.16(b); and

 

(C)                                if
any Debt being refinanced, replaced or refunded is subordinated to the Debt of
any Subsidiary Guarantor, such Debt shall be subordinated at least to the same
extent;

 

(viii)                        any
Lien permitted by Section 5.10 that constitutes Debt not otherwise
permitted by this Section 5.07;

 

(ix)                                Guarantees
by Excluded AES Entities of Debt and other Obligations of other Excluded AES
Entities; and

 

(x)                                   Guarantees
by any Subsidiary of the Borrower existing on the date that such Subsidiary
ceased to be an “Excluded AES Entity” hereunder that were permitted pursuant to
Section 5.07(b)(ix) when such Subsidiary was an “Excluded AES Entity”.

 

Notwithstanding any of
the foregoing in this Section 5.07(b), in no event shall Qualified Holding
Companies incur any Debt other than Debt permitted by the definition of
“Qualified Holding Company”.

 

Section 5.08  Use of Proceeds.

 

The proceeds of the Loans
made, the Revolving Letters of Credit issued (or deemed issued) under this
Agreement will be used by the Borrower for working capital and other general
corporate purposes.  None of such
proceeds will be used, directly or indirectly, for the purpose, whether immediate,
incidental or ultimate, of buying or carrying any “margin stock” within the
meaning of Regulation U.

 

70

 

Section 5.09 
Restricted Payments.

 

(a)                                  The
Borrower will not declare or pay any dividends, purchase, redeem, retire,
defease or otherwise acquire for value any of its Equity Interests now or
hereafter outstanding, return any capital to its stockholders as such, make any
distribution of assets, Equity Interests, obligations or securities to its
stockholders, or permit any of its Subsidiaries to purchase, redeem, retire,
defease or otherwise acquire for value any Equity Interests in the Borrower,
except the Borrower may (i) declare and pay cash dividends to the holders of
(x) the Existing Trust Preferred Securities and (y) the Borrower’s preferred
stock; provided that for purposes
of determining compliance with Section 5.13 hereof, the Cash Flow Coverage
Ratio for any period shall take into account any such dividends declared and
paid during such period and (ii) redeem, repurchase, refinance, replace or
refund any of the Obligations arising in respect of the Existing Trust
Preferred Securities as provided in Section 5.07(a)(ix).

 

(b)                                 Notwithstanding
Section 5.09(a) above, so long as any Revolving Credit Loan or Term Loan
remains outstanding, no Subsidiary Guarantor will, without the prior written
consent of the Required Banks, if, and for so long as, an Actionable Default
shall have occurred and be continuing, (i) declare or make any dividend payment
or other distribution of assets, properties, cash, rights, obligations or
securities on account of any shares of any class of capital stock of such
Subsidiary Guarantor (other than stock splits and dividends payable solely in
equity securities of such Subsidiary Guarantor), or purchase, redeem or otherwise
acquire for value (or permit any of its Subsidiaries to do so), any shares of
any class of capital stock of such Subsidiary Guarantor or any warrants, rights
or options to acquire any such shares, now or hereafter outstanding or (ii)
make any Investment in or otherwise advance any funds to the Borrower, or, any
Subsidiary of the Borrower; and

 

Section 5.10  Negative Pledge.

 

Neither the Borrower nor
any Subsidiary of the Borrower will create, assume or suffer to exist any Lien
on any asset now owned or hereafter acquired by it, except:

 

(a)                                  Liens
created under the Financing Documents;

 

(b)                                 Liens
existing on the date of this Agreement securing Debt outstanding on the date of
this Agreement;

 

(c)                                  any
Lien existing on any asset of any Person at the time such Person becomes a
Subsidiary of the Borrower and not created in contemplation of such event;

 

(d)                                 any
Lien on any asset securing Debt incurred or assumed for the purpose of
financing all or any part of the cost of acquiring such asset; provided that such Lien attaches to such
asset concurrently with or within 90 days after the acquisition thereof;

 

(e)                                  any
Lien on any asset of any Person existing at the time such Person is merged or
consolidated with or into the Borrower or a Subsidiary of the Borrower and not
created in contemplation of such event; provided
that such Lien shall not attach to any asset held by the Borrower or any
Subsidiary of the Borrower immediately prior to such merger or consolidation;

 

71

 

(f)                                    any
Lien existing on any asset prior to the acquisition thereof by the Borrower or
a Subsidiary of the Borrower and not created in contemplation of such
acquisition;

 

(g)                                 any
Lien arising out of the refinancing, extension, renewal or refunding of any
Debt secured by any Lien permitted by any of the foregoing clauses or clause
(o) of this Section; provided
that such Debt is not increased and is not secured by any additional assets
(other than, in the case of Debt permitted under Section 5.07(b)(vii),
Liens on assets of any Subsidiary permitted under such
Section 5.07(b)(vii) and Section 5.16(b) to be obligated on such
Debt);

 

(h)                                 Liens
arising in the ordinary course of its business which do not secure obligations
in an aggregate amount in excess of $25,000,000 and do not in the aggregate
materially detract from the value of its assets or materially impair the use
thereof in the operation of its business;

 

(i)                                     Liens
in connection with worker’s compensation, social security obligations, taxes,
assessments, statutory obligations or other similar charges, good faith
deposits in connection with tenders, contracts or leases to which the Borrower
or any of its Subsidiaries is a party or other deposits required to be made in
the ordinary course of business and not in connection with borrowing money or
obtaining advances or credit; provided
in each case that the obligation or liability arises in the ordinary course of
business and if overdue is being contested in good faith by appropriate
proceedings;

 

(j)                                     inchoate
materialmen’s, mechanics’, workmen’s, repairmen’s, employees’, carriers’,
warehousemen’s, or other like Liens arising in the ordinary course of business
of the Borrower or its Subsidiaries;

 

(k)                                  with
respect to real property, easements, rights of way, reservations and other
minor defects or irregularities in title which do not materially impair the use
thereof for the purposes for which it is held by the Borrower or its
Subsidiaries;

 

(l)                                     Liens
securing any future interest or dividends payable in respect of any Debt
permitted to be issued under Section 5.07 for one six month period with
respect to such Debt on cash or Temporary Cash Investments which constituted a
portion of the cash proceeds to the Borrower or a Subsidiary of the Borrower
from the issuance of such Debt;

 

(m)                               Liens
on cash and Temporary Cash Investments securing Derivatives Obligations of the
Subsidiaries permitted by Section 5.19(c);

 

(n)                                 Liens
on cash and Temporary Cash Investments that secure contingent obligations to
reimburse any bank or other Person for amounts paid under Guarantees, surety or
performance bond or similar instrument that supports obligations to make
Investments in Subsidiaries permitted to be made under Section 5.16;

 

(o)                                 Liens
constituting or securing Debt of Subsidiaries (other than Subsidiary
Guarantors) permitted by Section 5.07(b)(ii), (vi), (vii) or (viii) or
utility obligations or other customer, supplier or contractor obligations
associated with AES Businesses that are limited to the assets and revenues of
the related AES Businesses and the Capital Stock or other assets

 

72

 

(including
contract rights) of Subsidiaries of the Borrower having a direct or indirect
interest in such AES Businesses;

 

(p)                                 Liens
on the Creditor Group Collateral securing the Debt of the Borrower or
obligations of the Borrower under Hedge Agreements; provided that the aggregate principal amount (or accreted
value, if applicable) of First-Priority Secured Debt and Second-Priority
Secured Debt does not exceed $3.375 billion; provided
further that, subject to the first proviso above, Liens on
the Creditor Group Collateral securing First Priority Secured Debt of the
Borrower shall only secure First Priority Secured Debt incurred after
July 29, 2003 (other than Debt incurred pursuant to the Financing
Documents and obligations under Hedge Agreements up to an aggregate principal
amount not to exceed $50,000,000 (provided that at such time as the Sul
Guarantee shall have been paid in full or terminated, such amount shall be
increased to $100,000,000)) up to an aggregate principal amount equal to
$90,000,000 plus the sum of all
amounts applied since July 29, 2003 to (x) permanently prepay Loans
pursuant to Section 2.10 hereunder or permanently reduce Unused Revolving
Credit Loan Commitments hereunder (without duplication) or (y) repay or prepay
the Senior Secured Exchange Notes; provided,
further that, in addition to the
First Priority Secured Debt permitted to be secured by the immediately
preceding proviso, but subject to the first proviso above, Liens
on the Creditor Group Collateral securing First Priority Secured Debt of the
Borrower may secure additional First Priority Secured Debt incurred after the
Effective Date up to an aggregate principal amount not to exceed $175,000,000
so long as (x) such First Priority Secured Debt consists solely of senior bank
revolving credit or term loan facilities and (y) if any term of such First
Priority Secured Debt relating to covenants or events of default is materially
more favorable to the lenders in respect of such First Priority Secured Debt
than the corresponding term hereof, the terms hereof shall be amended to
reflect such more favorable term; provided
further that upon the sale or
other disposition of the Capital Stock of IPALCO or any Subsidiary Guarantor or
of all or substantially all of the assets of IPALCO or any Subsidiary
Guarantor, the baskets set forth in the immediately preceding two provisos
shall be ratably reduced, solely in respect of Debt incurred on or after the
date of such sale or disposition, by an amount equal to 60% the aggregate
Collateral Value of the Capital Stock or assets which are the subject of such
sale or disposition;

 

(q)                                 Liens
securing Debt permitted by Section 5.07(a)(viii) or
Section 5.07(b)(iv), provided
that such Debt is secured solely by the asset that is the subject of the
proposed Asset Sale related to such Debt;

 

(r)                                    Liens
on the assets of, or Investments in, any Excluded AES Entity securing Debt or
other obligations of any Excluded AES Entity permitted to be incurred
hereunder;

 

(s)                                  Liens
on cash set aside at the time of the issuance of Debt permitted to be incurred
pursuant to Section 5.07 or Temporary Cash Investments purchased with such
cash, in either case to the extent that such cash or Temporary Cash Investments
pre-fund the repayment or redemption of such Debt and are held in a third party
escrow account with an escrow agent on terms and conditions reasonably
satisfactory to the Agent to be applied for such purpose;

 

73

 

(t)                                    Liens
on cash and Temporary Cash Investments that secure letters of credit up to an
aggregate principal amount not to exceed $300,000,000; provided that at the time such Lien is
created, no Default or Event of Default has occurred or is continuing; and

 

(u)                                 Liens
existing on any asset of any Subsidiary of the Borrower at the time such
Subsidiary ceased to be an “Excluded AES Entity” hereunder that were permitted
pursuant to Section 5.10(r) when such Subsidiary was an “Excluded AES
Entity”.

 

Section 5.11 
Consolidations and Mergers.

 

The Borrower will not
merge into or consolidate with any Person or permit any Person to merge into
it, or permit any of its Subsidiaries to do so, except that:

 

(a)                                  any
Subsidiary of the Borrower may merge into or consolidate with any other
Subsidiary, provided that, in the
case of any such merger or consolidation, the Person formed by such merger or
consolidation shall be a wholly owned Subsidiary of the Borrower and any
third-party consents or waivers necessary for such merger or consolidation
shall have been obtained, provided further
that, (A), in the case of any such merger or consolidation to which a Pledged
Subsidiary is a party, the Person formed by such merger or consolidation shall
be a “Pledged Subsidiary” and (B) in the case of any such merger or
consolidation to which a Subsidiary Guarantor is a party, the Person formed by
such merger or consolidation shall be a Subsidiary Guarantor;

 

(b)                                 in
connection with any sale or other disposition permitted under Section 5.18
(other than clause (ii) thereof), any Subsidiary of the Borrower may merge into
or consolidate with any other Person or permit any other Person to merge into
or consolidate with it; and

 

(c)                                  the
Borrower may merge with another Person;

 

provided, however, that in each case, such merger
or consolidation is otherwise in compliance with this Agreement and immediately
before and after giving effect thereto, no Default shall have occurred and be
continuing and, in the case of any merger to which the Borrower is a party, the
Borrower is the Person surviving such merger.

 

Notwithstanding any of
the foregoing in clauses (a) and (b) of this Section 5.11, the Borrower
will not permit any Subsidiary of the Borrower with any direct or indirect
interest in (x) a Power Supply Business to consolidate or merge with, any
other Person with a direct or indirect interest in any other Power Supply
Business or any unrelated business or (y) any unrelated business to
consolidate or merge with, any other Person with a direct or indirect interest
in any Power Supply Business, subject to the proviso set forth in
Section 5.16(b) so that any transaction permitted by such proviso
shall also be permitted by this Section 5.11 (except for consolidations
and mergers by any Subsidiary of the Borrower which, after giving pro forma
effect to such consolidation or merger, contributed less than 15% of the Parent
Operating Cash Flow for the immediately preceding four fiscal quarters and is
projected by the Borrower at the time of such consolidation or merger to
contribute less than 15% of the Parent Operating Cash Flow for the immediately
succeeding four fiscal quarters).

 

74

Section 5.12  Collateral Coverage Ratio.

 

The Collateral Coverage
Ratio at any date shall not be less than 3.00:1.0.

 

Section 5.13  Cash Flow Coverage.

 

The Borrower will
maintain at the end of each fiscal quarter of the Borrower, a Cash Flow
Coverage Ratio of not less than the ratio set forth below for each period set
forth below:

 

	
  Four

  Fiscal Quarters

  Ending

  	
   

  	
  Minimum
  Cash Flow

  Coverage Ratio

  	
   

  
	
  December 31, 2003

  	
   

  	
  1.20

  	
   

  
	
  March 31, 2004

  	
   

  	
  1.20

  	
   

  
	
  June 30, 2004

  	
   

  	
  1.20

  	
   

  
	
  September 30, 2004

  	
   

  	
  1.25

  	
   

  
	
  December 31, 2004

  	
   

  	
  1.25

  	
   

  
	
  March 31, 2005

  	
   

  	
  1.30

  	
   

  
	
  June 30, 2005

  	
   

  	
  1.35

  	
   

  
	
  September 30, 2005

  	
   

  	
  1.35

  	
   

  
	
  December 31, 2005

  	
   

  	
  1.40

  	
   

  
	
  March 31, 2006

  	
   

  	
  1.40

  	
   

  
	
  June 30, 2006

  	
   

  	
  1.40

  	
   

  
	
  September 30, 2006

  	
   

  	
  1.40

  	
   

  
	
  December 31, 2006

  	
   

  	
  1.40

  	
   

  
	
  March 31, 2007

  	
   

  	
  1.40

  	
   

  
	
  June 30, 2007

  	
   

  	
  1.45

  	
   

  
	
  September 30, 2007

  	
   

  	
  1.45

  	
   

  
	
  December 31, 2007

  	
   

  	
  1.50

  	
   

  
	
  March 31, 2008

  	
   

  	
  1.50

  	
   

  

 

Section 5.14  Recourse Debt to Cash Flow Ratio.

 

The Borrower will
maintain at the end of each fiscal quarter of the Borrower, a Recourse Debt to
Cash Flow Ratio of not more than the ratio set forth below for each period set
forth below:

 

75

 

	
  Four

  Fiscal Quarter Ending

  	
   

  	
  Maximum
  Recourse

  Debt to Cash Flow Ratio

  	
   

  
	
  December 31, 2003

  	
   

  	
  8.5

  	
   

  
	
  March 31, 2004

  	
   

  	
  8.5

  	
   

  
	
  June 30, 2004

  	
   

  	
  8.5

  	
   

  
	
  September 30, 2004

  	
   

  	
  8.5

  	
   

  
	
  December 31, 2004

  	
   

  	
  8.5

  	
   

  
	
  March 31, 2005

  	
   

  	
  8.35

  	
   

  
	
  June 30, 2005

  	
   

  	
  8.25

  	
   

  
	
  September 30, 2005

  	
   

  	
  8.15

  	
   

  
	
  December 31, 2005

  	
   

  	
  8.00

  	
   

  
	
  March 31, 2006

  	
   

  	
  7.90

  	
   

  
	
  June 30, 2006

  	
   

  	
  7.85

  	
   

  
	
  September 30, 2006

  	
   

  	
  7.80

  	
   

  
	
  December 31, 2006

  	
   

  	
  7.75

  	
   

  
	
  March 31, 2007

  	
   

  	
  7.70

  	
   

  
	
  June 30, 2007

  	
   

  	
  7.65

  	
   

  
	
  September 30, 2007

  	
   

  	
  7.60

  	
   

  
	
  December 31, 2007

  	
   

  	
  7.55

  	
   

  
	
  March 31, 2008

  	
   

  	
  7.50

  	
   

  

 

Section 5.15  Transaction with Affiliates.

 

Except pursuant to
agreements existing on the date hereof and listed on Schedule II attached
hereto, the Borrower will not, and will not permit any Subsidiary of the
Borrower to, directly or indirectly, in any transaction involving aggregate
consideration in excess of $1,000,000, pay any funds to or for the account of,
make any investment (whether by acquisition of stock or indebtedness, by loan,
advance, transfer of property, guarantee or other agreement to pay, purchase or
service, directly or indirectly, any Debt, or otherwise) in, lease, sell,
transfer or otherwise dispose of any assets, tangible or intangible, to, or
participate in, or effect any transaction in connection with any joint
enterprise or other joint arrangement with, any Affiliate; provided, however,
that the foregoing provisions of this Section shall not prohibit
(a) the Borrower or any Subsidiary of the Borrower from making sales to or
purchases from any Affiliate and, in connection therewith, extending credit or
making payments, or from making payments for services rendered by any
Affiliate, if such sales or purchases are made or such services are rendered in
the ordinary course of business and on terms and conditions at least as
favorable to the Borrower or such Subsidiary as the terms and conditions which
would apply in a similar transaction with a Person not an Affiliate; (b) the
Borrower or any Subsidiary of the Borrower from making payments of principal,
interest and premium on any Debt of the Borrower or such Subsidiary held by an
Affiliate if the terms of such Debt are substantially as favorable to the
Borrower or such Subsidiary as the terms which could have been obtained at the
time of the creation of such Debt from a lender which was not an Affiliate and
(c) the Borrower or any Subsidiary of the Borrower from participating in, or
effecting any transaction in connection with, any joint enterprise or other
joint arrangement with any Affiliate if the Borrower or such Subsidiary
participates in the ordinary course of its business and on a basis no less
advantageous than the basis on which such Affiliate participates.  The provisions of this Section 5.15
shall not apply to (x) transactions between the Borrower or any of its
Subsidiaries, on the one hand, and any officer, director or employee of the
Borrower or any of its Subsidiaries, on the other hand, that are approved by
the Board of Directors of the Borrower or any committee of the Board of
Directors consisting of the Borrower’s independent directors and (y) the
payment

 

76

 

of reasonable and
customary regular fees to directors of the Borrower or a Subsidiary of the
Borrower.

 

Section 5.16  Investments in Other Persons.

 

(a)                                  The
Borrower shall not make or hold, or permit any of its Subsidiaries to make or
hold, any Investment in any Person, except:

 

(i)                                     (A)
Investments by the Borrower and its Subsidiaries in their Subsidiaries
outstanding on the date hereof, (B) additional equity Investments in Obligors
and (C) additional Investments in Obligors consisting of intercompany Debt
provided that any Debt owing to
the Borrower shall (x) constitute Pledged Debt and be delivered to the
Collateral Trustees pursuant to the terms of the Security Agreement and (y) be
subordinated in all respects to the Obligations of the Obligors under the
Financing Documents;

 

(ii)                                  loans
and advances to employees in the ordinary course of the business of the
Borrower and its Subsidiaries as presently conducted in an aggregate principal
amount not to exceed $10,000,000 at any time outstanding;

 

(iii)                               Investments
by the Borrower and its Subsidiaries in Temporary Cash Investments;

 

(iv)                              Investments
existing on the date hereof and Investments in Subsidiaries resulting from
drawings under, or renewals or extensions of, letters of credit, surety bonds,
Guarantees or performance bonds supporting obligations of Subsidiaries issued
and outstanding on the Closing Date (including renewals and extensions thereof)
and Investments in Subsidiaries to cash collateralize obligations supported by
such letters of credit, bonds or Guarantees if they expire or are cancelled
undrawn;

 

(v)                                 Investments
by the Borrower and its Subsidiaries in any non-cash proceeds received by the
Borrower or such Subsidiary in connection with any transaction permitted by the
provisions of Section 5.18;

 

(vi)                              Investments
by the Borrower and its Subsidiaries in any of their Debt in the form of any
payments, redemption or repurchase of such Debt not prohibited by this
Agreement;

 

(vii)                           Investments
by an Excluded AES Entity in another Excluded AES Entity or in another Person,
the assets of which shall not consist of Debt or Equity Interests of the
Borrower or any of its Subsidiaries, other than Debt of the Borrower or any of
its Subsidiaries with a fair market value (together with the fair market value
of Debt of the Borrower or any of its Subsidiaries received by the Borrower or
any Subsidiary as non-cash proceeds in any transaction permitted by the
provisions of Section 5.18) not in excess of $15,000,000 in the aggregate;

 

(viii)                        Investments
by the Borrower and its Subsidiaries in their Subsidiaries or in Excluded AES
Entities resulting from the creation, dissolution, restructuring or

 

77

 

reorganization of the holdings of the Borrower, any Subsidiary or
Excluded AES Entity permitted by Section 5.16(b) that does not result in
the net increase in the amount invested by the Borrower and its Subsidiaries in
their Subsidiaries or in Excluded AES Entities and does not result in a
Default;

 

(ix)                                Investments
received in connection with the bankruptcy or reorganization of, or settlement
of delinquent accounts and disputes with, or as a result of a default by,
customers or suppliers to, or co-investors in, an AES Business;

 

(x)                                   Investments
by the Borrower and its Subsidiaries not otherwise permitted under this
Section 5.16; provided that,
with respect to each Investment made pursuant to this clause (x):

 

(A)                              Investments
by the Borrower in Excluded AES Entities after the Effective Date shall not
exceed $135,000,000; provided that
at any time that the Recourse Debt to Cash Flow Ratio is less than 4.00 to 1.00
there shall be no limitation on Investments in Excluded AES Entities;

 

(B)                                such
Investment shall be in property and assets which are part of, or in lines of
business which are, substantially the same lines of business as, or
complementary or ancillary to, one or more of the principal businesses of the
Borrower and its Subsidiaries in the ordinary course, including any
energy-related infrastructure or public utility businesses and the ownership, extraction,
processing, transportation, distribution and sales of fossil fuels and
derivatives thereof, but excluding trading activities or hedging transactions
other than such activities conducted in the ordinary course of business; and

 

(C)                                (1)
immediately before and immediately after giving pro forma effect to any such purchase or other acquisition,
no Event of Default shall have occurred and be continuing and (2) immediately
after giving effect to such purchase or other acquisition, the Borrower and its
Subsidiaries shall be in pro forma
compliance with all of the covenants set forth in Sections 5.12, 5.13 and 5.14,
such compliance to be determined on the basis of the financial information most
recently delivered to the Agent and the Bank Parties as though such Investment
had been consummated as of the first day of the fiscal period covered thereby;

 

(xi)                                (A)
Investments by any Subsidiary with funds or other property received by such
Subsidiary from the Borrower or a Subsidiary as a result of an Investment otherwise
permitted hereby and (B) Investments by any Subsidiary (other than a Qualified
Holding Company) with funds or other property generated by its operations
(including by way of financings permitted hereby) or by the operations
(including by way of financings permitted hereby) of its Subsidiaries in any
other Subsidiary which either is a direct or indirect Subsidiary of such
investing Subsidiary or a direct or indirect parent company of such investing
Subsidiary and the proceeds of such Investment shall be applied by the
Subsidiary receiving such Investment solely for funding the operation,
maintenance (including modifications and upgrades to comply with applicable
laws and

 

78

 

regulations), on-going construction or working capital requirements
which are necessary for the operation of the business of such Subsidiary or for
such Subsidiary to satisfy its contractual and legal obligations;

 

(xii)                             Investments
by any Subsidiary of the Borrower consisting of loans made to any Person which
directly or indirectly holds the Equity Interests of such Subsidiary;

 

(xiii)                          Investments
in Subsidiaries resulting from drawings under, or renewals or extensions of,
Guarantees supporting obligations of Subsidiaries under any Secured Treasury
Management Service Agreement (including renewals and extensions thereof) and
Investments in Subsidiaries to cash collateralize obligations supported by such
Guarantees if they expire or are cancelled undrawn; and

 

(xiv)                         Investments
in any Subsidiary of the Borrower existing on the date that such Subsidiary
ceased to be an “Excluded AES Entity” hereunder that were permitted to be made
pursuant to this Section 5.16 when such Subsidiary was an “Excluded AES
Entity”.

 

(b)                                 Notwithstanding
any of the foregoing in clause (a) above, the Borrower will not permit any
Subsidiary of the Borrower with any direct or indirect interest in (i) a
Power Supply Business to make any Investment in, or consolidate or merge with,
any other Person with a direct or indirect interest in any other Power Supply
Business or any unrelated business or (ii) any unrelated business to make
any Investment in, or to consolidate or merge with, any other Person with a
direct or indirect interest in any Power Supply Business; provided that (x) Investments
permitted by Section 5.16(a)(ii), (iii), (v), (vi), (vii), (viii), (ix),
(xii), (xiii) and (xiv) shall be permitted notwithstanding the foregoing and
(y) a Subsidiary of the Borrower (each, an “Intermediate
Holding Company”)  may serve as a holding company for any or
all of the Borrower’s direct and indirect interests in a Power Supply Business
or an unrelated business, so long as:

 

(1)                                  each such
Intermediate Holding Company’s direct and indirect interest in any Power Supply
Business or unrelated business shall be limited to the ownership of Capital
Stock or Debt obligations of a Person with a direct or indirect interest in
such Power Supply Business or unrelated business;

 

(2)                                  no Lien shall exist
upon any asset of any Intermediate Holding Company (other than Liens on the
Capital Stock of, or loan to, the Borrower or a Subsidiary of an Intermediate
Holding Company securing Debt of such Intermediate Holding Company or such
Subsidiary and Liens securing Debt permitted by Sections 5.07(b)(i),
(b)(ii), (b)(iii), (b)(iv), (b)(vi), (b)(vii) and (b)(viii)); and

 

(3)                                  no Intermediate
Holding Company shall incur, assume, create or suffer to exist any Debt
(including any Guarantee of Debt) other than Debt owing to the Borrower, any
Qualified Holding Company or any Subsidiary of such Intermediate Holding
Company and Debt permitted by Sections 5.07(b)(i), (ii), (iii), (iv), (vi),
(vii) or (viii).

 

Notwithstanding anything to the contrary in
this Section 5.16(b), any Subsidiary of the Borrower with any direct or
indirect interest in (i) a Power Supply Business may make an

 

79

 

Investment in any other Person with a direct or indirect interest in
any other Power Supply Business or any unrelated business or (ii) any
unrelated business may make an Investment in any other Person with a direct or
indirect interest in any Power Supply Business, so long as, in each case, after
giving pro forma effect to such Investment, such Subsidiary and such Person in
the aggregate contributed less than 15% of the Parent Operating Cash Flow for
the immediately preceding four fiscal quarters and are projected by the
Borrower at the time of such Investment to contribute less than 15% of the
Parent Operating Cash Flow for the immediately succeeding four fiscal quarters.

 

Section 5.17  Upstreaming of Net Cash Proceeds by
Subsidiaries.

 

The Borrower shall cause
any of its Subsidiaries who have received Net Cash Proceeds from (i) any Asset
Sale or (ii) the incurrence or sale of any Debt permitted by
Section 5.07(b)(vi) to transfer such Net Cash Proceeds to the Borrower; provided that such transfer shall not be
required to be made if such transfer would violate any applicable contracts or
would violate applicable law or if applicable law would require minority
shareholder approval (it being understood that the Borrower shall use
reasonable efforts to obtain such minority shareholder approval), a valuation
or a discretionary order or would, in the Borrower’s good faith determination or
the good faith determination of a majority of the board of directors of such
Subsidiary, involve a reasonable likelihood of there being a breach of
fiduciary duties by the directors of such Subsidiary.  In connection with managing transfers of Net Cash Proceeds
pursuant to this Section 5.17, (a) the Borrower may cause Net Cash
Proceeds to be transferred to Qualified Holding Companies whose Equity
Interests have been pledged to the Secured Holders pursuant to the Collateral
Documents if the Borrower nonetheless makes the related mandatory prepayment
that would otherwise be required by Section 2.10(b) using funds not
otherwise required to be made the basis of any mandatory prepayment and (b) if
the Net Cash Proceeds are less than $10,000,000, the Borrower shall not be
required to cause such Net Cash Proceeds effectively to be transferred directly
or indirectly to the Borrower and applied pursuant to Section 2.10(b)
until the aggregate Net Cash Proceeds not so applied equal or exceed
$10,000,000.  In connection with
managing transfers of Net Cash Proceeds pursuant to this Section 5.17 and
making loans, investments and other advances to Subsidiaries, the Borrower may
cause Net Cash Proceeds to be transferred among Subsidiaries as permitted by
Section 5.16, rather than transferred to the Borrower, in lieu of loans,
investments or other advances the Borrower would otherwise be permitted to make
as permitted by Section 5.16 and would make; provided that amounts that otherwise would be paid to the
Borrower or a Qualified Holding Company whose Equity Interests have been
pledged to the Secured Holders pursuant to the Collateral Documents shall be
treated as an Investment and such Investment must be permitted by
Section 5.16.

 

Section 5.18  Sales, Etc., of Assets.

 

The Borrower will not
sell, lease, transfer or otherwise dispose of, or permit any of its
Subsidiaries to sell, lease, transfer or otherwise dispose of, any assets, or
grant any option or other right to purchase, lease or otherwise acquire any
assets, except:

 

(i)                                     sales
of assets in the ordinary course of its business and the granting of any option
or other right to purchase, lease or otherwise acquire assets in the ordinary
course of its business;

 

80

 

(ii)                                  in
a transaction permitted by Section 5.11;

 

(iii)                               sales,
transfers or other dispositions of assets among the Borrower and its
Subsidiaries; provided, however, that (a) in respect of sales,
transfers or other dispositions by the Borrower to its Subsidiaries, the Borrower
shall not sell, lease, transfer or otherwise dispose of any assets (other than
Excluded AES Entities) to any Excluded AES Entity, and (b) in respect of sales,
transfers or other dispositions by Subsidiaries to other Subsidiaries, (1) with
respect to Excluded AES Entities, only Excluded AES Entities may sell, transfer
or otherwise dispose of assets to another Excluded AES Entity and (2) with
respect to other Subsidiaries, such sales, transfers or other dispositions are
either permitted by Section 5.16 or the transferring Subsidiary has
received fair value for such sales, transfers or dispositions; and

 

(iv)                              sales,
transfers or other dispositions of assets so long as (i) the consideration
received by the Borrower and its Subsidiaries for such asset shall have been
determined on the basis of arms-length negotiations with a non-Affiliate, (ii)
in the case of sales of assets or Equity Interests of, or other Investments in,
IPALCO or any of its Subsidiaries or any Subsidiary Guarantor or Subsidiary
thereof, no less than 75% of the purchase price for such asset shall be paid to
the Borrower and its Subsidiaries solely in cash or securities or other
obligations that can be readily converted to cash so long as such securities or
other obligations are converted to cash on or within 30 days after the closing
date of such sale, transfer or other disposition and (iii) any non-cash
proceeds received by the Borrower or AES BVI II from the sale of such assets
shall not consist of Debt or Equity Interests of the Borrower or any of its
Subsidiaries (other than Debt of the Borrower or any of its Subsidiaries with a
fair market value (together with the fair market value of the Debt of the
Borrower or any of its Subsidiaries comprising the assets of any Person in
which an Excluded AES Entity has made an Investment pursuant to
Section 5.16(a)(vii) not in excess of $15,000,000 in the aggregate) and
shall be pledged to the Collateral Trustees as Security Agreement Collateral
under the Security Agreement;

 

(v)                                 Liens
permitted by the Financing Documents;

 

(vi)                              the
sale of Equity Interests in a project in development or under construction the
proceeds from which shall be used to fund the cost of development or
construction of such project and the sales of Equity Interests by a Subsidiary
the proceeds of which are used to fund the working capital and other needs of
such Subsidiary and its Subsidiaries in the ordinary course of business,
including reasonably anticipated needs for repaying Debt and other obligations
and making Investments in its business;

 

(vii)                           (1)
a disposition resulting from the bona fide exercise by governmental authority
of its claimed or actual power of eminent domain; (2) any cash payments
otherwise permitted under this Agreement; (3) any sale, transfer, conveyance,
lease or other disposition of an asset in the ordinary course of business and
consistent with past practice pursuant to the terms of any power sales
agreement or steam sales agreement or other agreement or contract related to
the output or product of, or services rendered by, a Power Supply Business as
to which a Subsidiary is the supplying party; (4) any disposition of any Equity
Interest in a Power Supply Business pursuant to the terms of a

 

81

 

joint venture agreement, shareholders agreement or similar arrangement
existing as of the date hereof that requires one shareholder to transfer its
interest to another upon terms and in circumstances customary for the industry
(provided that any cash received
in connection with such disposition shall be treated as Net Cash Proceeds from
a Covered Asset Sale); or (5) any disposition of assets subject to a Lien
permitted hereby that is transferred to the lienholder or its designee in
satisfaction or settlement of the lienholder’s claim or a realization upon a
security interest permitted under this Agreement;

 

(viii)                        any
disposition in
connection with directors’ qualifying shares or investments by foreign
nationals mandated by applicable law;

 

(ix)                                any sale of shares of
Redeemable Stock of a Subsidiary to the extent such shares constitute Debt
permitted by Section 5.07;

 

(x)                                   a
sale-leaseback transaction involving substantially all of the assets of a Power
Supply Business where a Subsidiary sells the Power Supply Business to a Person
in exchange for the assumption by that Person of the Debt financing the Power
Supply Business and the Subsidiary leases the Power Supply Business from such
Person; provided that such sale,
assumption and lease are consummated in each case on a no less than fair market
value basis;

 

(xi)                                dispositions
of contract rights, development rights and resource data made in connection
with the initial development of an AES Business and prior to the commencement
of commercial operation of such AES Business for reasonably equivalent value;
and

 

(xii)                             transactions
made in order to enhance the repatriation of cash from a Subsidiary where such
Subsidiary is organized under the laws of any jurisdiction other than the
United States or any state thereof to the extent that such cash is received or
held by a Person subject in respect of such cash to the tax laws of a
jurisdiction other than the United States or any state thereof or in order to
increase the after-tax amounts thereof available for immediate distribution (provided that if any asset that is the
subject of such transaction is subject to a Lien in favor of the Secured
Holders immediately prior to such transaction then such asset shall be subject
to a Lien in favor of the Secured Holders immediately after such transaction).

 

provided
that in the case of sales of assets pursuant to clause (iv) above, the Borrower
shall apply the Net Cash Proceeds from such sale to offer to prepay the Term
Loans pursuant to Section 2.10(b), as specified therein.

 

Section 5.19  Off Balance Sheet Obligations;
Derivative Obligations.

 

(a)                                  The
Borrower shall not have, incur or undertake, or permit any of its Subsidiaries
to have, incur or undertake any Off Balance Sheet Obligations, other than Off
Balance Sheet Obligations existing on the date hereof.

 

82

 

(b)                                 The
Borrower shall not enter into any Hedge Agreement, except for Hedge Agreements
entered into to hedge against fluctuations in interest rates or foreign
exchange rates incurred in the ordinary course of business and consistent with
prudent business practice.

 

(c)                                  The
Borrower shall not permit its Subsidiaries to enter into any Hedge Agreements,
except Hedge Agreements entered into to hedge against fluctuations in interest
rates, foreign exchange, and commodity prices incurred in the ordinary course
of business and consistent with prudent business practice.

 

Section 5.20  Covenant to Give Security.

 

(a)                                  Upon
(x) the formation or acquisition of any new direct Subsidiary by the Borrower
or AES BVI II having a fair market value in excess of $3,000,000 or (y) the
Investment by the Borrower and its Subsidiaries in any direct Subsidiary of the
Borrower or AES BVI II that was not a “Pledged Subsidiary” on the Closing Date
such that aggregate assets of such Subsidiary have a fair market value in
excess of $3,000,000, then in each case at the Borrower’s expense:

 

(i)                                     within
10 days after (A) such formation or acquisition and (B) such Investment,
furnish to the Agent a description of such Subsidiary, in each case in detail
satisfactory to the Agent,

 

(ii)                                  within
15 days after such formation or acquisition of any new Subsidiary or such
Investment in any direct Subsidiary of the Borrower or AES BVI II that was not
a “Pledged Subsidiary” on the Closing Date, duly execute and deliver security
agreement supplements (if necessary) as specified by, and in form and substance
satisfactory to the Agent, securing payment of all of the Obligations of the
Borrower under the Financing Documents; provided
that if such new Subsidiary is a CFC, only 65% of such Equity Interests shall
be pledged in favor of the Secured Holders,

 

(iii)                               within
30 days after such formation or acquisition, take, and cause each Loan Party to
take, whatever action (including, without limitation, the recording of
mortgages, the filing of Uniform Commercial Code financing statements, the
giving of notices and the endorsement of notices on title documents) may be
necessary or advisable in the opinion of the Agent to vest in the Collateral
Trustees (or in any representative of the Collateral Trustees designated by it)
valid and subsisting Liens on the properties purported to be subject to the
pledges, security agreement supplements, and security agreements delivered
pursuant to this Section 5.20, enforceable against all third parties in
accordance with their terms, and

 

(iv)                              at
any time and from time to time, promptly execute and deliver any and all
further instruments and documents and take all such other action as the Agent
may deem necessary or desirable in obtaining the full benefits of, or in
perfecting and preserving the Liens of, such pledges, assignments, security
agreement supplements and security agreements;

 

provided, however,
that Section 5.20(a)(y) shall not be applicable to Subsidiaries for

 

83

 

which a grant or perfection of a Lien on such
Subsidiary’s stock would require approvals and consents from foreign and
domestic regulations and from lenders to, and suppliers, customers or other
contractual counterparties of, such Subsidiary.

 

(b)                                 Other
than with respect to the Non-Pledged Subsidiaries, the Secured Holders shall
have valid, perfected first priority Lien on (i) 65% of the Equity Interests of
each direct Subsidiary of the Borrower that is (A) organized under the laws of
a jurisdiction other than the United States or any state thereof, or (B) a
limited liability company organized under the laws of the United States or any
state thereof the direct or  indirect
Subsidiary of which is organized under the laws of a jurisdiction other than
the United States or any state  thereof,
(ii) 100% of the Equity Interests of each direct Subsidiary of the
Borrower that is organized under the laws of the United States or any state
thereof other than those Subsidiaries described by clause (i)(B) above and
(iii) 65% of the Equity Interests of each direct Subsidiary of AES BVI II.

 

Section 5.21  Further Assurances.

 

(a)                                  Promptly
upon request by the Agent, or any Bank Party through the Agent, correct, and
cause each of the other Loan Parties promptly to correct, any material defect
or error that may be discovered in any Financing Document or in the execution,
acknowledgment, filing or recordation thereof that affect the validity or
enforceability thereof, and

 

(b)                                 Promptly
upon request by the Agent, or any Bank Party through the Agent, do, execute,
acknowledge, deliver, record, re-record, file, re-file, register and
re-register any and all such further acts, pledge agreements, assignments,
financing statements and continuations thereof, termination statements, notices
of assignment, transfers, certificates, assurances and other instruments as the
Agent, or any Bank Party through the Agent, may reasonably require from time to
time in order to (A) carry out more effectively the purposes of the
Financing Documents, (B) to the fullest extent permitted by applicable
law, subject to the Borrower’s properties, assets, rights or interests to the
Liens now or hereafter intended to be covered by any of the Collateral
Documents, (C) perfect and maintain the validity, effectiveness and
priority of any of the Collateral Documents and any of the Liens intended to be
created thereunder and (D) assure, convey, grant, assign, transfer,
preserve, protect and confirm more effectively unto the Secured Holders the
rights granted or now or hereafter intended to be granted to the Secured
Holders under any Financing Document or under any other instrument executed in
connection with any Financing Document to which any Loan Party is or is to be a
party.

 

84

 

ARTICLE VI

 

DEFAULTS

 

Section 6.01  Events of Default.

 

If one or more of the
following events (“Events of Default”) shall have occurred and be
continuing:

 

(a)                                  any
Loan Party shall fail to pay when due any principal of any Loan or any
Reimbursement Obligation, or shall fail to pay within three days of the date
when due any interest, fees or other amounts payable under any Financing
Document;

 

(b)                                 the
Borrower shall fail to observe or perform any covenant contained in Sections
5.07 to 5.18, inclusive, or except in accordance with the terms hereof, the
Subsidiary Guaranty in Article 9 shall cease to be in full force and
effect;

 

(c)                                  any
Loan Party shall fail to observe or perform any covenant or agreement contained
in any Financing Document (other than those covered by clause (a) or (b) above)
for 20 days after written notice thereof has been given to the Borrower by the
Agent at the request of any Bank Party;

 

(d)                                 any
representation, warranty, certification or statement made by any Loan Party in
any Financing Document or in any certificate, financial statement or other
document delivered pursuant to any Financing Document shall prove to have been
incorrect in any material respect when made (or deemed made);

 

(e)                                  the
Borrower shall fail to make any payment in respect of any Material Debt or
Material Hedge Agreement when due or within any applicable grace period;

 

(f)                                    any
event or condition shall occur which (i) results in the acceleration of
the maturity of any Material Debt of the Borrower or the early termination of a
Material Hedge Agreement of the Borrower by the Borrower’s counterparty or the
acceleration of any Material Debt or the early termination by the counterparty
of such Subsidiary or Subsidiaries of any Material Hedge Agreement of any
(x) Subsidiary of the Borrower that contributed 15% or more to Parent
Operating Cash Flow for the four most recently completed fiscal quarters of the
Borrower or (y) Subsidiaries of the Borrower that in the aggregate
contributed 15% or more to Parent Operating Cash Flow for the four most
recently completed fiscal quarters of the Borrower (in the case of clauses (x)
and (y) above, together with any Person in which such Subsidiary or
Subsidiaries have a direct or indirect equity Investment); (ii) results in
the termination of any commitment to provide financing in an amount in excess
of $50,000,000 to the Borrower or any Material AES Entity or (iii) in the
case of the Borrower, enables (or, with the giving of notice or lapse of time
or both, would enable) the holder of any Material Debt of the Borrower or
counterparty to any Material Hedge Agreement of the Borrower or any Person
acting on such holder’s or counterparty’s behalf to, in the case of any Material
Debt, accelerate the maturity thereof or, in the case of any Material Hedge
Agreement, to terminate such Material Hedge Agreement; provided that the ability of any Person to
demand or receive payment under a Guarantee by the Borrower of Material Debt or
a Material Hedge Agreement of any Subsidiary

 

85

 

shall not
constitute an Event of Default under this clause (f) unless either (x) the
demand for payment arises as a result of a default by the Borrower under such
Guarantee or (y) such Person has demanded payment from the Borrower and the
Borrower has not made such payment within 15 Business Days following such
demand (or such longer grace period as is allowed under such Guarantee);

 

(g)                                 the
Borrower or any Significant AES Entity shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect to
itself or its debts under any bankruptcy, insolvency or other similar law now
or hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part
of its property, or shall consent to any such relief or to the appointment of
or taking possession by any such official in an involuntary case or other
proceeding commenced against it, or shall make a general assignment for the
benefit of creditors, or shall fail generally to pay its debts as they become
due, or shall take any corporate action to authorize any of the foregoing;

 

(h)                                 an
involuntary case or other proceeding shall be commenced against the Borrower or
any Significant AES Entity seeking liquidation, reorganization or other relief
with respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 60 days; or an order for
relief shall be entered against the Borrower or any Significant AES Entity
under the federal bankruptcy laws as now or hereafter in effect;

 

(i)                                     any
member of the ERISA Group shall fail to pay when due an amount or amounts aggregating
in excess of $15,000,000 which it shall have become liable to pay under Title
IV of ERISA; or notice of intent to terminate a Material Plan shall be filed
under Title IV of ERISA by any member of the ERISA Group, any plan
administrator or any combination of the foregoing; or the PBGC shall institute
proceedings under Title IV of ERISA to terminate, to impose liability (other
than for premiums under Section 4007 of ERISA) in respect of, or to cause
a trustee to be appointed to administer any Material Plan; or a condition shall
exist by reason of which the PBGC would be entitled to obtain a decree
adjudicating that any Material Plan must be terminated; or there shall occur a
complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(5)
of ERISA, with respect to, one or more Multiemployer Plans which could cause
one or more members of the ERISA Group to incur a current payment obligation in
excess of $15,000,000;

 

(j)                                     a
judgment or order for the payment of money in excess of $25,000,000 shall be
rendered against the Borrower or (x) any Subsidiary of the Borrower that
contributed 10% or more to Parent Operating Cash Flow for the four most
recently completed fiscal quarters of the Borrower or (y) more than one
Subsidiary of the Borrower and such Subsidiaries in the aggregate contributed
15% or more to Parent Operating Cash Flow for the four most recently completed
fiscal quarters of the Borrower (in the case of clauses (x) and (y) above,
together with any Person in which such Subsidiary or Subsidiaries have a direct
or indirect equity Investment), and such judgment or order shall continue
unsatisfied and unstayed for a period of 10 days;

 

86

 

(k)                                  any
person or group of persons (within the meaning of Section 13 or 14 of the
Securities Exchange Act of 1934, as amended) other than a member of the AES
Management Group shall have acquired beneficial ownership (within the meaning
of Rule 13d-3 promulgated by the Securities and Exchange Commission under
said Act) of 32.5% or more of the outstanding shares of common stock of the
Borrower; during any period of twelve consecutive calendar months, individuals
who were directors of the Borrower on the first day of such period (or who were
appointed or nominated for election as directors of the Borrower by at least a
majority of the individuals who were directors on the first day of such period)
shall cease to constitute a majority of the board of directors of the Borrower;
or

 

(l)                                     any
Collateral Document after delivery thereof pursuant to Section 3.01 shall
for any reason (other than pursuant to the terms thereof) cease to create a
valid and perfected first priority lien on and security interest in a material
portion of the Collateral purported to be covered thereby,

 

then, and in every such
event, the Agent shall (i) if requested by the Required Banks, by notice
to the Borrower terminate the Revolving Credit Loan Commitments and they shall
thereupon terminate and (ii) if requested by the Required Banks, by notice
to the Borrower declare the Notes, all interest thereon, and all other amounts
payable under this Agreement and the other Financing Documents to be, and the
Notes, all such interest thereon and all such other amounts shall thereupon
become immediately due and payable without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by the Borrower; provided that in the case of any Automatic
Acceleration Event, without any notice to the Borrower or any other act by the
Agent or the Banks, the Revolving Credit Loan Commitments shall thereupon
terminate and the Notes, all interest thereon, and all other amounts payable
under this Agreement and the other Financing Documents shall become immediately
due and payable without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by the Borrower.

 

Section 6.02  Notice of Default.

 

The Agent shall give
notice to the Borrower under Section 6.01(c) promptly upon being requested
to do so by any Bank Party and shall thereupon notify all the Banks thereof.

 

Section 6.03  Cash Collateral.

 

If any Automatic
Acceleration Event shall occur or the Loans of the Bank Parties shall have
otherwise been accelerated or the Revolving Credit Loan Commitments have been
terminated pursuant to Section 6.01, then without any request or the
taking of any other action by the Agent or any of the Bank Parties, the
Borrower shall be obligated forthwith to pay to the Collateral Agent an amount
in immediately available funds equal to the then aggregate amount available for
Revolving L/C Drawings (regardless of whether any conditions to any such
Revolving L/C Drawings can then be met) under all Revolving Letters of Credit
at the time outstanding, to be held by the Collateral Agent as cash collateral
as provided in Section 2.14 and Section 2.15, in the case of all
Revolving Letters of Credit.

 

87

 

ARTICLE VII

 

THE AGENT

 

Section 7.01  Appointment and Authorization.

 

Each Bank Party (on
behalf of itself and its Affiliates as potential Hedge Banks) irrevocably
appoints and authorizes the Agent and the Collateral Agent to take such action
as agent on its behalf and to exercise such powers and discretion under this
Agreement and the other Financing Documents as are delegated to the Agent or
the Collateral Agent, as the case may be, by the terms hereof and thereof,
together with all such powers and discretion as are reasonably incidental
thereto.  As to any matters not
expressly provided for by the Financing Documents (including, without
limitation, enforcement or collection of the Notes), neither the Agent nor the
Collateral Agent shall be required to exercise any discretion or to take any
action, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions
of the Required Banks, and such instructions shall be binding upon all Bank
Parties and all the holders of Notes; provided,
however, that neither the Agent
nor the Collateral Agent shall be required to take any action that exposes such
agent to personal liability or that is contrary to this Agreement or applicable
law.  Without limiting any of the
foregoing in this Section 7.01, the Agent shall not be required to take
any action with respect to any Default, except as expressly provided in
Article 6.  Each of the Collateral
Agent and the Agent agrees to give each Bank Party prompt notice of each notice
given to it by the Borrower pursuant to the terms of this Agreement.

 

Section 7.02  Agent and Affiliates.

 

Citicorp USA, Inc. and
its Affiliates may make loans to, issue letters of credit for the account of,
accept deposits from, acquire Equity Interests in and generally engage in any
kind of banking, trust, financial advisory, underwriting or other business with
each of the Loan Parties and their respective Affiliates as though Citicorp
USA, Inc. were not the Agent hereunder and without notice to or consent of the
Bank Parties.  The Bank Parties acknowledge
that, pursuant to such activities, Citicorp USA, Inc. or its Affiliates may
receive information regarding any Loan Party or its Affiliates (including
information that may be subject to confidentiality obligations in favor of such
Loan Party or such Affiliate) and acknowledge that the Agent shall not be under
any obligation to provide such information to them.  With respect to its Loans or any Revolving Letters of Credit,
Citicorp USA, Inc. shall have the same rights and powers under this Agreement or
any other Financing Document as any other Bank Party and may exercise such
rights and powers as though it were not the Agent, and the terms “Bank” and
“Banks” include Citicorp USA, Inc. in its individual capacity.

 

Section 7.03  Consultation with Experts.

 

The Agent and the
Collateral Agent may execute any of their respective duties under this
Agreement or any other Financing Document (including for purposes of holding or
enforcing any Lien on the Collateral (or any portion thereof) granted under the
Collateral Documents or of exercising any rights and remedies thereunder) by or
through agents, employees or attorneys-in-fact and shall be entitled to advice
of counsel, independent public accountants

 

88

 

and other consultants or
experts concerning all matters pertaining to such duties.  Neither the Agent nor the Collateral Agent
shall be responsible for the negligence or misconduct of any agent or
attorney-in-fact that it selects in the absence of gross negligence or willful
misconduct.

 

Section 7.04  Liability of Agent and Collateral Agent.

 

Neither the Agent, the
Collateral Agent nor any of their Affiliates nor any of their respective
directors, officers, agents or employees shall be liable for any action taken
or not taken by it in connection with this Agreement or any other Financing
Document (a) with the consent or at the request of the Required Banks or
(b) in the absence of its own gross negligence or willful misconduct.  Neither the Agent, the Collateral Agent nor
any of their Affiliates nor any of their respective directors, officers, agents
or employees shall be responsible for or have any duty to ascertain, inquire
into or verify (i) any statement, warranty or representation made by any
Loan Party in connection with the Financing Documents or any Extension of
Credit hereunder, or in any certificate, report, statement or other document
referred to or provided for in, or received by the Agent or the Collateral
Agent under or in connection with this Agreement or any other Financing
Document; (ii) the performance or observance of any of the covenants or
agreements of any Loan Party; (iii) the perfection or priority of any Lien or
security interest created or purported to be created under the Collateral Documents;
(iv) the satisfaction of any condition specified in Article 3, except
receipt of items required to be delivered to the Agent or (v) the validity,
effectiveness, genuineness, enforceability or sufficiency of the Financing
Documents or any other instrument or writing furnished in connection
therewith.  Neither the Agent nor the
Collateral Agent shall incur any liability by acting in reliance upon any
notice, consent, certificate, statement or other writing (which may be a bank
wire, telex, facsimile transmission or similar writing) believed by it to be
genuine or to be signed by the proper party or parties.

 

Section 7.05  Indemnification.

 

Each Bank Party shall,
ratably (determined as provided below) indemnify the Agent, the Collateral
Agent, each Revolving Fronting Bank, each of their respective Affiliates and
the respective directors, officers, agents and employees of any of them (to the
extent not reimbursed by the Obligors) against any cost, expense (including
counsel fees and disbursements), claim, demand, action, loss or liability
(except such as result from such indemnitees’ gross negligence or willful
misconduct) that such indemnitees may suffer or incur in connection with the
Financing Documents or any action taken or omitted by such indemnitees thereunder.  For purposes of this Section 7.05, the
Bank Party’s ratable share of any amount shall be determined, at any time,
according to the sum of (a) the aggregate principal amount of Loans outstanding
at such time and owing to the respective Bank Party; (b) the aggregate
Revolving Letter of Credit Liabilities outstanding at such time and owing to
the respective Bank Party and (c) their respective Unused Revolving Credit Loan
Commitments outstanding at such time.

 

Section 7.06  Credit Decision.

 

Each Bank Party
acknowledges that it has, independently and without reliance upon the Agent,
the Collateral Agent, any Revolving Fronting Bank, or any other Bank or any
Arranger Party, and based on the financial statements referred to in
Section 4.05 and such other

 

89

 

documents and information
as it has deemed appropriate, made its own credit analysis and decision to
enter into this Agreement.  Each Bank
Party also acknowledges that it will, independently and without reliance upon
the Agent, the Collateral Agent, or any other Bank Party, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking any action under this
Agreement.

 

Section 7.07  Successor Agent or Collateral Agent.

 

The Agent or the
Collateral Agent may resign at any time by giving notice thereof to the Bank
Parties and the Borrower.  Upon any such
resignation, the Required Banks shall have the right to appoint a successor
Agent or a successor Collateral Agent. 
If no successor Agent or successor Collateral Agent shall have been so
appointed by the Required Banks, and shall have accepted such appointment,
within 30  days after the retiring Agent or Collateral Agent gives notice
of resignation, then the retiring Agent or Collateral Agent (as the case may
be), on behalf of the Bank Parties, shall appoint a successor Agent or a
successor Collateral Agent (as applicable), which shall be a commercial bank
organized or licensed under the laws of the United States and having a combined
capital and surplus of at least $250,000,000. 
Upon the acceptance of its appointment as Agent or Collateral Agent (as
the case may be) hereunder by a successor Agent or a successor Collateral
Agent, upon the execution and filing or recording of such financing statements,
or amendment, thereto, and such other instruments or notices, as may be
necessary or desirable, or as the Required Lenders may request with respect to
the Security Agreement and the BVI Cayman Pledge Agreement in order to continue
the perfection of the Liens granted or purported to be granted by the
Collateral Documents, such successor Agent or Collateral Agent (as applicable)
shall thereupon succeed to and become vested with all the rights and duties of
the retiring Agent or Collateral Agent (as the case may be), and the retiring
Agent or Collateral Agent shall be discharged from its duties and obligations
hereunder.  If within 45 days after
written notice is given of the retiring Agent’s or Collateral Agent’s (as the
case may be) resignation under this Section 7.07 no successor Agent or
Collateral Agent (as the case may be) shall have been appointed and shall have
accepted such appointment, then on such 45th day (i) the retiring
Agent’s or Collateral Agent’s (as the case may be) resignation shall become
effective, (ii) the retiring Agent or Collateral Agent (as the case may be)
shall thereupon be discharged from its duties and obligations under the
Financing Documents and (iii) the Required Banks shall thereafter perform all
duties of the retiring Agent or Collateral Agent (as the case may be) until
such time, if any, as the Required Banks appoint a successor Agent or a
successor Collateral Agent as provided above. 
After any retiring Agent’s or Collateral Agent’s (as the case may be)
resignation hereunder as Agent or Collateral Agent (as the case may be) the
provisions of this Article shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent or Collateral Agent (as
the case may be).

 

Section 7.08  Administrative Agent May File Proofs of
Claim.

 

In case of the pendency
of any receivership, insolvency, liquidation, bankruptcy, reorganization,
arrangement, adjustment, composition or other judicial proceeding relative to
any Obligor, the Agent (irrespective of whether the principal of any Loan or
Revolving Letter of Credit Liabilities shall then be due and payable as herein
expressed or by declaration or

 

90

 

otherwise and
irrespective of whether the Agent shall have made any demand on the Borrower)
shall be entitled and empowered, by intervention in such proceeding or
otherwise:

 

(a)                                  to
file and prove a claim for the whole amount of the principal and interest owing
and unpaid in respect of the Loans, the Revolving Letter of Credit Liabilities
and all other Obligations that are owing and unpaid and to file such other
documents as may be necessary or advisable in order to have the claims of the Bank
Parties and the Agent (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Bank Parties and the Agent and
their respective agents and counsel and all other amounts due the Bank Parties
and the Agent and the Collateral Agent under this Agreement) allowed in such
judicial proceeding;

 

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

 

(c)                                  any
custodian, receiver, assignee, trustee, liquidator, sequestrator or other
similar official in any such judicial proceeding is hereby authorized by each
Bank Party to make such payments to the Agent and, in the event that the Agent
shall consent to the making of such payments directly to the Bank Parties, to
pay to the Agent any amount due for the reasonable compensation, expenses,
disbursements and advances of the Agent, the Collateral Agent and their
respective agents and counsel, and any other amounts due the Agent under this
Agreement.

 

Nothing contained herein
shall be deemed to authorize the Agent to authorize or consent to or accept or
adopt on behalf of any Bank Party any plan of reorganization, arrangement,
adjustment or composition affecting the Obligations or the rights of any Bank
Party or to authorize the Agent to vote in respect of the claim of any Bank
Party in any such proceeding.

 

Section 7.09  Agents’ Fee.

 

The Borrower shall pay to
the Agent and the Collateral Agent for their own account fees in the amounts
and at the times previously agreed upon between the Borrower, the Agent and the
Collateral Agent.

 

Section 7.10  Amendment to the Collateral Trust
Agreement.

 

(a)                                  Each
Bank, by its signature hereto, consents to the execution and delivery of (i)
Amendment No. 2 to the Collateral Trust Agreement for the purpose of amending
the definition of “Other Debt Agreement” therein and (ii) at such time as the
Sul Guarantee shall have been paid in full or terminated, an amendment to the
Collateral Trust Agreement to amend the definition of “Secured Obligations” to
increase the amount of permitted Secured Hedge Agreements to $100,000,000.

 

(b)                                 Each
Bank hereby authorizes the Agent, as the Required Representative (as defined in
the Collateral Trust Agreement), to authorize the Collateral Trustees to
execute each of the amendments referred to in Section 7.10(a).

 

91

 

Section 7.11  Delivery of Information.

 

(a)                                  The
Borrower hereby agrees that it will provide to the Agent all information,
documents and other materials that it is obligated to furnish to the Agent
pursuant to this Agreement, including, without limitation, all notices,
requests, financial statements, financial and other reports, certificates and
other information materials, but excluding any such communication that (i)
relates to a request for a new, or a conversion of an existing, Borrowing or
other Extension of Credit (including any election of an interest rate or
Interest Period relating thereto), (ii) relates to the payment of any principal
or other amount due under this Agreement prior to the scheduled date therefor,
(iii) provides notice of any default or Event of Default under this Agreement
or (iv) is required to be delivered pursuant to Sections 3.01 or 3.02 to
satisfy any condition precedent to the effectiveness of this Agreement and/or
any Borrowing or other Extension of Credit hereunder (all such non-excluded
communications being referred to herein collectively as “Communications”),
by transmitting the Communications in an electronic/soft medium in a format
acceptable to the Agent to oploanswebadmin@citigroup.com.  In addition, the Borrower agrees to continue
to provide the Communications to the Agent in the manner specified in this
Agreement but only to the extent requested by the Agent.

 

(b)                                 The
Borrower further agrees that the Agent may make the Communications available to
the other Bank Parties by posting the Communications on Intralinks or a
substantially similar electronic transmission systems.  (the “Platform”).

 

THE
PLATFORM IS PROVIDED “AS IS” AND “AS AVAILABLE”.  THE AGENT PARTIES (AS DEFINED BELOW) DO NOT WARRANT THE ACCURACY
OR COMPLETENESS OF THE COMMUNICATIONS, OR THE ADEQUACY OF THE PLATFORM AND
EXPRESSLY DISCLAIM LIABILITY FOR ERRORS OR OMISSIONS IN THE COMMUNICATIONS.  NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR
STATUTORY, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR
FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY THE AGENT PARTIES IN
CONNECTION WITH THE COMMUNICATIONS OR THE PLATFORM.  IN NO EVENT SHALL THE AGENT OR ANY OF ITS AFFILIATES OR ANY OF
THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ADVISORS OR REPRESENTATIVES
(COLLECTIVELY, “AGENT PARTIES”) HAVE ANY LIABILITY TO THE BORROWER, ANY BANK
PARTY OR ANY OTHER PERSON OR ENTITY FOR DAMAGES OF ANY KIND, INCLUDING, WITHOUT
LIMITATION, DIRECT OR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES,
LOSSES OR EXPENSES (WHETHER IN TORT, CONTRACT OR OTHERWISE) ARISING OUT OF THE
BORROWER’S OR THE AGENT’S TRANSMISSION OF COMMUNICATIONS THROUGH THE INTERNET,
EXCEPT TO THE EXTENT THE LIABILITY OF ANY AGENT PARTY IS FOUND IN A FINAL
NON-APPEALABLE JUDGMENT BY A COURT OF COMPETENT JURISDICTION TO HAVE RESULTED PRIMARILY
FROM SUCH AGENT PARTY’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.

 

92

 

(c)                                  The
Agent agrees that the receipt of the Communications by the Agent at its e-mail
address set forth in clause (a) above shall constitute effective delivery of
the Communications to the Agent for purposes of the Financing Documents.  Each
Bank Party agrees that notice to it (as provided in the next sentence)
specifying that the Communications have been posted to the Platform shall
constitute effective delivery of the Communications to such Bank Party for
purposes of the Financing Documents. 
Each Bank Party agrees to notify the Agent in writing (including by
electronic communication) from time to time of such Bank Party’s e-mail address
to which the foregoing notice may be sent by electronic transmission and that
the foregoing notice may be sent to such e-mail address.  Nothing herein shall prejudice the
right of the Agent or any Bank Party to give any notice or other communication
pursuant to any Financing Document in any other manner specified in such
Financing Document.

 

ARTICLE VIII

 

CHANGE IN CIRCUMSTANCES

 

Section 8.01  Basis for Determining Interest Rate
Inadequate or Unfair.

 

If on or prior to the
first day of any Interest Period for any Euro-Dollar Borrowing:

 

(a)                                  the
Agent is advised by the Reference Banks that deposits in Dollars (in the
applicable amounts) are not being offered to the Reference Banks in the
relevant market for such Interest Period, or

 

(b)                                 the
Required Banks advise the Agent that the Adjusted London Interbank Offered Rate
as determined by the Agent will not adequately and fairly reflect the cost to
such Banks of funding their Euro-Dollar Loans for such Interest Period, the
Agent shall forthwith give notice thereof to the Borrower and the Bank Parties,
whereupon until the Agent notifies the Borrower that the circumstances giving
rise to such suspension no longer exist, (i) the obligations of the Bank
Parties to make Euro-Dollar Loans, or to continue or convert outstanding Loans
as or into Euro-Dollar Loans, shall be suspended and (ii) each outstanding
Euro-Dollar Loan shall be converted into a Base Rate Loan on the last day of
the then current Interest Period applicable thereto.  Unless the Borrower notifies the Agent at least two Domestic
Business Days before the date of any Euro-Dollar Borrowing for which a Notice
of Borrowing has previously been given that it elects not to borrow on such
date, such Borrowing shall instead be made as a Base Rate Borrowing.

 

Section 8.02  Illegality.

 

If, on or after the date
of this Agreement, the adoption of any applicable law, rule or regulation, or
any change in any applicable law, rule or regulation, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Bank Party (or its Euro-Dollar Lending Office)
with any request or directive (whether or not having the force of law) of any
such authority, central bank or comparable agency shall make it

 

93

 

unlawful or impossible
for any Bank Party (or its Euro-Dollar Lending Office) to make, maintain or
fund its Euro-Dollar Loans to the Borrower and such Bank Party shall so notify
the Agent, the Agent shall forthwith give notice thereof to the other Bank
Parties and the Borrower, whereupon until such Bank Party notifies the Borrower
and the Agent that the circumstances giving rise to such suspension no longer
exist, the obligation of such Bank Party to make Euro-Dollar Loans to the
Borrower, or to convert outstanding Loans into Euro-Dollar Loans or continue
outstanding Loans as Euro-Dollar Loans, shall be suspended.  Before giving any notice to the Agent
pursuant to this Section 8.02, such Bank Party shall designate a different
Euro-Dollar Lending Office if such designation will avoid the need for giving
such notice and will not, in the judgment of such Bank Party, be otherwise
disadvantageous to such Bank Party.  If
such notice is given, each Euro-Dollar Loan of such Bank Party then outstanding
shall be converted to a Base Rate Loan either (a) on the last day of the
then current Interest Period applicable to such Euro-Dollar Loan if such Bank
Party may lawfully continue to maintain and fund such Loan as a Euro-Dollar
Loan to such day or (b) immediately if such Bank Party shall determine
that it may not lawfully continue to maintain and fund such Loan as a
Euro-Dollar Loan to such day.  Interest
and principal on any such Base Rate Loan shall be payable on the same dates as,
and on a pro rata basis with, the interest and principal payable on the related
Euro-Dollar Loans of the other Bank Parties.

 

Section 8.03  Increased Cost and Reduced Return.

 

(a)                                  If
on or after the date hereof, the adoption of any applicable law, rule or
regulation, or any change in any applicable law, rule or regulation, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank (or its Applicable Lending
Office) or any Revolving Fronting Bank (any Bank (or its Applicable Lending
Office) and any Revolving Fronting Bank being referred to in this
Section 8.03 as a “Credit Party”)
with any request or directive (whether or not having the force of law) of any
such authority, central bank or comparable agency shall impose, modify or deem
applicable any reserve (including, without limitation, any such requirement
imposed by the Board of Governors of the Federal Reserve System, but excluding
with respect to any Euro-Dollar Loan any such requirement included in an
applicable Euro-Dollar Reserve Percentage), special deposit, insurance assessment
or similar requirement against assets of, deposits with or for the account of,
or credit extended by, any Credit Party or shall impose on any Credit Party or
on the London interbank market any other condition affecting its Euro-Dollar
Loans, its Note or Notes, the Revolving Letters of Credit, or its obligation to
make Euro-Dollar Loans or to issue Revolving Letters of Credit or to
participate therein and the result of any of the foregoing is to increase the
cost to such Credit Party of making or maintaining any Euro-Dollar Loan or
issuing any Revolving Letter of Credit or participating therein, or to reduce
the amount of any sum received or receivable by such Credit Party under this
Agreement or under its Note or Notes with respect thereto, by an amount deemed
by such Credit Party to be material, then, within 15 days after demand by such
Credit Party (with a copy to the Agent), the Borrower shall pay to such Credit
Party such additional amount or amounts as will compensate such Credit Party
for such increased cost or reduction.

 

(b)                                 If
any Credit Party shall have determined that, after the date hereof, the
adoption of any applicable law, rule or regulation regarding capital adequacy,
or any change in

 

94

 

any such law,
rule or regulation, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or any request or
directive regarding capital adequacy (whether or not having the force of law)
of any such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on capital of such Credit Party (or its
Parent) as a consequence of such Credit Party’s obligations hereunder to a
level below that which such Credit Party (or its Parent) could have achieved
but for such adoption, change, request or directive (taking into consideration
its policies with respect to capital adequacy) by an amount deemed by such
Credit Party to be material, then from time to time, within 15 days after
demand by such Credit Party (with a copy to the Agent), the Borrower shall pay
to such Credit Party such additional amount or amounts as will compensate such
Credit Party (or its Parent) for such reduction.

 

(c)                                  Each
Credit Party will promptly notify the Borrower and the Agent of any event of
which it has knowledge, occurring after the date hereof, which will entitle
such Credit Party to compensation pursuant to this Section 8.03(c) and
will designate a different Applicable Lending Office if such designation will
avoid the need for, or reduce the amount of, such compensation and will not, in
the judgment of such Credit Party, be otherwise disadvantageous to such Credit Party.  A certificate of any Credit Party claiming
compensation under this Section 8.03(c) and setting forth the additional
amount or amounts to be paid to it hereunder shall be conclusive in the absence
of manifest error.  In determining such
amount, such Bank Party may use any reasonable averaging and attribution
methods.

 

Section 8.04  Taxes.

 

(a)                                  Any
and all payments by the Borrower and any other Loan Party to or for the account
of any Bank Party (which for purposes of this Section 8.04, shall include
a Third Party Fronting Bank and its Assignees), the Agent or the Collateral
Agent hereunder or under any other Financing Document shall be made free and
clear of and without deduction for any and all present or future taxes, duties,
levies, imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, excluding, in the case of each Bank Party, the Agent and the
Collateral Agent, taxes imposed on its income (including branch profit taxes),
franchise and similar taxes and other taxes imposed on it that, in any such
case, would not have been imposed but for a material connection between such
Bank Party, the Agent or the Collateral Agent (as the case may be) and the
jurisdiction imposing such taxes (other than a material connection arising by
reason of this Agreement or any other Financing Document or the receipt of
payments made hereunder or thereunder or the exercise of any rights by a Bank
Party, the Agent or the Collateral Agent (as the case may be) hereunder or
thereunder) (all such non-excluded taxes, duties, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as “Taxes”).  If the Borrower or any other Loan Party
shall be required by law to deduct any Taxes from or in respect of any sum payable
hereunder or under any other Financing Document to any Bank Party, the Agent or
the Collateral Agent (i) the sum payable shall be increased as necessary
so that after making all required deductions (including deductions applicable
to additional sums payable under this Section 8.04) such Bank Party, the
Agent or the Collateral Agent (as the case may be) receives an amount equal to
the sum it would have received had no such deductions been made; (ii) the
Borrower shall make such deductions; (iii) the Borrower shall pay the full
amount deducted to the relevant taxation authority or other authority in
accordance with

 

95

 

applicable law
and (iv) the Borrower shall furnish to the Agent, at its address referred
to in Section 10.01, the original or a certified copy of a receipt or
other satisfactory documentation evidencing payment thereof.

 

(b)                                 In
addition, the Borrower agrees to pay any present or future stamp or documentary
taxes and any other excise or property taxes, or charges or similar levies
which arise from any payment made by it hereunder or under any Note or from the
execution or delivery of, or otherwise with respect to, this Agreement or any
other Financing Document (hereinafter referred to as “Other Taxes”).

 

(c)                                  The
Borrower agrees to indemnify each Bank Party, the Agent and the Collateral
Agent for the full amount of Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on
amounts payable under this Section 8.04) paid by such Bank Party, the
Agent or the Collateral Agent (as the case may be) and any liability (including
penalties, interest and expenses) arising therefrom or with respect
thereto.  This indemnification shall be
made within 15 days from the date such Bank Party, the Agent or the Collateral
Agent (as the case may be) makes demand therefor.

 

(d)                                 Each
Bank Party that is organized under the laws of a jurisdiction outside the
United States shall, on or prior to the date of its execution and delivery of
this Agreement in the case of a Bank Party listed on the signature pages hereof
or on or prior to the date on which it becomes a Bank Party in the case of each
other Bank Party and in the case any Bank Party changes jurisdiction of its
Applicable Lending Office and from time to time thereafter as requested in
writing by the Borrower (but only so long thereafter as such Bank Party remains
lawfully able to do so), shall deliver to the Borrower and the Agent such
certificates, documents or other evidence, as required by the Code or Treasury
Regulations issued pursuant thereto, including Internal Revenue Service
Form W-8BEN, Form W-8 IMY or Form W-8ECI and any other certificate or
statement of exemption specified by the Borrower and required by Treasury
Regulation Section 1.1441-4(a) or Section 1.1441-6(c) or any
subsequent version thereof, properly completed and duly executed by such Bank
Party establishing that any payment under this Agreement or any other Financing
Documents is (i) not subject to withholding under the Code because such
payment is effectively connected with the conduct by such Bank Party of a trade
or business in the United States, or (ii) fully or partially exempt from
United States tax under a provision of an applicable tax treaty, or (iii) not
subject to withholding under the portfolio interest exception under
Section 881(c) of the Code (and, if such Bank Party delivers a Form W-8BEN
claiming the benefits of exemption from United States withholding tax under Section 881(c),
a certificate representing that such Bank Party is not a “bank” for purposes of
Section 881(c) of the Code, is not a 10-percent shareholder (within the
meaning of Section 871(h)(3)(B) of the Code) of the Borrower and is not a
controlled foreign corporation related to the Borrower (within the meaning of
Section 864(d)(4) of the Code). 
Unless the Borrower and the Agent have received forms or other documents
reasonably satisfactory to them indicating that payments hereunder are not
subject to United States withholding tax or are subject to such tax at a rate
reduced by an applicable tax treaty, the Borrower or the Agent shall withhold
taxes from such payments at the applicable statutory rate in the case of
payments to or for any Bank Party organized under the laws of a jurisdiction
outside the United States.  If a Bank
Party is unable to deliver one of these forms or if the forms provided by a
Bank Party at the time such Bank Party first becomes a party to this Agreement
or at the time a Bank Party changes its

 

96

 

Applicable
Lending Office (other than at the request of the Borrower) or designates a
Conduit Lender that indicates a United States interest withholding tax rate in
excess of zero, withholding tax at such rate shall be considered excluded from
Taxes unless and until such Bank Party provides the appropriate forms
certifying that a lesser rate applies, whereupon withholding tax at such lesser
rate only shall be considered excluded from Taxes for periods governed by such
appropriate forms; provided, however, that (i) that should a Bank
Party, which is otherwise exempt from or subject to a reduced rate of
withholding tax, becomes subject to Taxes because of its failure to deliver a
form required hereunder, the Borrower shall take such steps as such Bank Party
shall reasonably request to assist such Bank Party to recover such Taxes and
(ii) if at the effective date of a transfer pursuant to which a Bank Party
becomes a party to this Agreement, the Bank Party assignor was entitled to
payments under Section 8.04(a) in respect of United States withholding tax
with respect to interest paid at such date, then, to such extent, the term
Taxes shall include (in addition to withholding taxes that may be imposed in
the future or other amounts otherwise includable in Taxes) United States
withholding tax, if any, applicable with respect to the Bank Party assignee on
such date.

 

(e)                                  If
the Borrower is required to pay additional amounts to or for the account of any
Bank Party pursuant to this Section 8.04, then such Bank Party shall use
reasonable effort (consistent with internal policy and regulatory restrictions)
to change the jurisdiction of its Applicable Lending Office so as to eliminate
or reduce any such additional payment which may thereafter accrue if such
change, in the judgment of such Bank Party, is not otherwise disadvantageous to
such Bank Party.

 

(f)                                    Each
Bank Party, the Agent and the Collateral Agent agrees that it will promptly
(within 30 days) after receiving notice thereof from any taxing authority,
notify the Borrower of the assertion of any liability by such taxing authority
with respect to Taxes or Other Taxes; provided
that the failure to give such notice shall not relieve the Borrower of its
obligations under this Section 8.04 except
to the extent that the Borrower has been prejudiced by such failure and except
that the Borrower shall not be liable for penalties, interest or expenses
accruing after such 30 day period until such time as it receives the notice
contemplated above, after which time it shall be liable for interest, penalties
and expenses accruing after such receipt.

 

(g)                                 If
any Bank Party, the Agent or the Collateral Agent shall receive a credit or
refund from a taxing authority (as a result of any error in the imposition of
Taxes or Other Taxes by such taxing authority) with respect to and actually
resulting from an amount of such Taxes or Other Taxes paid by the Borrower
pursuant to subsection (a) or (c) above, such Bank Party, the Agent or the
Collateral Agent shall promptly pay to the Borrower the amount so received
(without interest thereon, whether or not received).

 

(h)                                 Without
prejudice to the survival of any other agreement contained herein, the
agreements, covenants and obligations contained in this Section 8.04 shall
survive the payment in full of the principal of and interest on all Loans,
Notes and other advances made hereunder.

 

97

 

Section 8.05  Base Rate Loans Substituted for Affected
Euro-Dollar Loans.

 

If (a) the
obligation of any Bank Party to make, or to continue or to convert outstanding
Loans as or to, Euro-Dollar Loans to the Borrower has been suspended pursuant
to Section 8.02 or (b) any Bank Party has demanded compensation under
Section 8.03 or 8.04 with respect to its Euro-Dollar Loans to the Borrower
and the Borrower shall, by at least five Euro-Dollar Business Days’ prior
notice to such Bank Party through the Agent, have elected that the provisions
of this Section 8.05 shall apply to such Bank Party, then, unless and
until such Bank Party notifies the Borrower that the circumstances giving rise
to such suspension or demand for compensation no longer exist, all Loans to the
Borrower which would otherwise be made by such Bank Party as (or continued or
converted to) Euro-Dollar Loans shall be made instead as Base Rate Loans (on
which interest and principal shall be payable contemporaneously with the
related Euro-Dollar Loans of the other Bank Parties).  If such Bank Party notifies the Borrower that the circumstances
giving rise to such suspension or demand for compensation no longer exist, the
principal amount of each such Base Rate Loan shall be converted into a
Euro-Dollar Loan on the first day of the next succeeding Interest Period
applicable to the related Euro-Dollar Loans of the other Bank Parties.

 

ARTICLE IX

 

SUBSIDIARY GUARANTY

 

Section 9.01  The Subsidiary Guaranty.

 

Subject in each case to
the provisions of Section 9.08, each of the Subsidiary Guarantors hereby,
jointly and severally, unconditionally guarantees as primary obligor and not
merely as surety, the full and punctual payment as and when the same shall
become due and payable (whether at stated maturity, upon acceleration or
otherwise) of the principal and interest on each Revolving Credit Loan Note and
Term Loan Note issued by the Borrower under this Agreement, the full and
punctual payment of each Reimbursement Obligation in respect of the Revolving
Letters of Credit under this Agreement and the full and punctual payment of all
amounts payable by the Borrower under this Agreement in respect of the
Revolving Credit Loan Facility and the Term Loans (the “Revolving Credit Loan/Term Loan Obligations”)
(the guaranty referred to above is referred to as the “Subsidiary Guaranty”).  Upon failure by the Borrower to pay
punctually any such amount, the Subsidiary Guarantors shall forthwith on demand
pay the amount not so paid at the place and in the manner specified in the
Agreement.  The Revolving Credit
Loan/Term Loan Obligations of the Borrower guaranteed by the Subsidiary
Guarantors are referred to as the “Guaranteed
Obligations”.  Without
limiting the generality of the foregoing, each Subsidiary Guarantor’s liability
hereunder shall extend to all amounts which constitute part of the obligations
guaranteed by it hereunder and would be owed by the Borrower hereunder but for
the fact that they are unenforceable or not allowable due to the existence of a
bankruptcy, reorganization or similar proceeding involving the Borrower.

 

Section 9.02  Guaranty Absolute.

 

Each Subsidiary
Guarantor, jointly and severally guarantees that, subject to Section 9.08,
the Guaranteed Obligations will be paid strictly in accordance with the terms
of

 

98

 

this Agreement,
regardless of any law, regulation or order now or hereafter in effect in any
jurisdiction affecting any of such terms or the rights of the Banks and the
Agent with respect thereto.  The
respective obligations of each of the Subsidiary Guarantors under the
Subsidiary Guaranty are independent of the Revolving Credit Loan/Term Loan
Obligations.  The obligations of each
Subsidiary Guarantor hereunder shall be unconditional and absolute and, without
limiting the generality of the foregoing, shall not be released, discharged or
otherwise affected by:

 

(i)                                     any
extension, renewal, settlement, compromise, waiver or release in respect of any
Obligation of any other Loan Party under any Financing Document, by operation
of law or otherwise;

 

(ii)                                  any
lack of validity or enforceability of any Financing Document or any other
agreement or instrument relating thereto;

 

(iii)                               any
change in the time, manner or place of payment of, or in any other term of, all
or any of the Guaranteed Obligations or any other obligations of the Borrower
under the Financing Documents, or any other amendment or waiver of or any
consent to departure from any Financing Document, including, without
limitation, any increase in the Guaranteed Obligations resulting from the extension
of additional credit to the Borrower or otherwise;

 

(iv)                              any
taking, exchange, release, impairment, invalidity or nonperfection of any
Collateral;

 

(v)                                 any
manner of application of the Collateral or proceeds thereof, to all or any of
the Guaranteed Obligations, or any manner of sale or other disposition of any
Collateral for all or any of the Guaranteed Obligations or any other
Obligations of the Loan Parties under the Financing Documents, or any other
property or assets of the Loan Parties or any of their Subsidiaries;

 

(vi)                              any
failure by the Agent, the Collateral Agent or any other Lender Party to
disclose to any Loan Party any information relating to the financial condition,
operations, properties or prospects of any other Loan Party now or hereafter
known to the Agent, the Collateral Agent or such Lender Party, as the case may
be (such Subsidiary Guarantor waiving any duty on the part of the Agent, the
Collateral Agent or the Lender Parties to disclose such information);

 

(vii)                           any
change in the corporate existence, structure or ownership of any Loan Party, or
any insolvency, bankruptcy, reorganization or other similar proceeding
affecting any other Loan Party or its assets or any resulting release or
discharge of any obligation of any other Loan Party contained in any Financing
Document;

 

(viii)                        the
existence of any claim, set-off or other rights which such Subsidiary Guarantor
may have at any time against any other Loan Party, the Agent, the Collateral
Agent, any Bank Party or any other Person, whether in connection herewith or
with any unrelated transactions; provided
that nothing herein shall prevent the assertion of any such claim by separate
suit or compulsory counterclaim;

 

99

 

(ix)                                any
invalidity or unenforceability relating to or against any other Loan Party for
any reason of any Financing Document, or any provision of applicable law or
regulation purporting to prohibit the payment by any other Obligor of the
principal of or interest on any Note or any other amount payable by it under
any Financing Document; or

 

(x)                                   any
other act or omission to act or delay of any kind by any Obligor, the Agent,
the Collateral Agent, any Bank Party or any other Person or any other
circumstance whatsoever which might, but for the provisions of this paragraph,
constitute a legal or equitable discharge of or defense to a Subsidiary
Guarantor’s obligations hereunder.

 

Section 9.03  Discharge Only Upon Payment in Full,
Reinstatement in Certain Circumstances.

 

Each Subsidiary
Guarantor’s obligations hereunder shall remain in full force and effect until
the Revolving Credit Loan/Term Loan Obligations have been paid in full and the
Revolving Credit Loan Commitments have been terminated.  If at any time the payment of principal of
or interest on any Note or any other amount payable by the Borrower, in respect
of the Revolving Credit Loan Facility and the Term Loans under any Financing
Document is rescinded or must be otherwise restored or returned upon the
insolvency, bankruptcy or reorganization of the Borrower or otherwise, the
applicable Subsidiary Guarantor’s obligations hereunder with respect to such
payment shall be reinstated at such time as though such payment had been due
but not made at such time.

 

Section 9.04  Revolving L/C
Cash Collateral Account.

 

(a)                                  Each
Subsidiary Guarantor further agrees that if the Borrower shall fail to deposit
in the Revolving L/C Cash Collateral Account any amount required to be
deposited therein pursuant to this Agreement, the Subsidiary Guarantors shall
deposit such amount in a subaccount of the Revolving L/C Cash Collateral
Account as collateral security for each Subsidiary Guarantor’s potential
obligations hereunder.  If the
Subsidiary Guarantors shall fail to furnish such funds, the Agent shall be
authorized to debit any accounts the Subsidiary Guarantors maintain with the
Agent in such amount.  Cash deposited in
such subaccount of the Revolving L/C Cash Collateral Account pursuant to this
Section 9.04 shall be returned to the Subsidiary Guarantors depositing the
same to the extent that funds deposited by the Borrower in the Revolving L/C
Cash Collateral Account would have been required to be returned to the
Borrower.

 

(b)                                 Each
Subsidiary Guarantor hereby pledges and grants to the Agent, for the benefit of
the Banks and the Agent, a continuing lien on and security interest in all
right, title and interest of such Subsidiary Guarantor with respect to any
funds held in the Revolving L/C Cash Collateral Account from time to time, and
all proceeds thereof, as security for the payment of the Guaranteed
Obligations.

 

100

 

(c)                                  The
Agent may, at any time or from time to time after the funds are deposited in
the Revolving L/C Cash Collateral Account, apply funds then held in the
Revolving L/C Cash Collateral Account to the payment of any of the Guaranteed
Obligations.

 

(d)                                 Neither
the Subsidiary Guarantors nor any person or entity claiming on behalf of or
through the Subsidiary Guarantors shall have any right to withdraw any of the
funds held in the Revolving L/C Cash Collateral Account.

 

(e)                                  Each
Subsidiary Guarantor agrees that it will not (i) sell or otherwise dispose of
any interest in the Revolving L/C Cash Collateral Account or any funds held therein
or (ii) create or permit to exist any lien, security interest or other charge
or encumbrance upon or with respect to the Revolving L/C Cash Collateral
Account or any funds held therein, except as contemplated by the terms of this
Section 9.04.

 

Section 9.05  Waiver by the Subsidiary Guarantors.

 

Each Subsidiary Guarantor
irrevocably waives promptness, diligence, notice of acceptance, presentment,
protest and any other notice with respect to any of its Guaranteed Obligations
and this Subsidiary Guaranty and waives any requirement that the Agent, the
Collateral Agent or any Bank Party protect, secure, perfect or insure any
security interest or Lien on the Collateral or exhaust any action against the
Borrower against the Borrower or any other Person or entity or any Collateral.

 

Section 9.06  Subrogation.

 

Upon making any payment
with respect to the Borrower under this Article 9, the applicable
Subsidiary Guarantor shall be subrogated to the rights of the payee against the
Borrower with respect to such payment; provided
that no Subsidiary Guarantor shall enforce any payment by way of subrogation
until all amounts of principal of and interest on the Notes and all other
amounts payable by the Borrower under any Financing Document shall have been
paid in full.

 

Section 9.07  Stay of Acceleration.

 

In the event that
acceleration of the time for payment of any amount payable by the Borrower
under any Financing Document is stayed upon insolvency, bankruptcy or
reorganization of the Borrower, all such amounts otherwise subject to
acceleration under the terms of this Agreement shall nonetheless be payable by
the applicable Subsidiary Guarantor hereunder forthwith on demand by the Agent
made at the request of the requisite proportion of the Bank Parties specified in
Article 6 of this Agreement.

 

Section 9.08  Limitation of Liability.

 

The obligations of each
Subsidiary Guarantor under this Article 9 shall be limited to an aggregate
amount equal to the largest amount that would not render its obligations under
this Article 9 subject to avoidance under Section 548 of the
Bankruptcy Code or any comparable provisions of any applicable state law
(including, without limitation, the provisions of the

 

101

 

Uniform Fraudulent Transfer
Act and the Uniform Fraudulent Conveyance Act, to the extent incorporated in
applicable state law).

 

Section 9.09  Release of Subsidiary Guarantors.

 

Upon any Asset Sale of
all of the Capital Stock of a Subsidiary Guarantor in accordance with the terms
of the Financing Documents and the application of the Net Cash Proceeds from
such Asset Sale to prepay the Debt hereunder pursuant to and in the amount and
order of priority set forth in Section 2.10(b), such Subsidiary Guarantor
shall be released from all of its Obligations under this Article 9 and
shall not be a “Subsidiary Guarantor” for any purpose under the Financing
Documents.

 

Section 9.10  Representations and Warranties.

 

Each Subsidiary
Guarantor, as to itself, hereby makes the representations and warranties set
forth in Section 4.01, 4.02(a) and 4.04.

 

Section 9.11  Covenants.

 

Each Subsidiary Guarantor
hereby agrees to comply with the covenant set forth in Section 5.09(b).

 

ARTICLE X

 

MISCELLANEOUS

 

Section 10.01  Notices.

 

All notices, requests and other communications to any party hereunder
shall be in writing (including bank wire, telex, facsimile transmission or
similar writing) and shall be given to such party:  (a) in the case of the Borrower, any Revolving Fronting Bank, the
Agent or the Collateral Agent, at its address or telex or facsimile
transmission number set forth on the signature pages hereof; (b) in the
case of any Bank, at its address or telex or facsimile transmission number set
forth in its Administrative Questionnaire or (c) in the case of any other
party, at such other address or telex or facsimile transmission number as such
party may hereafter specify for the purpose by notice to the Agent, the
Collateral Agent, the Revolving Fronting Banks and the Borrower.  Each such notice, request or other
communication shall be effective (x) if given by telex, when such telex is
transmitted to the telex number specified in or pursuant to this
Section 10.01 and the appropriate answerback is received; (y) if
given by mail, 72 hours after such communication is deposited in the mails with
first class postage prepaid, addressed as aforesaid or (z) if given by any
other means, when delivered at the address specified in or pursuant to this
Section 10.01; provided that
notices to the Agent, the Collateral Agent or a Revolving Fronting Bank under
Article 2 or Article 8 shall not be effective until received.

 

102

Section 10.02 
No Waivers.

 

No failure or delay by the Agent, the Collateral Agent
or any Bank Party in exercising any right, power or privilege hereunder or
under any other Financing Document shall operate as a waiver thereof nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.  The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by
law.

 

Section 10.03 
Expenses; Indemnification.

 

(a)           The Borrower shall pay (i) all
out-of-pocket expenses of the Agent and the Collateral Agent, including,
without limitation, (A) reasonable fees and disbursements of outside
counsel for the Agent and the Collateral Agent in connection with the
preparation and administration of this Agreement and the other Financing
Documents, any waiver or consent hereunder or any amendment hereof or any
Default or alleged Default hereunder, (B) the reasonable fees and
disbursements of the Collateral Trustees and their outside counsel and
(ii) if an Event of Default occurs, all out-of-pocket expenses incurred by
the Agent, the Collateral Agent, each Revolving Fronting Bank and each Bank,
including (without duplication) the fees and disbursements of outside counsel
and the allocated cost of inside counsel, in connection with such Event of
Default and collection, bankruptcy, insolvency, workout, restructuring and
other enforcement proceedings resulting therefrom.

 

(b)           The Borrower agrees to indemnify the
Agent, the Collateral Agent and each Bank Party, their respective Affiliates
and the respective directors, officers, agents and employees of the foregoing
(each, an “Indemnitee”) and hold each Indemnitee harmless
from and against any and all liabilities, losses, damages, costs and expenses
of any kind, including, without limitation, the reasonable fees and
disbursements of counsel, which may be incurred by such Indemnitee in
connection with any investigative, administrative or judicial proceeding
(whether or not such Indemnitee shall be designated a party thereto) brought or
threatened relating to or arising out of the Financing Documents or any actual
or proposed use of proceeds of Loans or the issuance or deemed issuance of any
Revolving Letter of Credit hereunder; provided
that no Indemnitee shall have the right to be indemnified hereunder for such
Indemnitee’s own gross negligence or willful misconduct as determined by a
court of competent jurisdiction.

 

Section 10.04 
Sharing of Set-offs.

 

Each Bank Party agrees that if it shall, by exercising
any right of set-off or counterclaim or otherwise (including, without
limitation, through the application of any proceeds of the Creditor Group
Collateral and the Excess Revolving L/C Collateral, receive payment of a
proportion of the aggregate amount due and payable to such Bank Party hereunder
which is greater than the proportion received by any other Bank Party
(A) on account of Obligations due and payable to such Bank Party hereunder
and under the Notes at such time in excess of its ratable share (according to
the proportion of (i) the amount of such Obligations due and payable to such
Bank Party at such time to (ii) the aggregate amount of Obligations due and
payable to all Bank Parties hereunder and under the Notes at such time) of
payments on account of the 

 

103

 

Obligations due and
payable to all the Bank Parties hereunder and under the Notes at such time
obtained by all the Bank Parties at such time or (B) on account of Obligations
owing (but not due and payable) to such Bank Party hereunder and under the
Notes at such time in excess of its ratable share (according to the proportion
of (i) the amount of such Obligations owing (but not due and payable) to such
Bank Party at such time to (ii) the aggregate amount of Obligations owing (but
not due and payable) to all Bank Parties hereunder and under the Notes at such
time) of payments on account of the Obligations owing (but not due and payable)
to all Bank Parties hereunder and under the Notes at such time obtained by all
of the Bank Parties at such time, such Bank Party shall forthwith purchase from
the other Bank Parties such participations in the Obligations due and payable
or owing to them, as the case may be, as shall be necessary to cause such
purchasing Bank Party to share the excess payment ratably with each of them; provided that nothing in this
Section 10.04 shall impair the right of any Bank Party to exercise any
right of set-off or counterclaim it may have and to apply the amount subject to
such exercise to the payment of indebtedness of the Borrower owing to it.  The Borrower agrees, to the fullest extent
it may effectively do so under applicable law, that any holder of a
participation in a Note or in any Revolving Letter of Credit Liability, whether
or not acquired pursuant to the foregoing arrangements, may exercise rights of
set-off or counterclaim and other rights with respect to such participation as
fully as if such holder of a participation were a direct creditor of the
Borrower in the amount of such participation.

 

Section 10.05 
Amendments and Waivers.

 

Any provision of this Agreement or any other Financing
Document may be amended or waived if, but only if, such amendment or waiver is
in writing and is signed by the Borrower and the Required Banks (and, if the
rights or duties of the Agent or the Collateral Agent are affected thereby, by
the Agent or the Collateral Agent); provided
that (a) no such amendment or waiver shall, unless signed by all the Bank
Parties, (i) waive any of the conditions specified in Section 3.01 or 3.02
(with respect to the Extensions of Credit made or deemed to be made on the
Closing Date); (ii) change the number of Bank Parties or the percentage of (x)
the Unused Revolving Credit Loan Commitments, (y) the aggregate unpaid
principal amount of the Loans or (z) the aggregate Revolving Letter of Credit
Liabilities that, in each case, shall be required for the Bank Parties or any
of them to take any action hereunder; (iii) release all or substantially all of
the Collateral in any transaction or series of related transactions; (iv) amend
Section 10.04 or this Section 10.05; (v) postpone the date fixed for any
payment of principal of or interest on any Loan or Reimbursement Obligation or
any fees hereunder or (vi) postpone the final maturity of the Loans, (b) no
such amendment or waiver shall, unless signed by the Required Banks and each
Bank Party if such Bank Party is directly adversely affected by such amendment or
waiver, (i) in the case of any Revolving Credit Loan Bank, increase the
Revolving Credit Loan Commitment of such Revolving Credit Loan Bank;
(ii) reduce the principal of, or interest on, the Notes held by such Bank
Party or Loans outstanding to such Bank Party or any fees or other amounts
payable to such Bank Party; (iii) reduce or limit the Obligations of any
Subsidiary Guarantor under Article 9 or release any Subsidiary Guarantor (other
than in connection with a sale or disposition permitted hereunder) or otherwise
limit such Subsidiary Guarantor’s liability with respect to the Obligations
owing to the Agent, the Collateral Agent and the Bank Parties, (iv) reduce the
principal of or rate of interest on any Loan or Reimbursement Obligation or any
fees hereunder or (v) change (x) the order of application in the prepayment of
Loans among the Facilities or any reduction in the Revolving Credit Loan
Commitments from

 

104

 

the application thereof set forth in the applicable
provisions of Sections 2.09 and 2.10 in any manner that materially affects the
Bank Parties under such Facilities or (y) the right of any Bank Party to pro rata sharing of payments pursuant to
the terms hereof (except as otherwise specifically provided in clause (d)(i)
below), (c) no such amendment or waiver shall, unless signed by the Required
Revolving Credit Loan Banks, amend, waive or delete the provisions of Section
3.02(d) or Section 3.02(e) and (d) no such amendment or waiver shall, unless
signed by the Supermajority Banks (i) change the pro rata application of Net Cash Proceeds from Asset Sales
among the Bank Parties, on the one hand, and the other Financing Parties, on
the other hand, set forth in Section 2.10(b)(i) by amending the definition of
“Banks’ Ratable Share” or otherwise or (ii) amend the definition of “Secured
Holders” or “Secured Obligations” in the Collateral Trust Agreement or amend
Sections 5.01, 8.01, 8.02 or 9.01 of the Collateral Trust Agreement; provided  further
that no such amendment or waiver shall, unless signed by the Revolving Fronting
Banks affect the rights and obligations of the Revolving Fronting Banks under
this Agreement and provided further that
no such amendment or waiver shall (x) release all or substantially all of
the Creditor Group Collateral or (y) change the pro rata application of Net Cash Proceeds from Asset Sales
among the Financing Parties set forth in Section 2.10(b)(i) by amending the
definition of “Banks’ Ratable Share” or otherwise unless the Agent shall have
received evidence satisfactory to it from the trustee under the Senior Secured
Exchange Note Indenture that it has received the consent of those Exchange Note
Holders holding a majority of the principal outstanding amount of the Senior Secured
Exchange Notes.

 

Notwithstanding anything of the foregoing, no
amendment or waiver shall be required to release any Subsidiary Guarantor which
is sold pursuant to the terms and conditions of the Financing Documents so long
as the Borrower shall, on the date of receipt by the Borrower of the Net Cash
Proceeds from such sale, prepay the Loans pursuant to, and in the order of
priority set forth in Section 2.10(b), as specified therein.

 

Section 10.06 
Successors and Assigns.

 

(a)           The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except neither the Borrower nor any
Subsidiary Guarantor may assign or otherwise transfer any of its rights and
obligations under this Agreement without the prior written consent of all of
the Bank Parties (other than in the case of Subsidiary Guarantors in connection
with any transaction permitted by the Financing Documents).

 

(b)           Any Bank other than a Conduit Lender
may, without notice to or consent of the Borrower and Agent, at any time grant
to one or more banks or other institutions (each, a “Participant”)
participating interests in its Unused Revolving Credit Loan Commitment or any
or all of its Loans or participating interests in its Revolving Letter of
Credit Liabilities.  In the event of any
such grant by a Bank of a participating interest to a Participant, whether or
not upon notice to the Borrower, the Revolving Fronting Banks and the Agent,
such Bank shall remain responsible for the performance of its obligations
hereunder, and the Borrower, the Revolving Fronting Banks and the Agent shall
continue to deal solely and directly with such Bank in connection with such
Bank’s rights and obligations under this Agreement.  Any agreement pursuant to which any Bank may grant such a
participating interest shall provide that such Bank shall retain the sole right
and responsibility to enforce the obligations of the Borrower hereunder

 

105

 

including, without limitation, the right to
approve any amendment, modification or waiver of any provision of this
Agreement or any other Financing Document; provided
that such participation agreement may provide that such Bank will not agree to
any modification, amendment or waiver of this Agreement described in clauses
(a) (i), (iv) through (vi) and clause (b) of Section 10.05 without
the consent of the Participant.  The
Borrower agrees that each Participant shall, to the extent provided in its
participation agreement, be entitled to the benefits of Article 8 with
respect to its participating interest. 
An assignment or other transfer which is not permitted by subsection (c)
or (d) below shall be given effect for purposes of this Agreement only to the
extent of a participating interest granted in accordance with this subsection
(b).

 

(c)           Any Bank Party other than a Conduit
Lender may at any time assign to one or more banks or other institutions (each,
an “Assignee”) all, or a proportionate part of
all, in each case in an amount not less than $1,000,000 (or such lesser amount
as may be agreed to by the Borrower and the Agent) (except in the case of an assignment which will result in a
group of Banks which are managed by the same Bank Party holding a Revolving Credit
Loan Commitment or Term Loan Commitment (as the case may be) of not less than
$1,000,000), of its rights and obligations under this Agreement and the
other Financing Documents, and such Assignee shall assume such rights and
obligations, pursuant to an Assignment and Assumption in substantially the form
of Exhibit C-1 or Exhibit C-2 hereto, as the case may be, executed by such
Assignee and such transferor Bank Party, with (and subject to) the subscribed
consent of the Agent, the Borrower (which shall not be unreasonably withheld or
delayed but which shall not be required if (1) an Event of Default
shall have occurred and is continuing, (2) in the case of assignments with
respect to any Term Loan Facility, (3) in the case of assignments by a
Bank Party to a Related Fund of such Bank Party and (4) in the case of
assignments with respect to the Revolving Credit Facility, if the proposed
Assignee has a senior unsecured debt rating of “BBB” or higher by Standard
& Poor’s Rating Services or “Baa2” or higher by Moody’s Investor Service,
Inc.), and, in the case of assignments with respect to the Revolving Credit
Loan Facility, each Revolving Fronting Bank (such consent not to be
unreasonably withheld or delayed); provided
that if an Assignee is an Affiliate of such transferor Bank Party, no such
consents shall be required; and provided,
further that under no
circumstances may the Borrower or any of its Affiliates be an “Assignee”
hereunder.  Upon execution and delivery
of such instrument and payment by such Assignee to such transferor Bank Party
of an amount equal to the purchase price agreed between such transferor Bank
Party and such Assignee, such Assignee shall be a Bank Party party to this
Agreement and shall have all the rights and obligations of a Bank Party as set
forth in such instrument of assumption, and the transferor Bank Party shall be
released from its obligations hereunder to a corresponding extent, and no
further consent or action by any party shall be required.  Upon the consummation of any assignment
pursuant to this subsection (c), the transferor Bank Party, the Agent and the
Borrower shall make appropriate arrangements so that, if required, new Notes
are issued to the Assignee.  In
connection with any such assignment, the transferor Bank Party or Assignee
shall pay to the Agent an administrative fee for processing such assignment in
the amount of $3,500.  If the Assignee
is not incorporated under the laws of the United States of America or a state
thereof, it shall deliver to the Borrower and the Agent certification as to
exemption from, or reduction in, deduction or withholding of any United States
federal income taxes as required by Section 8.04.  Notwithstanding the foregoing, any Conduit
Lender may assign at any time to its designating Bank hereunder without the
consent of the Borrower or the Agent any or all of the Loans it may have funded
hereunder

 

106

 

and pursuant to its designation agreement and
without regard to the limitations set forth in the first sentence of this
Section 10.06(c).

 

(d)           Any Bank Party may at any time assign
all or any portion of its rights under this Agreement and the other Financing
Documents to a Federal Reserve Bank.  No
such assignment shall release the transferor Bank Party from its obligations
hereunder.  In the case of any Bank
Party that is a fund that invests in bank loans, such Bank Party may, without
the consent of the Borrower or the Agent, assign or pledge all or any portion
of its rights under this Agreement, including the Loans and Notes or any other
instrument evidencing its rights as a Bank Party under this Agreement, to any
holder of, trustee for, or any other representative of holders of, obligations
owed or securities issued, by such fund, as security for such obligations or
securities; provided
that unless and until such holder, trustee or representative actually becomes a
Bank Party in compliance with the other provisions of this Section 10.06, (i)
no such pledge shall release the pledging Bank Party from any of its
obligations under the Financing Documents and (ii) such holder, trustee or
representative shall not be entitled to exercise any of the rights of a Bank
Party under the Financing Documents even though such trustee may have acquired
ownership rights with respect to the pledged interest through foreclosure or
otherwise.

 

(e)           Each of the Borrower, the Agent and
each Bank hereby confirms that it will not institute against a Conduit Lender
or join any other Person in instituting against a Conduit Lender any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding
under any state bankruptcy or similar law, for one year and one day after the
payment in full of the latest maturing commercial paper note issued by such
Conduit Lender; provided, however, that each Bank designating any
Conduit Lender hereby agrees to indemnify, save and hold harmless each other
party hereto for any loss, cost, damage or expense arising out of its inability
to institute such a proceeding against such Conduit Lender during such period
of forbearance.

 

(f)            The Agent shall maintain at its
address referred to in Section 10.01, a copy of each Assignment and
Assumption delivered to and accepted by it and a register for the recordation
of the names and addresses of the Bank Parties, the Revolving Credit Loan
Commitments of, the amount of the Revolving Letter of Credit issued by, the
principal amount of the Reimbursement Obligations owing to, and the principal
amount of the Loans owing to, each Bank Party from time to time (the “Register”).  The entries in the Register shall be
conclusive and binding for all purposes, absent manifest error, and the
Borrower, the Agent and the Bank Parties may treat each Person whose name is
recorded in the Register as a Bank Party hereunder for all purposes of this
Agreement.  The Register shall be
available for inspection by the Borrower or any Bank Party at any reasonable
time and from time to time upon reasonable prior notice.

 

(g)           Any Third Party Fronting Bank may at
any time assign to one or more banks or other institutions (each, an “Assignee”)
meeting the definition of a “Third Party Fronting Bank” contained herein, all
of its rights and obligations under this Agreement and the other Financing
Documents, and such Assignee shall assume such rights and obligations, pursuant
to an Assignment and Assumption in substantially the form of Exhibit C-3 hereto
executed by such Assignee and such transferor Third Party Fronting Bank, with
(and subject to) the subscribed consent of the Agent and the Borrower (which
shall not be unreasonably withheld

 

107

 

or delayed); provided
that under no circumstances may the Borrower or any of its Affiliates be an
“Assignee” hereunder.  Upon execution
and delivery of such instrument and a Revolving Fronting Bank Agreement and
payment by such Assignee to such transferor Third Party Fronting Bank of an
amount equal to the purchase price agreed between such transferor Third Party
Fronting Bank and such Assignee, such Assignee shall be a Revolving Fronting
Bank party to this Agreement and shall have all the rights and obligations of a
Revolving Fronting Bank as set forth in such instrument of assumption, and the
transferor Third Party Fronting Bank shall be released from its obligations
hereunder to a corresponding extent, and no further consent or action by any
party shall be required.  In connection
with any such assignment, the transferor Third Party Fronting Bank or Assignee
shall pay to the Agent an administrative fee for processing such assignment in
the amount of $3,500.  If the Assignee
is not incorporated under the laws of the United States of America or a state
thereof, it shall deliver to the Borrower and the Agent certification as to
exemption from, or reduction in, deduction or withholding of any United States
federal income taxes as required by Section 8.04.

 

Section 10.07 
No Margin Stock.

 

Each of the Bank Parties represents to the Agent and
each of the other Bank Parties that it in good faith is not relying upon any
“margin stock” (as defined in Regulation U) as collateral in the extension
or maintenance of the credit provided for in this Agreement.

 

Section 10.08 
Governing Law; Submission to Jurisdiction.

 

This Agreement and the other Financing Documents shall
be governed by and construed in accordance with the laws of the State of New
York.  The Borrower hereby submits to
the nonexclusive jurisdiction of the United States District Court for the
Southern District of New York and of any New York State court sitting in New
York City for purposes of all legal proceedings arising out of or relating to
this Agreement and the other Financing Documents or the transactions
contemplated hereby.  The Borrower
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of the venue of any such proceeding
brought in such a court and any claim that any such proceeding brought in such
a court has been brought in an inconvenient forum.

 

Section 10.09 
Release of Collateral.

 

Upon the sale, lease, transfer or other disposition of
any item of Collateral of any Obligor (including, without limitation, as result
of the sale, in accordance with the terms of the Financing Documents, of any
Obligor that owns such Collateral) in accordance with the terms of the
Financing Documents, the Agent will, at the Borrower’s expense, execute and
deliver to such Obligor such documents as such Obligor may reasonably request
to evidence the release of such item of Collateral from the assignment and
security interest granted under the Collateral Documents in accordance with the
terms of the Financing Documents.

 

Section 10.10 
Counterparts; Integration; Effectiveness.

 

This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.  This Agreement and the other Financing
Documents constitute the entire

 

108

 

agreement and understanding among the parties hereto
and supersede any and all prior agreements and understandings, oral or written,
relating to the subject matter hereof. 
This Agreement shall become effective upon receipt by the Agent of
counterparts hereof signed by each of (a) the Obligors, (b) the Agents, (c) the
“Required Banks” under the Existing Credit Agreement, (d) each “Revolving
Credit Loan Bank” under the Existing Credit Agreement which has an increased
Revolving Credit Loan Commitment pursuant to the terms hereof and (e) each
Revolving Credit Loan Bank who was not a “Revolving Credit Loan Bank” under the
Existing Credit Agreement (or, in the case of any such party as to which an
executed counterpart shall not have been received, receipt by the Agent in form
satisfactory to it of telegraphic, telex, facsimile transmission or other
written confirmation from such party of execution of a counterpart hereof by
such party).

 

Section 10.11 
Confidentiality.

 

The Agent and each Bank Party agrees to keep confidential
all non-public information provided to it by the Borrower pursuant to this
Agreement that is designated by the Borrower as confidential; provided that nothing herein shall prevent
the Agent or any Bank Party from disclosing any such information (a) to the
Agent, any other Bank Party or any affiliate of any Bank Party; (b) to any (i)
actual or prospective transferee or (ii) Derivatives Obligations counterparty
(or such contractual counterparty’s professional advisor), in each case that
agrees to comply with the provisions of this Section 10.11; (c) to its
employees, directors, agents, attorneys, accountants and other professional
advisors or those of any of its affiliates; (d) upon the request or demand of
any governmental authority; (e) in response to any order of any court or other
governmental authority or as may otherwise be required pursuant to any
requirement of law; (f) if required to do so in connection with any litigation
or similar proceeding; (g) that has been publicly disclosed; (h) to the
National Association of Insurance Commissioners or any similar organization or
any nationally recognized rating agency that requires access to information
about a Bank Party’s investment portfolio in connection with ratings issued
with respect to such Bank Party; (i) to any direct or indirect contractual
counterparty in any swap, hedge or similar agreement (or to any such
contractual counterparty’s professional advisor), so long as such contractual
counterparty (or such professional advisor) agrees to be bound by the
provisions of this Section 10.11; or, in connection with the exercise of any
remedy hereunder or under any other Financing Documents.  Notwithstanding any other provision in this
Agreement, the Borrower, the Agent, each Third Party Fronting Bank and each
Bank Party hereby agree that each of the Borrower, the Agent, each Third Party
Fronting Bank and each Bank Party (and each of the officers, directors,
employees, accountants, attorneys and other advisors of the Agent, each Third
Party Fronting Bank and each Bank Party) may disclose to any and all persons,
without limitation of any kind, the U.S. tax treatment and U.S. tax structure
of the transaction and all materials of any kind (including opinions and other
tax analyses) that are provided to each of them relating to such U.S. tax
treatment and U.S. tax structure.

 

Section 10.12  WAIVER OF JURY TRIAL.

 

EACH OF THE BORROWER, THE AGENT, THE COLLATERAL AGENT
AND THE BANK PARTIES HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING

 

109

 

TO THIS AGREEMENT OR THE OTHER FINANCING DOCUMENTS OR
THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

 

Section 10.13 
Severability; Modification to Conform to Law.

 

It is the intention of the parties that this Agreement
be enforceable to the fullest extent permissible under applicable law, but that
the unenforceability (or modification to conform to such law) of any provision
or provisions hereof shall not render unenforceable, or impair, the remainder
hereof.  If any provision of this
Agreement shall be held invalid or unenforceable in whole or in part in any
jurisdiction, this Agreement shall, as to such jurisdiction, be deemed amended
to modify or delete, as necessary, the offending provision or provisions and to
alter the bounds thereof in order to render it or them valid and enforceable to
the maximum extent permitted by applicable law, without in any manner affecting
the validity or enforceability of such provision or provisions in any other
jurisdiction or the remaining provisions hereof in any jurisdiction.

 

Section 10.14  Judgment Currency.

 

If for the purposes of enforcing the obligations of
the Borrower hereunder it is necessary to convert a sum due from such Person in
Dollars into another currency, the parties hereto agree, to the fullest extent
that they may effectively do so, that the rate of exchange used shall be that
at which in accordance with normal banking procedures the Agent, the Collateral
Agent and the Bank Parties could purchase Dollars with such currency at or
about 11:00 A.M. (New York City time) on the Domestic Business Day preceding
that on which final judgment is given. 
The obligations in respect of any sum due to the Agent, the Collateral
Agent and the Bank Parties hereunder shall, notwithstanding any adjudication
expressed in a currency other than Dollars, be discharged only to the extent
that on the Domestic Business Day following receipt by the Agent, the
Collateral Agent and the Bank Parties of any sum adjudged to be so due in such
other currency the Agent, the Collateral Agent and the Bank Parties may in
accordance with normal banking procedures purchase Dollars with such other
currency; if the amount of Dollars so purchased is less than the sum originally
due to the Agent, the Collateral Agent and the Bank Parties in Dollars, the
Borrower agrees, to the fullest extent that it may effectively do so, as a
separate obligation and notwithstanding any such adjudication, to indemnify the
Agent, the Collateral Agent and the Bank Parties against such loss, and if the
amount of Dollars so purchased exceeds the sum originally due to the Agent, the
Collateral Agent and the Bank Parties, it shall remit such excess to the
Borrower.

 

Section 10.15 
Revolving Fronting Banks.

 

(a)           Each (i) Third Party Fronting Bank or
(ii) Revolving Credit Loan Bank who after the Effective Date agrees to become a
Revolving Fronting Bank hereunder, shall execute and deliver to the Agent a
Revolving Fronting Bank Agreement in substantially the form of Exhibit D hereto
prior to issuing any letters of credit at the request or for the benefit of the
Borrower.  Upon execution and delivery
by a Third Party Fronting Bank or such Revolving Credit Loan Bank to the Agent
of a Revolving Fronting Bank Agreement, such Third Party Fronting Bank or such
Revolving Credit Loan Bank, as the case may be, shall become a party to this
Agreement and shall have all the rights and obligations of a Revolving Fronting
Bank as set

 

110

 

forth herein.  If the Third Party Fronting Bank or such Revolving Credit Loan
Bank is not incorporated under the laws of the United States of America or a
state thereof, it shall deliver to the Borrower and the Agent certification as
to exemption from, or reduction in, deduction or withholding of any United
States federal income taxes as required by Section 8.04.

 

(b)           Any
Revolving Fronting Bank (including any Third Party Fronting Bank) may be
released from its obligations hereunder as a Revolving Fronting Bank upon (x)
the mutual agreement of such Revolving Fronting Bank and the Borrower and (y)
notice to the Agent.  With respect to
any Revolving Fronting Bank who is not a Third Party Fronting Bank, nothing in
this Section 10.05(b) shall release such Revolving Fronting Bank from its
obligations hereunder as a Revolving Credit Loan Bank.

 

 

[SIGNATURE PAGES
IMMEDIATELY FOLLOW]

 

111

 

IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed by their respective authorized officers as
of the day and year first above written.

 

	
  THE AES CORPORATION,

  
	
  as Borrower

  
	
   

  
	
  By

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
  Address:

  	
  1001 North 19th Street

  
	
   

  	
   

  	
  Arlington, VA 22209

  
	
   

  	
   

  	
   

  
	
   

  	
  Fax:

  	
  (703) 528-4510

  
					

 

 

SUBSIDIARY
GUARANTORS:

 

	
  AES HAWAII MANAGEMENT
  COMPANY, INC.,

  
	
  as Subsidiary Guarantor

  
	
   

  
	
  By

  	
   

  	
   

  
	
   

  	
  Title:

  
	
   

  	
  Address:

  
	
   

  	
  Fax:

  
	
   

  
	
   

  
	
  AES NEW YORK FUNDING,
  L.L.C.,

  
	
  as Subsidiary Guarantor

  
	
   

  
	
  By

  	
   

  	
   

  
	
   

  	
  Title:

  
	
   

  	
  Address:

  
	
   

  	
  Fax:

  
	
   

  
	
   

  
	
  AES OKLAHOMA HOLDINGS,
  L.L.C.,

  
	
  as Subsidiary Guarantor

  
	
   

  
	
  By

  	
   

  	
   

  
	
   

  	
  Title:

  
	
   

  	
  Address:

  
	
   

  	
  Fax:

  
	
   

  
	
   

  
	
  AES WARRIOR RUN
  FUNDING, L.L.C.,

  
	
  as Subsidiary Guarantor

  
	
   

  	
   

  
	
  By

  	
   

  	
   

  
	
   

  	
  Title:

  
	
   

  	
  Address:

  
	
   

  	
  Fax:

  
				

 

 

	
  BANKS:

  
	
   

  
	
   

  
	
   

  	
   

  
	
  [Please Type or Print Name of Bank]

  
	
   

  
	
   

  
	
  By

  	
   

  	
   

  
				

 

 

AGENTS:

 

 

	
  CITICORP USA, INC.,

  
	
  as Agent

  
	
   

  
	
   

  
	
  By

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
  Address:

  	
  388 Greenwich Street,
  21st Floor

  
	
   

  	
   

  	
  New York, NY 10013

  
	
   

  	
   

  	
   

  
	
   

  	
  Fax:

  	
  (212) 816-8098

  
	
   

  	
  Attention:

  	
  Stuart Glen

  
	
   

  	
  Email:

  	
  oploanswebadmin@citigroup.com

  
	
   

  
	
   

  
	
  CITIBANK N.A.,

  
	
  as Collateral Agent

  
	
   

  
	
  By

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
  Address:

  	
  388 Greenwich Street,
  21st Floor

  
	
   

  	
   

  	
  New York, NY 10013

  
	
   

  	
   

  	
   

  
	
   

  	
  Fax:

  	
  (212) 816-8098

  
	
   

  	
  Attention:

  	
  Stuart Glen

  
						

 

 

APPENDIX I to the

Third
Amended and Restated

Credit
and Reimbursement Agreement

 

 

REVOLVING
CREDIT LOAN FACILITY

 

	
  Name of Revolving Credit Loan Bank

  	
   

  	
  Revolving
  Credit Loan Commitments ($)

  	
   

  
	
  Citicorp USA,
  Inc.

  	
   

  	
  $

  	
  53,000,000.00

  	
   

  
	
  Deutsche Bank
  Trust Company Americas

  	
   

  	
  $

  	
  53,000,000.00

  	
   

  
	
  UBS Loan Finance
  LLC

  	
   

  	
  $

  	
  53,000,000.00

  	
   

  
	
  Lehman
  Commercial Paper, Inc.

  	
   

  	
  $

  	
  50,000,000.00

  	
   

  
	
  Union Bank of
  California, N.A.

  	
   

  	
  $

  	
  48,000,000.00

  	
   

  
	
  Bank of America,
  N.A.

  	
   

  	
  $

  	
  46,000,000.00

  	
   

  
	
  Credit Lyonnais
  New York Branch

  	
   

  	
  $

  	
  28,000,000.00

  	
   

  
	
  Société Générale – New York Branch

  	
   

  	
  $

  	
  27,000,000.00

  	
   

  
	
  Credit Suisse
  First Boston

  	
   

  	
  $

  	
  22,000,000.00

  	
   

  
	
  Merrill Lynch Capital Corporation

  	
   

  	
  $

  	
  22,000,000.00

  	
   

  
	
  BNP Paribas

  	
   

  	
  $

  	
  15,000,000.00

  	
   

  
	
  Westdeutsche Landesbank Girozentrale

  	
   

  	
  $

  	
  15,000,000.00

  	
   

  
	
  ABN Amro

  	
   

  	
  $

  	
  10,000,000.00

  	
   

  
	
  J.P. Morgan Chase

  	
   

  	
  $

  	
  5,000,000.00

  	
   

  
	
  Toronto Dominion (New York), Inc.

  	
   

  	
  $

  	
  3,000,000.00

  	
   

  

 

 

APPENDIX II to the

Third
Amended and Restated

Credit and Reimbursement Agreement

 

TERM
LOAN FACILITY

 

As per the Register maintained by the Agent pursuant
to Section 10.06(f) of the Third Amended and Restated Credit and Reimbursement
Agreement.

 

1

 

Appendix
III to the Third
Amended and Restated Credit and Reimbursement Agreement

 

	
  Beneficiary

  	
   

  	
  Letter of
  Credit

  Number

  	
   

  	
  Fronting

  Expiry

  	
   

  	
  Type of
  Letter

  of Credit

  	
   

  	
  Name of
  Issuing Bank

  	
   

  	
  Amount

  	
   

  
	
  Eastern (DSR)
  $36,326,900

  	
   

  	
  Y032406

  	
   

  	
  07/26/04

  	
   

  	
  Financial

  	
   

  	
  UBS AG

  	
   

  	
  36,326,900.00

  	
   

  
	
  Kelanitissa

  	
   

  	
  3039084

  	
   

  	
  03/24/04

  	
   

  	
  Financial

  	
   

  	
  B of A, Los Angeles

  	
   

  	
  900,000.00

  	
   

  
	
  WAPDA

  	
   

  	
  30034738

  	
   

  	
  02/28/05

  	
   

  	
  Performance

  	
   

  	
  Citibank NY

  	
   

  	
  12,034,365.13

  	
   

  
	
  Constellation
  Power Source Inc.

  	
   

  	
  306S234686

  	
   

  	
  01/01/05

  	
   

  	
  Performance

  	
   

  	
  UBOC , LA

  	
   

  	
  23,200,000.00

  	
   

  
	
  PSEG Energy
  Resources & Trade LLC

  	
   

  	
  306S234688

  	
   

  	
  01/18/05

  	
   

  	
  Performance

  	
   

  	
  UBOC , LA

  	
   

  	
  3,500,000.00

  	
   

  
	
  PPL Energy Plus
  LLC

  	
   

  	
  306S234687

  	
   

  	
  04/30/04

  	
   

  	
  Performance

  	
   

  	
  UBOC , LA

  	
   

  	
  100,000.00

  	
   

  
	
  Coral Energy
  Holding L.P.

  	
   

  	
  306S234734

  	
   

  	
  01/31/05

  	
   

  	
  Performance

  	
   

  	
  UBOC , LA

  	
   

  	
  3,000,000.00

  	
   

  
	
  Morgan Stanley
  Capital Group

  	
   

  	
  306S235411

  	
   

  	
  12/31/05

  	
   

  	
  Performance

  	
   

  	
  UBOC , LA

  	
   

  	
  3,725,000.00

  	
   

  
	
  The Potomac
  Edison Company

  	
   

  	
  30035330

  	
   

  	
  06/15/04

  	
   

  	
  Performance

  	
   

  	
  Citibank NY

  	
   

  	
  577,500.00

  	
   

  
	
  Elexon

  	
   

  	
  5134047511

  	
   

  	
  03/15/05

  	
   

  	
  Performance

  	
   

  	
  Citibank NY

  	
   

  	
  2,686,364.94

  	
   

  
	
  Total
  Face Amount of Revolving Letters of Credit Outstanding

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  86,050,130.07

  	
   

  

 

 

SCHEDULE I

 

PLEDGOR: AES CORP.

 

	
  Legal Name

  	
   

  	
  Jurisdiction
  of

  Incorporation

  	
   

  	
  Types of

  Shares

  	
   

  	
  Authorized

  Shares

  	
   

  	
  Outstanding

  Shares

  	
   

  	
  Percentage

  Owned by AES

  	
   

  	
  Certificate

  No.

  	
   

  	
  % Pledged

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Alamitos
  Development, Inc.

  	
   

  	
  Delaware

  	
   

  	
  Common

  	
   

  	
  10

  	
   

  	
  10

  	
   

  	
  100

  	
   

  	
  1

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Argentina,
  Inc.

  	
   

  	
  Delaware

  	
   

  	
  Common

  	
   

  	
  10

  	
   

  	
  10

  	
   

  	
  100

  	
   

  	
  3

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Atlantis,
  Inc.

  	
   

  	
  Delaware

  	
   

  	
  Common

  	
   

  	
  10

  	
   

  	
  10

  	
   

  	
  100

  	
   

  	
  2

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Barka
  Services, Inc.

  	
   

  	
  Delaware

  	
   

  	
  Common

  	
   

  	
  200

  	
   

  	
  10

  	
   

  	
  100

  	
   

  	
  2

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES CAESS
  Distribution, Inc.

  	
   

  	
  Delaware

  	
   

  	
  Common

  	
   

  	
  10

  	
   

  	
  10

  	
   

  	
  100

  	
   

  	
  1

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES California
  Management Co., Inc.

  	
   

  	
  Delaware

  	
   

  	
  Common

  	
   

  	
  10

  	
   

  	
  10

  	
   

  	
  100

  	
   

  	
  3

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Canal Power
  Services, Inc.

  	
   

  	
  Delaware

  	
   

  	
  Common

  	
   

  	
  10

  	
   

  	
  10

  	
   

  	
  100

  	
   

  	
  1

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Cemig
  Holdings, Inc.

  	
   

  	
  Delaware

  	
   

  	
  Common

  	
   

  	
  10

  	
   

  	
  10

  	
   

  	
  100

  	
   

  	
  2

  	
   

  	
  100

  	
   

  

 

1

 

	
  Legal Name

  	
   

  	
  Jurisdiction
  of

  Incorporation

  	
   

  	
  Types of

  Shares

  	
   

  	
  Authorized

  Shares

  	
   

  	
  Outstanding

  Shares

  	
   

  	
  Percentage

  Owned by AES

  	
   

  	
  Certificate

  No.

  	
   

  	
  % Pledged

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Central
  American Management Services, Inc.

  	
   

  	
  Delaware

  	
   

  	
  Common

  	
   

  	
  10

  	
   

  	
  10

  	
   

  	
  100

  	
   

  	
  1

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Central Valley, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  Units

  	
   

  	
  1,000

  	
   

  	
  10

  	
   

  	
  100

  	
   

  	
  1

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Chaparron I,
  Ltd.

  	
   

  	
  Cayman

  	
   

  	
  Ordinary

  	
   

  	
  50,000

  	
   

  	
  1,000

  	
   

  	
  100

  	
   

  	
  2, 3

  	
   

  	
  65

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Columbia
  Power, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  Units

  	
   

  	
  1,000

  	
   

  	
  10

  	
   

  	
  100

  	
   

  	
  1

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Connecticut
  Management, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  Units

  	
   

  	
  1,000

  	
   

  	
  10

  	
   

  	
  100

  	
   

  	
  1

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Ecotek
  Holdings, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  Units

  	
   

  	
  1,000

  	
   

  	
  10

  	
   

  	
  100

  	
   

  	
  1

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES EDC Funding
  II, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  Units

  	
   

  	
  1,000

  	
   

  	
  10

  	
   

  	
  100

  	
   

  	
  2

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES EEO
  Distribution, Inc.

  	
   

  	
  Delaware

  	
   

  	
  Common

  	
   

  	
  10

  	
   

  	
  10

  	
   

  	
  100

  	
   

  	
  1

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES El Faro Generation, Inc.

  	
   

  	
  Delaware

  	
   

  	
  Common

  	
   

  	
  110

  	
   

  	
  110

  	
   

  	
  100

  	
   

  	
  2

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Engineering,
  Ltd.

  	
   

  	
  Cayman

  	
   

  	
  Ordinary

  	
   

  	
  50,000

  	
   

  	
  1,000

  	
   

  	
  100

  	
   

  	
  4,5

  	
   

  	
  65

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Georgia Gas,
  L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  Units

  	
   

  	
  1,000

  	
   

  	
  10

  	
   

  	
  100

  	
   

  	
  1

  	
   

  	
  65

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES GEH
  Holdings, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  Units

  	
   

  	
  N/A

  	
   

  	
  10

  	
   

  	
  100

  	
   

  	
  1

  	
   

  	
  65

  	
   

  

 

2

 

	
  Legal Name

  	
   

  	
  Jurisdiction
  of

  Incorporation

  	
   

  	
  Types of

  Shares

  	
   

  	
  Authorized

  Shares

  	
   

  	
  Outstanding

  Shares

  	
   

  	
  Percentage

  Owned by AES

  	
   

  	
  Certificate

  No.

  	
   

  	
  % Pledged

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES GEH, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  Units

  	
   

  	
  N/A

  	
   

  	
  10

  	
   

  	
  100

  	
   

  	
  1

  	
   

  	
  65

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Granbury,
  L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  Units

  	
   

  	
  N/A

  	
   

  	
  10

  	
   

  	
  100

  	
   

  	
  2

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Hawaii
  Management Company, Inc.

  	
   

  	
  Delaware

  	
   

  	
  Common

  	
   

  	
  10

  	
   

  	
  10

  	
   

  	
  100

  	
   

  	
  4

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES
  International Holdings, Ltd.

  	
   

  	
  British Virgin Islands

  	
   

  	
  Common

  	
   

  	
  50,000

  	
   

  	
  50,000

  	
   

  	
  100

  	
   

  	
  2, 3

  	
   

  	
  65

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Ironwood,
  Inc.

  	
   

  	
  Delaware

  	
   

  	
  Common

  	
   

  	
  10

  	
   

  	
  10

  	
   

  	
  100

  	
   

  	
  3

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Kalaeloa
  Venture, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  Units

  	
   

  	
  1,000

  	
   

  	
  10

  	
   

  	
  100

  	
   

  	
  1

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Keystone,
  L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  Units

  	
   

  	
  N/A

  	
   

  	
  100

  	
   

  	
  100

  	
   

  	
  1

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES King Harbor,
  Inc.

  	
   

  	
  Delaware

  	
   

  	
  Common

  	
   

  	
  10

  	
   

  	
  10

  	
   

  	
  100

  	
   

  	
  1

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Londonderry
  Holdings, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  Units

  	
   

  	
  N/A

  	
   

  	
  10

  	
   

  	
  100

  	
   

  	
  1

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES New York
  Funding, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  Units

  	
   

  	
  N/A

  	
   

  	
  10

  	
   

  	
  100

  	
   

  	
  1

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Odyssey,
  L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  Units

  	
   

  	
  1,000

  	
   

  	
  10

  	
   

  	
  100

  	
   

  	
  1

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Oklahoma
  Holdings, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  Units

  	
   

  	
  1,000

  	
   

  	
  10

  	
   

  	
  100

  	
   

  	
  1

  	
   

  	
  100

  	
   

  

 

3

 

	
  Legal Name

  	
   

  	
  Jurisdiction
  of

  Incorporation

  	
   

  	
  Types of

  Shares

  	
   

  	
  Authorized

  Shares

  	
   

  	
  Outstanding

  Shares

  	
   

  	
  Percentage

  Owned by AES

  	
   

  	
  Certificate

  No.

  	
   

  	
  % Pledged

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Red Oak,
  Inc.

  	
   

  	
  Delaware

  	
   

  	
  Common

  	
   

  	
  10

  	
   

  	
  10

  	
   

  	
  100

  	
   

  	
  1

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Rio
  Diamante, Inc.

  	
   

  	
  Delaware

  	
   

  	
  Common

  	
   

  	
  10

  	
   

  	
  10

  	
   

  	
  100

  	
   

  	
  1

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Riverside
  Holdings, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  Common

  	
   

  	
  1,000

  	
   

  	
  100

  	
   

  	
  100

  	
   

  	
  4

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Sosa, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  Units

  	
   

  	
  10

  	
   

  	
  10

  	
   

  	
  100

  	
   

  	
  1

  	
   

  	
  65

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Southland
  Funding, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  Units

  	
   

  	
  N/A

  	
   

  	
  10

  	
   

  	
  100

  	
   

  	
  1

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Stonehaven
  Holding, Inc.

  	
   

  	
  Delaware

  	
   

  	
  Common

  	
   

  	
  10

  	
   

  	
  10

  	
   

  	
  100

  	
   

  	
  3

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Teal
  Holding, Inc.

  	
   

  	
  Delaware

  	
   

  	
  Common

  	
   

  	
  10

  	
   

  	
  10

  	
   

  	
  100

  	
   

  	
  1

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Texas
  Funding III, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  Units

  	
   

  	
  1,000

  	
   

  	
  10

  	
   

  	
  100

  	
   

  	
  3

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Warrior Run
  Funding, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  Units

  	
   

  	
  N/A

  	
   

  	
  10

  	
   

  	
  100

  	
   

  	
  1

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cavanal
  Minerals, Inc.

  	
   

  	
  Delaware

  	
   

  	
  Common

  	
   

  	
  10

  	
   

  	
  10

  	
   

  	
  100

  	
   

  	
  2

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  IPALCO
  Enterprises, Inc.

  	
   

  	
  Indiana

  	
   

  	
  Common

  	
   

  	
  290,000,000

  	
   

  	
  89,685,177

  	
   

  	
  100

  	
   

  	
  AES-1

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mountainview
  Holding Company, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  Units

  	
   

  	
  1,000

  	
   

  	
  10

  	
   

  	
  100

  	
   

  	
  1

  	
   

  	
  100

  	
   

  

 

4

 

	
  Legal Name

  	
   

  	
  Jurisdiction
  of

  Incorporation

  	
   

  	
  Types of

  Shares

  	
   

  	
  Authorized

  Shares

  	
   

  	
  Outstanding

  Shares

  	
   

  	
  Percentage

  Owned by AES

  	
   

  	
  Certificate

  No.

  	
   

  	
  % Pledged

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mountainview
  Power Development Company L.L.C

  	
   

  	
  Delaware

  	
   

  	
  Units

  	
   

  	
  1,000

  	
   

  	
  10

  	
   

  	
  100

  	
   

  	
  5

  	
   

  	
  100

  	
   

  

 

5

 

PLEDGOR: AES INTERNATIONAL HOLDINGS II, LTD.

 

	
  Legal Name

  	
   

  	
  Jurisdiction
  of

  Incorporation

  	
   

  	
  Types of

  Shares

  	
   

  	
  Authorized

  Shares

  	
   

  	
  Outstanding

  Shares

  	
   

  	
  Percentage

  Owned by AES

  	
   

  	
  Certificate

  No.

  	
   

  	
  % Pledged

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES El Salvador,
  Ltd.

  	
   

  	
  Cayman

  	
   

  	
  Ordinary

  	
   

  	
  50,000

  	
   

  	
  1,000

  	
   

  	
  100

  	
   

  	
  3, 4

  	
   

  	
  65

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES South
  American Holdings, Ltd.

  	
   

  	
  Cayman

  	
   

  	
  Nominal

  	
   

  	
  50,000

  	
   

  	
  5,030

  	
   

  	
  100

  	
   

  	
  3, 4

  	
   

  	
  65

  	
   

  

 

6

 

Schedule II to the

Amended and Restated Credit,

Reimbursement and Exchange Agreement

 

 

ASSIGNED
AGREEMENTS

 

 

	
  Grantor

  	
   

  	
  Assigned Agreement

  
	
   

  	
   

  	
   

  
	
  The AES Corporation

  	
   

  	
  Tax Sharing Agreement dated as of June 23, 1987 (as
  amended, supplemented or modified through the date hereof) among The AES
  Corporation (formerly known as Applied Energy Services, Inc.), AES Oklahoma
  Management Co., Inc., AES Shady Point, Inc., Combustion Engineering, Inc.,
  and Union Bank of California N.A. (formerly known as Union Bank), as
  successor in interest to Security Pacific National Bank, as agent.

  
	
   

  	
   

  	
   

  
	
  The AES Corporation

  	
   

  	
  Tax Sharing Agreement dated as of March 20, 1990 (as
  amended, supplemented or modified through the date hereof) among The AES
  Corporation (formerly known as Applied Energy Services, Inc.), AES Hawaii
  Management Company, Inc., AES Hawaii, Inc. (formerly known as AES Barbers
  Point, Inc.), and Union Bank of California N.A. (formerly known as Union
  Bank), as successor in interest to Security Pacific National Bank, as agent.

  
	
   

  	
   

  	
   

  
	
  The AES Corporation

  	
   

  	
  Tax Sharing Agreement dated as of March 28, 2001
  among The AES Corporation, IPALCO Enterprises, Inc., and each corporation or
  other entity listed therein.

  

 

 

SCHEDULE III

 

 

AES CORP.

 

	
  Non-Pledged
  Subsidiary

  	
   

  	
  Jurisdiction of

  Incorporation

  	
   

  	
  Reason for Exclusion

  
	
  AES (India) Private Limited

  	
   

  	
  India

  	
   

  	
  Pledge prohibited

  
	
  AES Americas, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Andes Energy, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Andes, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Angel Falls, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Appalachia, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Aquila, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Atlantic, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Aurora, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Baja Norte I, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Baja Norte II, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Big Sky, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Bolivar, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Brasil Energia, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Brazil, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES BVI Holdings I, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES BVI Holdings II, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Calgary, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Canada, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Caribbean Services, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Cartagena Holdings BV

  	
   

  	
  Netherlands

  	
   

  	
  Pledge prohibited (New holding company for
  Cartagena)

  

 

1

 

	
  Non-Pledged
  Subsidiary

  	
   

  	
  Jurisdiction of

  Incorporation

  	
   

  	
  Reason for Exclusion

  
	
  AES Central America Power Ventures, Ltd.

  	
   

  	
  Cayman

  	
   

  	
  < $3 million

  
	
  AES Chesapeake, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Colombia I, Inc.

  	
   

  	
  Delaware

  	
   

  	
  Mamonal bankrupt and Termocandelaria sold

  
	
  AES Communications Latin America, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Coral, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Desert Power, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Development de Argentina S.A.

  	
   

  	
  Argentina

  	
   

  	
  < $3 million

  
	
  AES Direct, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Dominican Holdings, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Drax Financing II, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Drax Financing, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Drax IBC Limited

  	
   

  	
  Guernsey

  	
   

  	
  < $3 million

  
	
  AES Edelap Funding Corporation, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES El Dorado, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Endeavor, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Energy Mexico, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Enterprise, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Finance and Development, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Generation Holdings, LLC

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Georgia Gas GP, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Global Insurance Company

  	
   

  	
  Vermont

  	
   

  	
  Pledge Prohibited

  
	
  AES Global Power Finance, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES GPH Holdings, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Great Plains, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Greystone Holdings, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Hoytdale, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Huntington Beach Development, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  

 

2

 

	
  Non-Pledged
  Subsidiary

  	
   

  	
  Jurisdiction of

  Incorporation

  	
   

  	
  Reason for Exclusion

  
	
  AES India, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Indiana Holdings, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES International Holdings II, Ltd.

  	
   

  	
  British Virgin Islands

  	
   

  	
  Pledge prohibited

  
	
  AES Intrepid, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Intricity, Inc.

  	
   

  	
  New Jersey

  	
   

  	
  < $3 million

  
	
  AES Japan, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Korea, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Lake Worth Holdings, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Long Island Holdings, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Mexico Development, S. de
  R.L. de C.V.

  	
   

  	
  Mexico

  	
   

  	
  < $3 million

  
	
  AES Mohave Holdings, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Mongol Services, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Native Hollow, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES New Hampshire Biomass, Inc.

  	
   

  	
  New Hampshire

  	
   

  	
  Pledge prohibited

  
	
  AES Oasis Energy, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Oasis Finco, Inc.

  	
   

  	
  Delaware

  	
   

  	
  Pledge prohibited

  
	
  AES Oasis Holdco, Inc.

  	
   

  	
  Delaware

  	
   

  	
  Pledge prohibited

  
	
  AES Oasis Private Ltd.

  	
   

  	
  Singapore

  	
   

  	
  < $3 million

  
	
  AES Oman Holdings, Ltd

  	
   

  	
  Cayman

  	
   

  	
  Pledge prohibited (New holding company for Barka)

  
	
  AES Orient, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Orissa Distribution Private
  Limited

  	
   

  	
  India

  	
   

  	
  < $3 million

  
	
  AES Pacific, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Pakistan (Pvt) Ltd.

  	
   

  	
  Pakistan

  	
   

  	
  < $3 million

  
	
  AES Pakistan Operations, Ltd.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Parana Generation Holdings, Ltd.

  	
   

  	
  Cayman

  	
   

  	
  < $3 million

  
	
  AES Parana II Limited Partnership

  	
   

  	
  Cayman

  	
   

  	
  < $3 million

  
	
  AES Pecan Grove II, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  

 

3

 

	
  Non-Pledged
  Subsidiary

  	
   

  	
  Jurisdiction of

  Incorporation

  	
   

  	
  Reason for Exclusion

  
	
  AES Pecan Grove, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Petty’s Island, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Phoenix Ltd.

  	
   

  	
  Hungary

  	
   

  	
  < $3 million

  
	
  AES PJM, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Power, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Puerto Rico Services, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Pumped Storage Arkansas, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Redfish, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Sao Paulo, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Services, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Silk Road Cayman Ltd.

  	
   

  	
  Cayman

  	
   

  	
  Pledge prohibited (New holding company for Telasi)

  
	
  AES Silk Road, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Songas Holdings, Ltd.

  	
   

  	
  Cayman

  	
   

  	
  Pledge prohibited (New holding company for Songas)

  
	
  AES South City, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Telecom Americas, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Taiwan, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Telecom Development, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Tiete Holdings, Ltd.

  	
   

  	
  Cayman

  	
   

  	
  Pledge prohibited

  
	
  AES Transgas, LLC

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Transpower Australia Pty Ltd.

  	
   

  	
  Australia

  	
   

  	
  < $3 million

  
	
  AES Transpower Private Ltd.

  	
   

  	
  Singapore

  	
   

  	
  < $3 million

  
	
  AES Transpower, Inc.

  	
   

  	
  Delaware

  	
   

  	
  Pledge prohibited

  
	
  AES UK Power Holdings Limited

  	
   

  	
  United Kingdom

  	
   

  	
  < $3 million

  
	
  AES UK Power, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES-Zemplen Ltd.

  	
   

  	
  Hungary

  	
   

  	
  < $3 million

  
	
  GeoUtilities, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  

 

4

 

	
  Non-Pledged
  Subsidiary

  	
   

  	
  Jurisdiction of

  Incorporation

  	
   

  	
  Reason for Exclusion

  
	
  La Plata II, Inc.

  	
   

  	
  Delaware

  	
   

  	
  Already pledged; no secondary pledges permitted

  
	
  La Plata III, Inc.

  	
   

  	
  Delaware

  	
   

  	
  Already pledged; no secondary pledges permitted

  
	
  LW Generation Corporation

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  Star Natural Gas Company

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  AES Ecotek International Holdings, Inc.

  	
   

  	
  Cayman

  	
   

  	
  < $3 million

  
	
  Thermo Fuels Company, Inc.

  	
   

  	
  California

  	
   

  	
  < $3 million

  
	
  ThinkAES, Inc.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  Totem Gas Storage Company, LLC

  	
   

  	
  Colorado

  	
   

  	
  Pledge prohibited

  
	
  Totem Power, LLC

  	
   

  	
  Colorado

  	
   

  	
  < $3 million

  
	
  Transmission Management
  Services, L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  
	
  West County Generation, LLC

  	
   

  	
  Delaware

  	
   

  	
  < $3 million

  

 

5

 

AES INTERNATIONAL
HOLDINGS II, LTD.

 

	
  Non-Pledged
  Subsidiary

  	
   

  	
  Jurisdiction
  of

  Incorporation

  	
   

  	
  Reason for
  Exclusion

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Argentina Operations, Ltd.

  	
   

  	
  Cayman

  	
   

  	
  Already pledged; no
  secondary pledge permitted

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Bandeirante, Ltd.

  	
   

  	
  Cayman

  	
   

  	
  < $3 million

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Caracoles I

  	
   

  	
  Cayman

  	
   

  	
  < $3 million

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Caracoles II

  	
   

  	
  Cayman

  	
   

  	
  < $3 million

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Cayman Guaiba, Ltd.

  	
   

  	
  Cayman

  	
   

  	
  Pledge prohibited

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Cayman Pampas, Ltd.

  	
   

  	
  Cayman

  	
   

  	
  < $3 million

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Communications, Ltd.

  	
   

  	
  Cayman

  	
   

  	
  < $3 million

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Costa Rica
  Hydroelectrica, Ltd.

  	
   

  	
  Cayman

  	
   

  	
  < $3 million

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Infoenergy Ltda

  	
   

  	
  Brazil

  	
   

  	
  < $3 million

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Intercon II, Ltd.

  	
   

  	
  Cayman

  	
   

  	
  < $3 million

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Intercon, Ltd.

  	
   

  	
  Cayman

  	
   

  	
  < $3 million

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Interenergy, Ltd.

  	
   

  	
  Cayman

  	
   

  	
  < $3 million

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Merida Management Services S. de R.L. de C.V.

  	
   

  	
  Mexico

  	
   

  	
  < $3 million

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Mid East Holdings 3, Ltd.

  	
   

  	
  Cayman

  	
   

  	
  < $3 million

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Network

  	
   

  	
  Cayman

  	
   

  	
  < $3 million

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Pak Gen Holdings, Inc.

  	
   

  	
  Mauritius

  	
   

  	
  Pledge prohibited

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Pak Holdings, Ltd.

  	
   

  	
  British Virgin Islands

  	
   

  	
  < $3 million

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Pakistan Holdings

  	
   

  	
  Mauritius

  	
   

  	
  Pledge prohibited

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Parana IHC, Ltd.

  	
   

  	
  Cayman

  	
   

  	
  < $3 million

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Peru S.R.L.

  	
   

  	
  Peru

  	
   

  	
  < $3 million

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Santa Ana, Ltd.

  	
   

  	
  Cayman

  	
   

  	
  < $3 million

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Santa Branca, Ltd.

  	
   

  	
  Cayman

  	
   

  	
  < $3 million

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Servicios Electricos
  Limitada de Capital Variable

  	
   

  	
  El Salvador

  	
   

  	
  < $3 million

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES South Point, Ltd.

  	
   

  	
  Cayman

  	
   

  	
  < $3 million

  	
   

  

 

6

 

	
  Non-Pledged
  Subsidiary

  	
   

  	
  Jurisdiction
  of

  Incorporation

  	
   

  	
  Reason for
  Exclusion

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Telecomunicaciones
  Salvadorenas Ltda de CV

  	
   

  	
  El Salvador

  	
   

  	
  < $3 million

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Transpower, Inc.

  	
   

  	
  Mauritius

  	
   

  	
  Pledge prohibited

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AES Yucatan S.R.L. de C.V.

  	
   

  	
  Mexico

  	
   

  	
  < $3 million

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  CCS Telecarrier

  	
   

  	
  Cayman

  	
   

  	
  < $3 million

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Delta Capex Investments

  	
   

  	
  Cayman

  	
   

  	
  < $3 million

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Wildwood Funding, Ltd.

  	
   

  	
  Cayman

  	
   

  	
  < $3 million

  	
   

  

 

7

 

SCHEDULE IV: EXCLUDED AES
ENTITIES

 

	
  BRAZIL

  
	
  AES South
  American Holdings, Ltd.

  
	
  AES Americas
  Participacoes, Ltda.

  
	
  AES Bandierante Ltd.

  
	
  AES Bandierante Empreendimentos, Ltda.

  
	
  AES Brazilian Holdings, Ltd.

  
	
  AES Bridge
  I, Ltd.

  
	
  AES Bridge
  II, Ltd.

  
	
  AES Cayman
  Guaiba, Ltd.

  
	
  AES Cayman I

  
	
  AES Cayman
  II

  
	
  AES Cayman
  Pampas, Ltd.

  
	
  AES Cemig
  Empreendimentos II, Ltd.

  
	
  AES Cemig
  Empreendimentos, Inc.

  
	
  AES Communications Rio de Janeiro S.A.

  
	
  AES Communications Latin America, Inc.

  
	
  AES Com Sul Ltda.

  
	
  AES Coral Reef, LLC

  
	
  AES Edeersa, Ltd.

  
	
  AES Eletrolight, Ltd.

  
	
  AES Elpa S.A.

  
	
  AES Energia, Ltda.

  
	
  AES Energia I, Ltd.

  
	
  AES Energia II, Ltd.

  
	
  AES Florestal Ltda.

  
	
  AES Forca Ltd.

  
	
  AES Forca II, Ltd.

  
	
  AES Forca Empreendimentos Ltda.

  
	
  AES Guaiba II Empreendimentos Ltda.

  
	
  AES Holdings Brasil, Ltda.

  
	
  AES IHB Cayman, Ltd.

  
	
  AES Infoenergy Ltda.

  
	
  AES Intercon, Ltd.

  
	
  AES Intercon II, Ltd.

  
	
  AES Interenergy, Ltd.

  
	
  AES International Holdings III, Ltd.

  
	
  AES Minas PCH Ltda.

  
	
  AES Network

  
	
  AES Santa Branca I, Ltd.

  
	
  AES Santa Branca II, Ltd.

  
	
  AES Sul, SA

  
	
  AES Tiete
  Holdings Ltd.

  

 

1

 

	
  AES Tiete
  Holdings II, Ltd.

  
	
  AES Tiete Empreendimentos S.A.

  
	
  AES Tiete Participacoes S.A.

  
	
  AES Trade I, Ltd.

  
	
  AES Trade II, Ltd.

  
	
  AES Trading Ltda.

  
	
  AES Transgas Empreendimentos S.A.

  
	
  AES Transgas I, Ltd.

  
	
  AES Transgas II, Ltd.

  
	
  AES Treasure Cove, Ltd.

  
	
  AES Uruguaiana Empreedimentos S.A.

  
	
  AES Uruguaiana, Inc.

  
	
  Asteroid I, Ltd.

  
	
  Brasiliana Energia S.A.

  
	
  Cayman Energy Traders

  
	
  Companhia de Gas de Minas Gerais, S.A.

  
	
  Companhia Energetica de Minas Gerais, S.A.

  
	
  Compania de Geracao de Energia Eletrica Tiete, S.A.

  
	
  AES Tiete S.A.

  
	
  Eletroger Ltda.

  
	
  Eletronet S.A.

  
	
  Eletropaulo Comercial Exportadora, Ltda.

  
	
  Eletropaulo Metropolitana Eletricidade de Sao Paulo S.A.

  
	
  Eletropaulo Telecomunicacoes, Ltda.

  
	
  Empresa de Infovias, S.A.

  
	
  Energia Paulista Participacoes, S.A.

  
	
  ENET Telecomunicacoes Ltda.

  
	
  Logestic.com S.A.

  
	
  Metropolitana Overseas II, Ltd.

  
	
  Pleasantville Participacoes Ltda.

  
	
  Southern Electric Brazil Participacoes, Ltda.

  
	
   

  
	
  ARGENTINA

  
	
  AES Alicura Holdings S.C.A.

  
	
  AES Andes Energy, Inc.

  
	
  AES
  Argentina Investments, Ltd.

  
	
  AES
  Argentina Investments II, Ltd.

  
	
  AES
  Argentina Operations, Ltd.

  
	
  AES Argentina, Inc.

  
	
  AES Asociados S.A.

  
	
  AES Caracoles I

  
	
  AES Caracoles II

  
	
  AES Caracoles III, L.P.

  
	
  AES Caracoles S.R.L.

  

 

2

 

	
  AES Chaparron I, Ltd.

  
	
  AES Chaparron II, Ltd.

  
	
  AES Development de Argentina S.A.

  
	
  AES Energy, Ltd.

  
	
  AES Ocean Springs, Ltd.

  
	
  AES Operadora S.A.

  
	
  AES Parana Gas S.A.

  
	
  AES Parana Holdings, Ltd.

  
	
  AES Parana I Limited Partnership

  
	
  AES Parana II Limited Partnership

  
	
  AES Parana IHC, Ltd.

  
	
  AES Parana
  Generation Holdings, Ltd.

  
	
  AES Parana Operations S.R.L.

  
	
  AES Parana Propiedades S.A.

  
	
  AES Parana S.C.A.

  
	
  AES Rio Diamate, Inc.

  
	
  AES San Nicolas Holding Espana, S.L.

  
	
  AES San Nicolas, Inc.

  
	
  AES South Point, Ltd.

  
	
  AESEBA S.A.

  
	
  Asociados de Electricidad, S.A.

  
	
  B.A. Services.com S.R.L.

  
	
  Camille, Ltd.

  
	
  Central Dique, S.A.

  
	
  Central Termica San Nicolas S.A.

  
	
  CMS Generation San Nicolas Company

  
	
  Compania de Inversiones en Eletricidad, S.A.

  
	
  Empresa Distribuidora de Energia Norte S.A.

  
	
  Empresa Distribuidora de Energia Sur S.A.

  
	
  Empresa Distribuidora La Plata, S.A.

  
	
  Gasoducto GasAndes Argentina S.A.

  
	
  Gener Argentina S.A.

  
	
  AES Alicura, S.A.

  
	
  Hidroelectrica Rio Juramento, S.A.

  
	
  InterAndes, S.A.

  
	
  Inversora AES Ameritas Holding Espana Espana, S.L.

  
	
  Inverorsa de San Nicolas S.A.

  
	
  Inversora AES Americas, S.A.

  
	
  La Plata II, Inc.

  
	
  La Plata III, Inc.

  
	
  La Plata Partners L.P.

  
	
  Luz del Plata S.A.

  
	
  AES Pampa
  Energy, S.A.

  

 

3

 

	
  Shazia
  S.R.L.

  
	
  TermoAndes
  S.A.

  
	
  Wildwood
  Funding, Ltd.

  
	
  Wildwood I,
  Ltd.

  
	
  Wildwood II,
  Ltd.

  

 

4

 

SCHEDULE
5.15: EXISTING AGREEMENTS WITH AFFILIATES

 

None.

 

 

SCHEDULE V:  QUALIFIED HOLDING
COMPANIES

 

	
  AES Alicura
  Holdings S.C.A.

  
	
  AES
  Aramtermelo Holdings BV

  
	
  AES Baltic
  Holdings BV

  
	
  AES Barka
  Services 1 (Cayman) Ltd.

  
	
  AES Barka
  Services 2 (Cayman) Ltd.

  
	
  AES Bridge I
  Ltd.

  
	
  AES Bridge
  II Ltd.

  
	
  AES Cemig
  Empreendimentos, Inc.

  
	
  AES Central
  American Mgmt Services, Inc.

  
	
  AES
  Chaparron I, Ltd.

  
	
  AES
  Chaparron II, Ltd.

  
	
  AES Chigen
  Holdings Ltd.

  
	
  AES Denmark
  GP Holding I ApS

  
	
  AES Denmark
  GP Holding II ApS

  
	
  AES
  Development de Argentina, S.A.

  
	
  AES Electric
  Ltd.

  
	
  AES Gas
  Holdco (Cayman) Ltd.

  
	
  AES Global
  Power Holdings BV

  
	
  AES
  International Holdings Ltd.

  
	
  AES Isthmus Energy, S.A.

  
	
  AES LNG
  Holding II, Ltd.

  
	
  AES Medway
  Electric Ltd.

  
	
  AES Nigeria
  Holdings Ltd.

  
	
  AES Oasis
  Holdco (Cayman) Ltd.

  
	
  AES Oman
  Holdings Ltd.

  
	
  AES Panama
  Holding Ltd.

  
	
  AES Qatar
  Holdings Ltd.

  
	
  AES San
  Nichols Holding Espana S.L.

  
	
  AES Silk
  Road Cayman Ltd.

  
	
  AES Sirocco
  Holdings BV

  
	
  AES Songas
  Holdings Ltd.

  
	
  AES Summit
  Generation Ltd.

  
	
  AES Tisza
  Holdings BV

  
	
  AES UK Power
  Holdings Ltd.

  
	
  Global
  Energy Holdings CV

  
	
  Inversora AES Americas, S.A.

  
	
  Inversora de San Nicolas S.A.

  
	
  Inversora AES Americas Holding Espana, S.L.

  
	
  Mercury
  Cayman Holdco, Ltd.

  

 

 

Schedule
VI - Existing Debt

 

	
   

  	
   

  	
  Amount

  	
   

  
	
  Sr. Secured First Priority Notes due 2005

  	
   

  	
  155,718,000

  	
   

  
	
  Sr. Secured Second Priority Notes due 2013

  	
   

  	
  1,200,000,000

  	
   

  
	
  Sr. Secured Second Priority Notes due 2015

  	
   

  	
  600,000,000

  	
   

  
	
  Senior Notes due June 2008

  	
   

  	
  223,262,000

  	
   

  
	
  Senior Notes due June 2009

  	
   

  	
  310,097,040

  	
   

  
	
  Senior Notes due June 2009

  	
   

  	
  159,746,960

  	
   

  
	
  Senior Notes due September 2010

  	
   

  	
  422,665,000

  	
   

  
	
  Senior Notes due January 2011

  	
   

  	
  313,186,000

  	
   

  
	
  Senior Notes due February 2011 (£)*

  	
   

  	
  160,809,856

  	
   

  
	
  Senior Notes due March 2014

  	
   

  	
  500,000,000

  	
   

  
	
  Senior Subordinated Notes due August 2007

  	
   

  	
  169,619,000

  	
   

  
	
  Senior Subordinated Notes due November 2007

  	
   

  	
  218,949,000

  	
   

  
	
  Senior Subordinated Notes due November 2029

  	
   

  	
  115,258,000

  	
   

  
	
  Junior Convertible Debentures due August
  2005

  	
   

  	
  142,134,000

  	
   

  
	
  Guarantees of Debt

  	
   

  	
  155,503,000

  	
   

  
	
  Letters of Credit outside Revolving Credit
  Facility

  	
   

  	
  18,750,000

  	
   

  
	
  Surety Bonds

  	
   

  	
  3,682,870

  	
   

  
	
  Total Debt

  	
   

  	
  4,869,380,726

  	
   

  

 

*
Exchange Rate of  1.7995 on March 9,
2003

 

 

SCHEDULE VII to the

Third
Amended and Restated

Credit
and Reimbursement Agreement

 

REVOLVING
FRONTING BANKS

 

	
  Citicorp USA, Inc.

  
	
   

  
	
  Bank of America, N.A.

  
	
   

  
	
  Deutsche Bank Trust Company
  Americas

  
	
   

  
	
  Lehman Commercial Paper, Inc.

  
	
   

  
	
  UBS AG, Stamford Branch

  
	
   

  
	
  Union Bank of California, N.A.

  
	
   

  
	
  Credit Lyonnais New York Branch

  
	
   

  
	
  Société Générale – New York Branch

  

 

 

EXHIBIT A-1 to the

Third
Amended and Restated Credit

and
Reimbursement Agreement

 

FORM OF
REVOLVING CREDIT LOAN NOTE

 

	
  New York,
  New York

  	
   

  	
  , 2004

  

 

For value received, The AES Corporation, a Delaware
corporation (the “Borrower”),
promises to pay to 
               
(the “Bank”) or its registered
assigns, for the account of its Applicable Lending Office (as defined in the
Credit and Reimbursement Agreement referred to below), the unpaid principal
amount of each Revolving Credit Loan (as defined in the Credit and
Reimbursement Agreement referred to below) made by the Bank to the Borrower
pursuant to the Credit and Reimbursement Agreement referred to below on the
dates and in the amounts specified in the Credit and Reimbursement
Agreement.  The Borrower promises to pay
interest on the unpaid principal amount of each such Loan on the dates and at
the rate or rates provided for in the Credit and Reimbursement Agreement.  All such payments of principal and interest
shall be made in lawful money of the United States in Federal or other same day
funds at the place of payment specified in the Credit and Reimbursement
Agreement.

 

All Revolving Credit Loans made by the Bank, the
respective types thereof and all repayments of the principal thereof shall be
recorded by the Bank and, if the Bank so elects in connection with any transfer
or enforcement hereof, appropriate notations to evidence the foregoing
information with respect to each such Loan then outstanding may be endorsed by
the Bank on the schedule attached hereto, or on a continuation of such schedule
attached to and made a part hereof; provided
that the failure of the Bank to make (or any error in making) any such
recordation or endorsement shall not affect the obligations of the Borrower
hereunder or under the Credit and Reimbursement Agreement.

 

This Revolving Credit Loan Note is one of the Notes
referred to in the Third Amended and Restated Credit and Reimbursement
Agreement dated as of March 17, 2004 (as amended, amended and restated,
supplemented or otherwise modified from time to time, the “Credit and Reimbursement Agreement”) among
the Borrower, the Subsidiary Guarantors party thereto, the Bank and certain
other banks party thereto, Citicorp USA, Inc., as the Agent for the Bank
Parties and Citibank, N.A. as the Collateral Agent for the Bank Parties.  Terms defined in the Credit and
Reimbursement Agreement are used herein with the same meanings.  Reference is made to the Credit and
Reimbursement Agreement for provisions for the guarantee hereof in certain
circumstances, the prepayment hereof and the acceleration of the maturity
hereof.

 

 

This Revolving Credit Loan Note is assignable to one
or more Persons as provided in the Credit and Reimbursement Agreement and the
Borrower agrees to issue from time to time replacement Notes in the form hereof
to facilitate such assignments.

 

The Obligations of the Borrower under this Revolving
Credit Loan Note and the other Financing Documents, and the Obligations of the
other Loan Parties under the Financing Documents, are secured by the Creditor
Group Collateral as provided in the Financing Documents.  The Obligations of the Borrower under this
Revolving Credit Loan Note are also guaranteed by the Subsidiary Guarantors, as
provided in the Subsidiary Guaranty in Article IX of the Credit and
Reimbursement Agreement.

 

This Revolving Credit Loan Note shall be governed by,
and construed in accordance with, the laws of the State of New York.

 

	
   

  	
  THE AES
  CORPORATION

  
	
   

  	
   

  
	
   

  	
  By 

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

LOANS AND PAYMENTS OF PRINCIPAL

 

	
  Date

  	
   

  	
  Amount of

  Loan

  	
   

  	
  Type of
  Loan

  	
   

  	
  Amount of

  Principal

  Repaid

  	
   

  	
  Notation

  Made By

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

EXHIBIT A-2 to the

Third
Amended and Restated Credit

and
Reimbursement Agreement

 

FORM OF
TERM LOAN NOTE

 

	
  New York,
  New York

  	
   

  	
  , 2004

  

 

For value received, The AES Corporation, a Delaware
corporation (the “Borrower”),
promises to pay to 
                                       
(the “Bank”) or its registered
assigns, for the account of its Applicable Lending Office (as defined in the
Credit and Reimbursement Agreement referred to below), the unpaid principal
amount of the Term Loan (as defined in the Credit and Reimbursement Agreement
referred to below) made by the Bank to the Borrower pursuant to the Credit and
Reimbursement Agreement referred to below on the dates and in the amounts
specified in the Credit and Reimbursement Agreement.  The Borrower promises to pay interest on the unpaid principal
amount of the Term Loan on the dates and at the rate or rates provided for in
the Credit and Reimbursement Agreement. 
All such payments of principal and interest shall be made in lawful
money of the United States in Federal or other same day funds at the place of
payment specified in the Credit and Reimbursement Agreement.

 

This Term Loan Note is one of the Notes referred to in
the Third Amended and Restated Credit and Reimbursement Agreement dated as of
March 17, 2004 (as amended, amended and restated, supplemented or otherwise
modified from time to time, the “Credit and
Reimbursement Agreement”) among the Borrower, the Subsidiary
Guarantors party thereto, the Bank and certain other banks party thereto,
Citicorp USA, Inc., as the Agent for the Bank Parties and Citibank, N.A., as
the Collateral Agent for the Bank Parties. 
Terms defined in the Credit and Reimbursement Agreement are used herein
with the same meanings.  Reference is made
to the Credit and Reimbursement Agreement for provisions for the guarantee hereof
in certain circumstances, the prepayment hereof and the acceleration of the
maturity hereof.

 

This Term Loan Note is assignable to one or more
Persons as provided in the Credit and Reimbursement Agreement and the Borrower
agrees to issue from time to time replacement Notes in the form hereof to
facilitate such assignments.

 

The Obligations of the Borrower under this Term Loan
Note and the other Financing Documents, and the Obligations of the other Loan
Parties under the Financing Documents, are secured by the Creditor Group
Collateral as provided in the Financing Documents.  The Obligations of the Borrower under this Term Loan Note are
guaranteed by the Subsidiary Guarantors, as provided in the Subsidiary Guaranty
in Article IX of the Credit and Reimbursement Agreement.

 

 

This Term Loan Note shall be governed by, and
construed in accordance with, the laws of the State of New York.

 

 

	
   

  	
  THE AES
  CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By 

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

LOANS AND PAYMENTS OF PRINCIPAL

 

	
  Date

  	
   

  	
  Amount of

  Loan

  	
   

  	
  Type of
  Loan

  	
   

  	
  Amount of

  Principal

  Repaid

  	
   

  	
  Notation

  Made By

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

March 17, 2004

 

To the Banks

Listed on Schedule 1 hereto

 

Ladies and Gentlemen:

 

I am the Assistant General
Counsel of The AES Corporation (the “Company”), a corporation organized and
existing under the laws of the State of Delaware, and have acted as counsel for
the Company, each of the Subsidiary Guarantors (as defined in the Credit
Agreement referred to below) and AES International Holdings II, Ltd. in
connection with (i) the Third Amended and Restated Credit and Reimbursement
Agreement (the “Credit Agreement”) dated as of March 17, 2004 among AES, the
Subsidiary Guarantors party thereto (the “Subsidiary Guarantors”), the banks
party thereto (the “Bank Parties”), Citicorp USA, Inc., as Administrative
Agent, and Citibank, N.A. as Collateral Agent for the Bank Parties and (ii)
Amendment No. 2 to the Collateral Trust Agreement (as defined in the Credit
Agreement, and together with the Credit Agreement, the “Documents”).  The Company and the Subsidiary Guarantors
are sometimes hereinafter referred to as the “Delaware Loan Parties” and each
as a “Delaware Loan Party.”  Terms in
the Credit Agreement are used herein as therein defined.  This opinion is being furnished to you
pursuant to Section 3.01(c)(i) of the Credit Agreement.

 

In rendering this opinion, I
have examined, and relied on, subject to the assumptions and qualifications
herein, executed counterparts of each of the Documents and such agreements,
instruments and documents and have conducted such investigations of law as I
have deemed necessary or appropriate as a basis for the opinions hereafter
expressed.  As to questions of fact
material to this opinion, I have, when relevant facts were not independently
established, relied upon certificates of appropriate public officials and
officers and representatives of the Company and other appropriate persons, and
upon the factual representations or statements made by these persons or in the
Documents.  In all such examinations, I
have assumed, without independent verification the authenticity and
completeness of documents purporting to be originals (whether examined in
original, facsimile or copy form), the conformity to originals of documents purporting
to be photostatic or facsimile copies of originals, and the genuineness of all
signatures.

 

I make no observations and
give no opinion in relation to any contract, instrument or document other than
the Documents (whether or not referred to in the Documents) nor have I made any
enquiries concerning any party to the Documents, or other person or entity,
other than the Company.

 

This opinion is strictly
limited to the matters stated in it and is not to be read as extending by
implication to any other matter or any other contract,

 

1

 

instrument or document executed in connection with the Documents or the
transactions contemplated by them or otherwise.

 

On the basis of the
foregoing, and having regard for such legal considerations as I deem relevant,
I am of the opinion that:

 

(i)         Each Delaware Loan Party is
a corporation (or limited liability company, as applicable) duly incorporated
(or formed, as applicable), validly existing and in good standing under the
laws of Delaware and has all corporate or other organizational powers and, to
my knowledge, all material governmental licenses, authorizations, consents and
approvals required to carry on its business as now conducted;

 

(ii)        The execution, delivery and
performance by each Delaware Loan Party of the Documents and the Notes to which
it is a party are within such Delaware Loan Party’s corporate or other
organizational powers, have been duly authorized by all necessary corporate or
other organizational action, require no action by or in respect of, or filing
with, any governmental body, agency or official and do not (i) contravene, or
constitute a default under, any provision of (1) the certificate of
incorporation (or certificate of formation, as applicable) or by-laws (or other
organizational documents, as applicable) of such Delaware Loan Party or (2) to
my knowledge, (A) any law or regulation applicable to any Delaware Loan Party
or (B) any judgment, injunction, order or decree binding upon any Delaware Loan
Party or (C) any agreement or instrument evidencing or governing any Debt of
any Delaware Loan Party in the amount of $25,000,000 or more (“Specified Debt”)
or (ii) result in or require the creation or imposition of any lien or any
asset of any Delaware Loan Party under any agreement or instrument evidencing
or governing any Specified Debt; and

 

(iii)       Except for Disclosed
Matters, there is no action, suit, investigation of which the Company has
notice, litigation or proceeding pending against, or to my knowledge threatened
against, the Company or any of its Subsidiaries before any court or arbitrator
or any governmental body, agency or official in which there is a reasonable
possibility of an adverse decision which could have a Material Adverse Effect,
or which in any manner draws into question the legality, validity or
enforceability of any Document.

 

I am a member of the Bar of
the District of Columbia, however, this opinion relates solely to the General
Corporation Law of the State of Delaware and the federal laws of the United
States as at the date and time of its issue. 
I have made no investigation of, and neither express nor imply any
opinion with respect to the laws of any state or jurisdiction other than the
General Corporation Law of the State of Delaware and the federal laws of the
United States.

 

This opinion may be relied
upon solely by each of the addressees hereto, and may not be relied upon by any
other person, nor used, circulated, quoted or otherwise referred to for any
other purpose, without my prior written consent,

 

2

 

except that any Person that becomes a Bank Party in accordance with
Section 10.06 of the Credit Agreement may rely upon this opinion as if it were
specifically addressed and delivered to such Person on the date hereof.

 

	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Vincent W. Mathis

  
	
   

  	
  Assistant General Counsel

  

 

3

 

Schedule 1

 

	
  The Banks,
  Citicorp USA, Inc., as Administrative Agent and

  
	
  Citibank,
  N.A., as Collateral Agent

  
	
  c/o Citicorp
  USA, Inc., as Administrative Agent

  
	
  388
  Greenwich Street, 21st Floor

  
	
  New York, NY
  10013

  
	
  Attention:
  Stuart Glen

  
	
   

  
	
  Wilmington
  Trust Company, as Corporate Trustee

  
	
  Rodney
  Square North

  
	
  1100 North
  Market Street

  
	
  Wilmington,
  DE 19890

  
	
  Attention:
  Corporate Trust Division

  
	
   

  
	
  Bruce L.
  Bisson, as Individual Trustee

  
	
  Rodney
  Square North

  
	
  1100 North
  Market Street

  
	
  Wilmington,
  DE 19890

  
	
  Attention:
  Corporate Trust Division

  

 

 

March 17, 2004

 

	
  To the Bank
  Parties

  
	
  and the Administrative Agent

  
	
  and the Collateral Agent referred to Below

  
	
  c/o Citicorp
  USA, Inc. as Administrative Agent

  
	
  388
  Greenwich Street, 21st Floor

  
	
  New York, NY
  10013

  
	
   

  
	
  Wilmington
  Trust Company

  
	
  as Corporate Trustee

  
	
  Rodney
  Square North

  
	
  1100 North
  Market Street

  
	
  Wilmington,
  DE 19890

  
	
  attn:
  Corporate Trust Division

  
	
   

  
	
  Bruce L.
  Bisson

  
	
  as Individual Trustee

  
	
  Rodney
  Square North

  
	
  1100 North
  Market Street

  
	
  Wilmington,
  DE 19890

  

 

Ladies and Gentlemen:

 

We have participated in the
preparation of the Third Amended and Restated Credit and Reimbursement
Agreement dated as of March 17, 2004 (the “Credit Agreement”) among The AES
Corporation, a Delaware corporation (“AES”), the Subsidiary Guarantors party
thereto (the “Subsidiary Guarantors”), the banks party thereto (the “Bank Parties”)
and Citicorp USA, Inc., as Administrative Agent (in such capacity, the “Administrative
Agent”), and Citibank, N.A. as Collateral Agent for the Bank Parties
(in such capacity, the “Collateral Agent”).  We have acted as special New York counsel
for AES and

 

 

its subsidiaries for the purpose of rendering this opinion pursuant to
Section 3.01(c)(ii) of the Credit Agreement. 
Terms used (but not defined) herein have the meanings assigned to them
in the Credit Agreement.

 

We have reviewed executed
copies of:

 

(a)        the Credit Agreement;

 

(b)        the Notes issued on the date
hereof (the “Notes”); and

 

(c)        Amendment No. 2 dated as of
March [  ], 2004 to the Collateral Trust
Agreement dated as of December 12, 2002 (as amended, the “Collateral Trust Agreement”)
among AES, AES International Holdings II, Ltd. (“AES BVI II”), Wilmington
Trust Company, as corporate trustee (the “Corporate Trustee”) and Bruce L. Bisson, as
individual trustee (together with the Corporate Trustee, the “Collateral
Trustees”).

 

The documents listed in
items (a) through (c) above are sometimes hereinafter referred to as the “Credit Documents”.  AES, the Subsidiary Guarantors and AES BVI
II are sometimes hereinafter referred to collectively as the “Loan Parties” and each individually as a “Loan Party”.

 

We have also examined
originals or copies, certified or otherwise identified to our satisfaction, of
such documents, corporate records and certificates of public officials and
officers of AES and have conducted such other investigations of fact and law as
we have deemed necessary or advisable for purposes of this opinion.

 

Based on the foregoing, and
subject to the assumptions and qualifications set forth below, we are of the
opinion that:

 

1.             The execution, delivery and
performance by each Loan Party of each Credit Document to which it is a party
require no action by or in respect of, or filing with, any governmental body,
agency or official under United States federal or New York State law (other
than filings and recordings to perfect security interests granted) and do not
contravene, or constitute a default under, any provision of applicable United
States federal or New York State law or regulation, in each case that in our
experience is normally applicable to general business corporations in relation
to transactions of the type contemplated by the Credit Documents.

 

2

 

2.             Each Credit Document (other
than the Notes) constitutes a valid and binding agreement of each Loan Party
thereto and each Note, when duly executed and delivered in accordance with the
terms of the Credit Agreement, will constitute a valid and binding obligation
of AES, in each case enforceable against such Loan Party or AES in accordance
with its terms.

 

3.             The Security Agreement dated
as of December 12, 2002 (as amended, the “Security Agreement”) made by AES to the
Collateral Trustees is effective to create, in favor of the Collateral Trustees
for the benefit of the Secured Holders, as security for the Secured Obligations,
a valid security interest (the “AES Security
Interest”) in the right, title and interest of AES in that portion
of the Collateral, as defined in the Security Agreement, described therein in
which a security interest may be created pursuant to Article 9 of the Uniform
Commercial Code as in effect in the State of New York on the date hereof (the “UCC”).

 

4.             Assuming that the
certificates evidencing the Pledged Equity and instruments constituting the
Pledged Debt, in each case indorsed by an appropriate person in blank or
accompanied by instruments of transfer or assignment in blank duly executed by
an appropriate person, have been delivered on or prior to the date hereof to
the Collateral Trustees, and have been continuously held by the Collateral Trustees
since such delivery, in each case in the State of New York, (i) the AES
Security Interest in the Pledged Equity and the Pledged Debt is perfected, and
(ii) the Collateral Trustees have, for the benefit of the Secured Holders,
control (within the meaning of Section 8-106 of the UCC) of such Pledged Equity
and such Pledged Debt.

 

5.             None of the Loan Parties is
required to register as an “investment company” within the meaning of the
Investment Company Act of 1940, as amended.

 

The foregoing opinions are
subject to the following qualifications:

 

(i)         Our opinions in
paragraphs 2 through 4 above are subject to applicable bankruptcy, insolvency
and similar laws affecting creditors’ rights generally and equitable principles
of general applicability.

 

(ii)        We express no opinion as
to the effect of fraudulent conveyance, fraudulent transfer or similar
provisions of applicable law on the conclusions expressed above.

 

3

 

(iii)       We express no opinion as to
the effect (if any) of any law of any jurisdiction (except the State of New
York) in which any Bank Party is located which may limit the rate of interest
that such Bank Party may charge or collect.

 

(iv)       We express no opinion as to
provisions in the Credit Documents that purport to (1) indemnify any Person for
its own gross negligence or willful misconduct or (2) confer upon any Person
the right to require specific performance or to receive liquidated damages.

 

(v)        We express no opinion as
to provisions in the Credit Documents that purport to create rights of set-off
in favor of participants or that provide for set-off to be made otherwise than
in accordance with applicable laws.

 

(vi)       We express no opinion as to
provisions in the Credit Documents that purport to waive objections to venue,
claims that a particular jurisdiction is an inconvenient forum or the like.

 

(vii)      We express no opinion as to
whether a United States federal court would have subject-matter or personal
jurisdiction over a controversy arising under the Credit Documents.

 

(viii)     We express no opinion as to
the right, title or interest of any Loan Party in or to any collateral or the
value given therefor.

 

(ix)       Except as expressly set
forth in paragraphs 3 and 4 above, we express no opinion as to the creation,
attachment, perfection or priority of any security interest.

 

(x)        We note the possible
unenforceability in whole or in part of certain remedial provisions of the
Security Agreement and the Collateral Trust Agreement (the “Collateral
Documents”), although the inclusion of such provisions does not render the
Collateral Documents invalid and, subject, to the extent applicable, to Section
9-408(c) of the UCC, each of the Collateral Documents contains, in our
judgment, adequate remedial provisions for the practical realization of the
rights and benefits afforded thereby. 
In addition, we note that any foreclosure or other exercise of remedies
by the Collateral Trustees or the Collateral Agent will require additional
approvals and consents that have not been obtained from foreign and domestic
regulators and from lenders to, and suppliers, customers or other contractual
parties of one or more Subsidiaries of AES and failure to obtain such approval
or consent could result in a default, or a breach of agreement or other legal
obligations of such Subsidiaries.

 

4

 

(xi)       Any security interest in
proceeds is subject to the limitations set forth in Section 9-315 of the UCC.

 

(xii)      We express no opinion as to
provisions in the Credit Documents which subject the Loan Parties to any claim
for deficiency resulting from a judgment being rendered in a currency other
than the currency called for in the Credit Documents, and we express no opinion
as to (i) whether a New York State or United States federal court would render
or enforce a judgment in a currency other than U.S. Dollars or (2) the exchange
rate that such a court would use in rendering a judgment in U.S. Dollars in
respect of an obligation in any other currency.

 

(xiii)     We express no opinion as to
any regulatory scheme applicable to, or any license or permit required in
connection with, the businesses conducted by AES or its subsidiaries and our
opinions expressed in paragraph (A) above relate only to laws, actions and
filings, which, in our experience, are normally applicable to general business
corporations in relation to transactions of the type contemplated by the Credit
Documents and, in particular, we express no opinion as to the Federal Power Act
or any other energy or electricity law or any rule or regulation thereunder or
any law, rule or regulation applicable to, or any approval given or required to
be given by, the Federal Energy Regulatory Commission.

 

The foregoing opinion is
limited to the laws of the State of New York and the federal laws of the United
States of America.  We have assumed that
(i) each of the Loan Parties is validly existing and, to the extent applicable,
in good standing under the laws of its jurisdiction of organization, and (ii)
the execution, delivery and performance by each Loan Party of each Credit
Document to which it is a party are within its corporate powers, have been duly
authorized by all necessary corporate action on the part of such Loan Party and
do not contravene the articles or certificate of incorporation or bylaws or
other constitutive documents of such Loan Party.  We have further assumed that each Loan Party has duly executed
and delivered each Credit Document to which it is a party.

 

This opinion is delivered to
you in connection with the above matter. This opinion may not be relied upon by
you for any other purpose or relied upon by any other person without our prior
written consent, except that any person that becomes a Bank Party in accordance
with the provisions of Section 10.06(c) of the Credit Agreement may rely upon
this opinion as if it were specifically addressed and delivered to such person
on the date hereof.

 

	
   

  	
  Very truly
  yours,

  

 

5

 

EXHIBIT B-3 to the 

Third Amended and Restated

Credit and Reimbursement Agreement

 

FORM
OF OPINION OF

[LAW FIRM NAME]

COUNSEL FOR [SUBSIDIARY NAME]

 

	
  March 17, 2004

  
	
   

  
	
  To the Banks
  and the Agent referred to below

  
	
  c/o Citicorp
  USA, Inc., as Administrative Agent

  
	
  388
  Greenwich Street, 21st Floor

  
	
  New York,
  New York 10013

  
	
   

  
	
  Wilmington
  Trust Company

  
	
  as Corporate Trustee

  
	
  Rodney
  Square North

  
	
  1100 North
  Market Street

  
	
  Wilmington,
  DE 19890

  
	
  Attn:
  Corporate Trust Division

  
	
   

  
	
  Bruce L.
  Bisson

  
	
  as Individual Trustee

  
	
  Rodney
  Square North

  
	
  1100 North
  Market Street

  
	
  Wilmington,
  DE 19890

  

 

Dear Sirs:

 

We have acted as counsel to
[Subsidiary Name] (the “Company”) and its Subsidiaries, in
connection with the Third Amended and Restated Credit and Reimbursement
Agreement (the “Credit Agreement”), dated as of March 17, 2004 among The AES
Corporation, a Delaware corporation (“AES”), the Subsidiary Guarantors party
thereto, the Banks party thereto (the “Bank Parties”) and Citicorp USA, Inc. as
Administrative Agent and as Collateral Agent for the Bank Parties (the “Agent”).  Terms used (but not defined) herein have the
meanings assigned to them in the Credit Agreement.  This opinion is being delivered to you pursuant to Section
3.01(c)(iii) of the Credit Agreement.

 

We have reviewed copies of:

 

 

(a)                                  the Credit
Agreement [(including, without limitation, the Subsidiary Guaranty in Article
IX thereof (the “Guaranty”)] (1);

 

(b)                                 the Security
Agreement dated as of December 12, 2002, as amended by Amendment No. 1 to the
Security Agreement, dated as of July 29, 2003 (the “Security Agreement”) made by AES to the Collateral Trustees;
and

 

(c)                                  the Collateral
Trust Agreement dated as of December 12, 2002, as amended by Amendment No. 1 to
the Collateral Trust Agreement, dated as of July 29, 2003 and Amendment No. 2 to
the Collateral Trust Agreement, dated as of March 17, 2004 (the “Collateral
Trust Agreement”) among AES, AES BVI II and the Collateral
Trustees).

 

The documents listed in
items (a) through (c) above are sometimes hereinafter referred to as the “Credit Documents”.

 

We have examined originals
or copies, certified or otherwise identified to our satisfaction, of such
documents, corporate records and certificates of public officials and officers
of the Company and have conducted such other investigations of fact and law as
we have deemed necessary or advisable for purposes of this opinion.

 

Based on the foregoing, and
subject to the assumptions and qualifications set forth below, we are of the
opinion that:

 

1.          [The Company is a [limited
liability company / corporation] validly existing and in good standing under
the laws of
[             ].]
(1)

 

2.          [The execution and delivery
by the Company of the Guaranty and the performance of its obligations
thereunder, are within its [corporate] powers and have been duly authorized by
all necessary [corporate] action. The Company has duly executed and delivered
the Guaranty.] (1)

 

3.          (a)  [The execution and delivery by the Company
of the Guaranty and the performance of its obligations thereunder and (b)] (1)
the granting of a security interest in all right, title and interest of AES in
that portion of the Collateral, as defined in the Security Agreement, which
represents [the capital stock of] [membership interests in] the [Tier 1
Company] and notes and other amounts receivable from the Company and its
Subsidiaries (the “Company Collateral”), and the exercise of
remedies by the Collateral Trustees with respect to the Company Collateral
pursuant to the Security Agreement or the Collateral

 

(1) To be included in opinions for Subsidiary
Guarantors.

 

2

 

Trust
Agreement, require no action by or in respect of, or filing with, any
governmental body, agency or official under
[                   ](2)
and do not (i) contravene, or constitute a default under, any provision of (A)
applicable law or regulation, that in our experience is normally applicable in
relation to transactions of the type contemplated by the Credit Documents, (B)
the certificate of incorporation or by-laws or other constitutive documents of
the Company or any of its Subsidiaries or (C) any agreement or instrument
listed in Schedule I hereto which agreements have been represented to us by the
Company to be the material agreements of the Company and its Subsidiaries or
(ii) result in or require the creation or imposition of any Lien on any asset
of the Company or any of its Subsidiaries under any agreement or instrument
listed in such Schedule [except that any change in the ownership of the Company
resulting from the exercise of remedies by the Collateral Trustees that would
result in AES owning, directly or indirectly, less than
               %
of the [capital stock] of the Company would constitute a default under [the
loan documents – specify] [other agreements or regulations – specify]
unless consented to by the [lenders, offtaker regulators – specify].

 

This opinion is delivered to
you in connection with the above matter. This opinion may not be relied upon by
you for any other purpose or relied upon by any other person without our prior
written consent, except that any person that becomes a Bank Party in accordance
with the provisions of Section 10.06 of the Credit Agreement and any other
person that becomes a “Secured Holder” under the Collateral Trust Agreement may
rely upon this opinion as if it were specifically addressed and delivered to
such person on the date hereof.

 

We are members of the Bar of
[        ] (2) and the foregoing
opinion is limited to the laws of
[                      ]
(2).

 

 

Very truly yours,

 

(2) Insert applicable jurisdiction.

 

3

DRAFT –
3/15/04

SUBJECT
TO REVIEW OF DOCUMENTS

 

 

March 17, 2004

 

The addressees listed on
Schedule I attached hereto

 

Re:                               The
AES Corporation

 

Ladies and Gentlemen:

 

We have acted as
special Delaware counsel to The AES Corporation, a Delaware corporation (“Borrower”),
in connection with certain matters of Delaware law set forth below relating to
that certain Third Amended and Restated Credit and Reimbursement Agreement
dated March 17, 2004 (the “Credit Agreement”) among the Borrower, the
Subsidiary Guarantors (as defined therein) party thereto, the banks party
thereto (the “Banks”), Citicorp USA, Inc, as administrative agent for the Banks
(in such capacity, the “Administrative Agent”) and Citibank, N.A., as
collateral agent for the Banks (in such capacity, the “Collateral Agent”).  Non-capitalized terms used in connection
with the opinions given herein with respect to matters within the scope of
Article 9 of the Uniform Commercial Code are used as defined in the Uniform
Commercial Code as enacted and presently in effect in the State of Delaware
(the “Delaware UCC”), to the extent that they are defined in the Delaware UCC.

 

In rendering this
opinion, we have examined and relied upon copies of the following documents in
the forms provided to us:  the Security
Agreement dated December 12, 2002 (the “Original Security Agreement”) by and
among the Borrower, the other persons listed on the signature pages thereof and
the Additional Grantors (as defined therein), Wilmington Trust Company, as
corporate trustee (the “Corporate Trustee”) and Bruce L. Bisson, as individual
trustee (the “Individual Trustee” and together with the Corporate Trustee, the
“Collateral Trustees”); Amendment No. 1 dated July 29, 2003 to the Original
Security Agreement (the “Security Agreement Amendment” and together with the
Original Security Agreement amended thereby, the “Security Agreement”); the
Collateral Trust Agreement dated as of December 12, 2002 (the “Original
Collateral Trust Agreement”) by and among the

 

 

Borrower, the
other persons listed on the signature pages thereto, the Additional Grantors
(as defined in the Security Agreement) and the Collateral Trustees; Amendment
No. 1 dated July 29, 2003 to the Original Collateral Trust Agreement (the
“Collateral Trust First Amendment” and together with the Original Collateral
Trust Agreement amended thereby, the “First Amended Collateral Trust
Agreement”); Amendment No. 2 dated March 17, 2004 to the First Amended
Collateral Trust Agreement (the “Collateral Trust Second Amendment” and together
with the First Amended Collateral Trust Agreement amended thereby, the
“Collateral Trust Agreement”); the UCC-1 Financing Statement No. 23125147
naming Borrower as “debtor” and the Collateral Trustees as “secured party” (the
“Original Borrower Security Agreement Financing Statement”) as filed in the
Office of the Secretary of State of the State of Delaware (the “State Office”)
on December 13, 2002; the UCC Financing Statement Amendment No. 31952897 naming
Borrower as “debtor” and the Collateral Trustees as “secured party” (the
“Borrower Security Agreement Financing Statement Amendment”) as filed in the
State Office on July 29, 2003; the UCC-1 Financing Statement No. 23125089
naming Borrower as “debtor” and the Collateral Trustees as “secured party” (the
“Original Borrower Collateral Trust Agreement Financing Statement” and together
with the Original Borrower Security Agreement Financing Statement, the
“Original Financing Statements” and each individually, an “Original Financing
Statement”) as filed in the State Office on December 13, 2002; the UCC
Financing Statement Amendment No. 31952756 naming Borrower as “debtor” and the
Collateral Trustees as “secured party” (the “Borrower Collateral Trust
Agreement Financing Statement Amendment”) as filed in the State Office on July
29, 2003; and a certification of good standing of the Borrower obtained as of a
recent date from the State Office.  In
such examinations, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as copies or drafts of
documents to be executed and the legal competence and capacity of natural
persons to complete the execution of documents.  We have further assumed for purposes of this opinion:  (i) the due formation or organization,
valid existence and good standing of each entity that is a signatory to any of
the above-referenced documents under the laws of the jurisdiction of its
formation or organization; (ii) the due authorization, authentication,
adoption, approval, certification, acknowledgement, execution, filing, indexing
and delivery, as applicable, of each of the above-referenced documents by each
of the parties thereto; (iii) that the Original Borrower Security Agreement
Financing Statement provides the mailing address of Borrower and the names and
mailing addresses of the Collateral Trustees and sufficiently indicates the
“Collateral” (as defined in the Original Security Agreement) in accordance with
Section 9-502 of the Delaware UCC; (iv) that the Original Borrower Collateral
Trust Agreement Financing Statement provides the mailing address of Borrower
and the names and mailing addresses of the Collateral Trustees and sufficiently
indicates the “Additional Collateral Trust Agreement Collateral” (as defined in
the Original Collateral Trust Agreement) in accordance with Section 9-502 of
the Delaware UCC; (v) that the Borrower Security Agreement Financing Statement
Amendment accurately provides the names of the Collateral Trustees as “secured
party” of record authorizing the amendment and sufficiently indicates the
Borrower Collateral (as defined below) in accordance with Section 9-502 of the
Delaware UCC; (vi) that the Borrower Collateral Trust Agreement Financing Statement
Amendment accurately provides the names of the Collateral Trustees as “secured
party” of record authorizing the amendment and sufficiently indicates the
Borrower Additional Collateral Trust Agreement Collateral (as defined below) in
accordance with Section 9-502 of

 

2

 

the Delaware UCC;
(vii) that the Borrower was not originally or is not organized or existing
under the laws of any jurisdiction other than the State of Delaware;
(viii)  that each of the above-referenced documents constitutes a legal,
valid and binding agreement of each of the parties thereto and is enforceable
against each of the parties thereto in accordance with its terms; and
(ix) that the documents examined by us are in full force and effect,
express the entire understanding of the parties thereto with respect to the
subject matter thereof and have not been amended, supplemented or otherwise
modified, except as referenced herein. 
No opinion is expressed herein with respect to the requirements of, or
compliance with, federal or state securities or blue sky laws.  As to any facts material to our opinion,
other than those assumed, we have relied without independent investigation on
the above-referenced documents and on the accuracy as of the date hereof of the
matters therein contained.  We have not
reviewed any documents other than those referenced above in connection with
rendering this opinion, and we have assumed there are no documents that are
contrary to or inconsistent with the opinions herein expressed.

 

Based on and
subject to the foregoing and to the further assumptions and qualifications set
forth below, and limited in all respects to matters of Delaware law, it is our
opinion that:

 

1.             The Original Borrower
Security Agreement Financing Statement and the Borrower Security Agreement
Financing Statement Amendment having been filed, solely to the extent that the
Delaware UCC is applicable to the perfection of the security interest of the
Collateral Trustees in the “Collateral” (as defined in the Security Agreement)
owned or acquired by Borrower (the “Borrower Collateral”), the security
interest of the Collateral Trustees in that portion of the Borrower Collateral
as to which a security interest can be perfected by filing a financing
statement in the State Office under the Delaware UCC (the “Borrower Filing
Collateral”) is perfected.

 

2.             The Original Borrower
Collateral Trust Agreement Financing Statement and the Borrower Collateral
Trust Agreement Financing Statement Amendment having been filed, solely to the
extent that the Delaware UCC is applicable to the perfection of the security
interest of the Collateral Trustees in the “Additional Collateral Trust
Agreement Collateral” (as defined in the Collateral Trust Agreement) owned or
acquired by Borrower (the “Borrower Additional Collateral Trust Agreement
Collateral”), the security interest of the Collateral Trustees in that portion
of the Borrower Additional Collateral Trust Agreement Collateral as to which a
security interest can be perfected by filing a financing statement in the State
Office under the Delaware UCC (the “Borrower Additional Collateral Trust
Agreement Filing Collateral”) is perfected.

 

In connection with
the opinions set forth above, we have assumed that (i) the Security Agreement
creates or, with respect to after acquired property, will create in favor of
the Collateral Trustees a valid security interest in and to the Borrower Filing
Collateral, which security interest has attached or, with respect to after
acquired property, will attach under the Uniform Commercial Code as in effect
in the State of New York (the “New York UCC”), (ii) the Collateral Trust
Agreement creates or, with respect to after acquired property, will create in
favor of the Collateral Trustees a valid security interest in and to the
Borrower Additional Collateral

 

3

 

Trust Agreement
Filing Collateral (collectively with the Borrower Filing Collateral, the
“Filing Collateral”), which security interest has attached or, with respect to
after acquired property, will attach under the New York UCC, and (iii) the
substantive laws of the Delaware UCC (and not the Delaware UCC choice-of-law
rules) govern the perfection of a security interest in the Filing Collateral.

 

In addition, in
connection with the opinions set forth above, we express no opinion as to
(i) the effect of perfection or nonperfection or the priority of any
security interest of the Collateral Trustees in any portion of the Filing
Collateral, (ii) the existence, legality, validity, binding effect or
enforceability of any security interest under the Security Agreement, the
Collateral Trust Agreement or otherwise, (iii) the rights or interests of
any of the parties to the Security Agreement, the Collateral Trust Agreement or
any other person or entity in, or title of any such parties, persons or
entities to, any of the Filing Collateral, or as to the value of any such
Filing Collateral, (iv) any Borrower Collateral or Borrower Additional Collateral
Trust Agreement Collateral until such Borrower Collateral or Borrower
Additional Collateral Trust Agreement Collateral is acquired by Borrower; (v)
in the case of any Filing Collateral that is secured by other property, the
rights or interests of any of the parties to the Security Agreement, the
Collateral Trust Agreement or any other person or entity in, or title of any
such parties, persons or entities to, any of such underlying property,
(vi) any collateral other than the Filing Collateral, (vii) any Filing
Collateral due from any government or any agency or instrumentality thereof,
(viii) any Filing Collateral that constitutes fixtures, as-extracted
collateral or timber to be cut, (ix) any Filing Collateral that
constitutes commercial tort claims, (x) any Filing Collateral that
constitutes consumer goods, (xi) any Filing Collateral that constitutes goods
subject to a negotiable document of title and (xii) transactions excluded
from the application of Article 9 of the Delaware UCC pursuant to the provisions
of Section 9-109 thereof.  Further, to
the extent the opinions set forth above relate to proceeds, such opinions are
subject to the qualification that the perfection of an interest in proceeds is
subject to the limitations and requirements of Section 9-315 of the Delaware
UCC.

 

Further, in
connection with the opinions set forth above, we note that the security
interest of the Collateral Trustees in certain Filing Collateral may be subject
to the rights of account debtors in respect of such Filing Collateral, claims
and defenses of such account debtors and terms of agreements with such account
debtors.

 

In addition, we
express no opinion as to any actions that may be required to be taken
periodically under the Delaware UCC or other applicable law in order for the
effectiveness of the Original Borrower Security Agreement Financing Statement
as amended by the Borrower Security Agreement Financing Statement Amendment
(the “Borrower Security Agreement Financing Statement”) or the Original
Borrower Collateral Trust Agreement Financing Statement as amended by the
Borrower Collateral Trust Agreement Financing Statement Amendment (the
“Borrower Collateral Trust Agreement Financing Statement” and together with the
Borrower Security Agreement Financing Statement, the “Financing Statements” and
each individually, a “Financing Statement”), or the perfection of the security
interest of the Collateral Trustees in the Filing Collateral, to be
maintained.  We note, however, that the
perfection of the security interest of the Collateral Trustees in the Filing
Collateral and the effectiveness of each Financing

 

4

 

Statement will
either terminate or be materially limited (i) unless an appropriate
continuation statement is properly filed (a) within the period of six
months prior to the expiration of the five-year period from the date of the
original filing of each Original Financing Statement and (b) if a prior
continuation statement has been filed, within the period of six months prior to
the expiration of the Original Financing Statement continued by such prior
continuation statement, (ii) if Borrower changes its name so as to make
the relevant Financing Statement seriously misleading, unless an amendment to
such Financing Statement that renders such Financing Statement not seriously
misleading is properly filed within four months after such a change in name,
(iii) if Borrower changes its jurisdiction of formation or organization to
another jurisdiction, four months after Borrower changes its jurisdiction of
formation or organization to another jurisdiction, unless such security
interest is perfected in such new jurisdiction within such time, (iv) if
Borrower transfers the relevant Filing Collateral to a person or entity that thereby
becomes a debtor and is located in another jurisdiction, one year after
Borrower transfers such Filing Collateral to a person or entity that thereby
becomes a debtor and is located in another jurisdiction, unless such security
interest is perfected in such new jurisdiction within such time, and
(v) if Borrower becomes organized under the laws of another jurisdiction
in addition to the State of Delaware.

 

Further, the
opinions set forth above are subject to the effect of (i) bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or other laws of
general application relating to or affecting the enforcement of creditors’
rights and remedies, as from time to time in effect, (ii) application of
equitable principles (regardless of whether such enforceability is considered
in a proceeding in equity or at law), (iii) principles of course of
dealing or course of performance and standards of good faith, fair dealing,
materiality and reasonableness that may be applied by a court to the exercise
of rights and remedies by, and other acts of, a creditor, and (iv)
considerations of public policy with respect to the enforceability of
exculpation, indemnification and limitation on damages provisions.

 

This opinion
speaks only as of the date hereof, and is based on our understandings and
assumptions as to present facts and a review of the above referenced documents
and the application of Delaware law as the same exist on the date hereof, and
we undertake no duty to update or supplement this opinion for the benefit of
any person or entity with respect to any facts or circumstances that may
hereafter come to our attention or any changes in facts, circumstances or law
that may hereafter occur or take effect. 
The opinions herein expressed are intended solely for the benefit of the
addressees hereof and may not be relied upon by any other person or entity or
for any other purpose without our prior written consent.

 

	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  MORRIS, NICHOLS, ARSHT
  & TUNNELL

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Louis G. Hering

  

 

5

 

SCHEDULE I

 

	
  The
  Banks, Citicorp USA, Inc., as Administrative Agent and

  
	
  Citibank,
  N.A., as Collateral Agent

  
	
  c/o
  Citicorp USA, Inc., as Administrative Agent

  
	
  388
  Greenwich Street, 21st Floor

  
	
  New
  York, NY 10013

  
	
  Attention:
  Stuart Glen

  
	
   

  
	
  Wilmington
  Trust Company, as Corporate Trustee

  
	
  Rodney
  Square North

  
	
  1100
  North Market Street

  
	
  Wilmington,
  DE 19890

  
	
  Attention:
  Corporate Trust Division

  
	
   

  
	
  Bruce
  L. Bisson, as Individual Trustee

  
	
  Rodney
  Square North

  
	
  1100
  North Market Street

  
	
  Wilmington,
  DE 19890

  
	
  Attention: Corporate Trust Division

  

 

 

MAPLES
AND CALDER

CAYMAN EUROPE ASIA

 

Draft:
9/3/04

 

March 17, 2004

 

To:          the addressees listed in
the Schedule

 

Dear Sirs

 

AES International
Holdings II, Ltd. (the “Company”)

 

We have acted as counsel as to Cayman Islands law to
the Company in connection with the entry by the Company into the Third Amended
and Restated Credit and Reimbursement Agreement (the “Credit Agreement”), dated
as of March 17, 2004 among The AES Corporation, the Subsidiary Guarantors party
thereto (the “Subsidiary Guarantors”), the Banks party thereto, Citicorp USA,
Inc., as Administrative Agent and Citibank, N.A. as Collateral Agent.

 

1              DOCUMENTS
REVIEWED

 

We have reviewed
originals, copies, drafts or conformed copies of the following documents:

 

1.1                                 the
Certificate of Incorporation and Memorandum and Articles of Association of each
of AES El Salvador, Ltd. and AES South American Holdings, Ltd. (the “Cayman
Companies”);

 

1.2                                 the
Register of Members of each of the Cayman Companies as provided to as by Citco
Trust (Cayman Islands) Ltd.;

 

1.3                                 a
certificate from a Director of each of the Cayman Companies, copies of which
are annexed hereto (the “Director’s
Certificate”); and

 

1.4                                 the
Charge and Assignment of Shares (“Charge of Shares”), dated as of 12 December,
2002 between the Company, as chargor, the Wilmington Trust Company, as
corporate trustee, and Bruce L. Bisson, as the individual trustee.

 

 

PO Box 309GT, Ugland
House, South Church Street, George Town, Grand Cayman, Cayman Islands

Telephone: (345) 949 8066  Facsimile:
(345) 949 8080  Email:
info@maplesandcalder.com

 

 

2              ASSUMPTIONS

 

The following opinion is
given only as to, and based on, circumstances and matters of fact existing and
known to us on the date of this opinion. This opinion only relates to the laws
of the Cayman Islands which are in force on the date of this opinion.  In giving this opinion we have relied
(without further verification) upon the completeness and accuracy of the
Director’s Certificates. We have also relied upon the following assumptions,
which we have not independently verified:

 

2.1                                 the
Charge of Shares has been authorised and duly executed and delivered by or on
behalf of all relevant parties in accordance with all relevant laws (other than
the laws of the Cayman Islands);

 

2.2                                 the
Charge of Shares is legal, valid, binding and enforceable against all relevant
parties in accordance with its terms under British Virgin Islands law and all
other relevant laws (other than the laws of the Cayman Islands);

 

2.3                                 the
choice of Cayman Islands law as the governing law of the Charge of Shares has
been made in good faith;

 

2.4                                 copy
documents, conformed copies or drafts of documents provided to us are true and
complete copies of, or in the final forms of, the originals;

 

2.5                                 all
signatures, initials and seals are genuine;

 

2.6                                 the
power, authority and legal right of all parties under all relevant laws and
regulations to enter into, execute, deliver and perform their respective
obligations under the Charge of Shares;

 

2.7                                 there
is nothing under any law (other than the law of the Cayman Islands) which would
or might affect the opinions hereinafter appearing.  Specifically, we have made no independent investigation of the
laws of the British Virgin Islands;

 

2.8                                 that
no encumbrances or equities exist in respect of the shares of the Cayman
Companies which are the subject of the Charge of Shares (the “Secured Shares”)
(other than arising by virtue of the laws of the Cayman Islands) and that there
is no contractual or other prohibition (other than one arising by virtue of the
laws of the Cayman Islands) binding upon the Company preventing the Company
from creating the charge over the Secured Shares pursuant to the Charge of
Shares;

 

2.9                                 the
share certificates representing the Secured Shares have been deposited with the
Chargee together with a signed but undated share transfer form, and a security
power of attorney.

 

2

 

3              OPINIONS

 

Based upon, and subject
to, the foregoing assumptions and the qualifications set out below, and having
regard to such legal considerations as we deem relevant, we are of the opinion
that:

 

3.1                                 The
Charge of Shares when duly authorised, executed and delivered by or on behalf
of the Company, will constitute legal, valid and binding obligations of the
Company enforceable against the Company in accordance with its terms except and
insofar as such enforcement may be limited as hereinafter set forth.

 

3.2                                 No
authorisations, consents or approvals are required from, and no notice to or
filing or registration with, any governmental authorities or agencies or other
official bodies in the Cayman Islands in connection with the execution or
delivery of the Charge of Shares.

 

3.3                                 Subject
as set out in paragraph 4.2 below, no stamp duties or other taxes are payable
under the laws of the Cayman Islands in respect of the execution or delivery of
the Charge of Shares or the enforcement thereof.

 

3.4                                 It
is not necessary to ensure the legality, validity, enforceability or
admissibility in evidence of the Charge of Shares that any document be filed,
recorded or enrolled with any governmental department or other authority in the
Cayman Islands.

 

3.5                                 The
courts of the Cayman Islands will observe and give effect to the choice of
Cayman Islands law as the governing law of the Charge of Shares.

 

3.6                                 It
is not necessary under the laws of the Cayman Islands (i) in order to enable
any party to enforce its rights under the Charge of Shares or (ii) by reason of
the execution, delivery or performance of the Charge of Shares that any party
should be licensed, qualified or otherwise entitled to do business in the
Cayman Islands or any political sub-division thereof.

 

3.7                                 No
party to the Charge of Shares is or will be deemed to be resident, domiciled or
carrying on business in the Cayman Islands by reason only of the execution,
delivery or performance and/or enforcement of the Charge of Shares in the
Cayman Islands or elsewhere.

 

3.8           The Charge of Shares:

 

3.8.1        creates a valid charge
over the Secured Shares; and

 

3.8.2                        no
further steps are required as a matter of Cayman Islands law to perfect such
charge, or to regulate its ranking in point of priority; and

 

3.8.3                        subject
to the assumptions and qualifications herein, the charge created by the Charge
of Shares will have priority over any claims by third parties (other than those
preferred by law) including any liquidator or a creditor of the Company,
subject in the case of a winding up of the Company in a jurisdiction other than
the

 

3

 

Cayman Islands to
any provisions of the laws of that jurisdiction as to priority of claims in a
winding up.

 

4              QUALIFICATIONS

 

The opinions expressed
above are subject to the following qualifications:

 

4.1                                 The
term “enforceable”
as used above means that the obligations assumed by the Company under the
Charge of Shares are of a type which the courts of the Cayman Islands will
enforce.  It does not mean that those
obligations will necessarily be enforced in all circumstances in accordance
with their terms.  In particular:

 

4.1.1                        enforcement may be limited by
bankruptcy, insolvency, liquidation, reorganisation, readjustment of debts or
moratorium or other laws of general application relating to or affecting the
rights of creditors;

 

4.1.2                        enforcement may be limited by
general principles of equity.  For
example, equitable remedies such as specific performance may not be available, inter alia,
where damages are considered to be an adequate remedy;

 

4.1.3                        some claims may become barred
under the statutes of limitation or may be or become subject to defenses of
set-off, counterclaim, estoppel and similar defenses;

 

4.1.4                        where obligations are to be
performed in a jurisdiction outside the Cayman Islands, they may not be
enforceable in the Cayman Islands to the extent that performance would be
illegal under the laws of that jurisdiction;

 

4.1.5                        the Cayman Islands court has
jurisdiction to give judgment in the currency of the relevant obligation and
statutory rates of interest payable upon judgments will vary according to the
currency of the judgment.  If the
Company becomes insolvent and is made subject to a liquidation proceeding, the
Cayman Islands court will require all debts to be proved in a common currency,
which is likely to be the “functional currency” of the Company determined in
accordance with applicable accounting principles. Currency indemnity provisions
have not been tested, so far as we are aware, in the courts of the Cayman
Islands; and

 

4.1.6                        obligations to make payments
that may be regarded as penalties will not be enforceable.

 

4.2                                 Cayman
Islands stamp duty may be payable if the original Charge of Shares is brought
to or executed in the Cayman Islands.

 

4.3                                 A
certificate, determination, calculation or designation of any party to the
Charge of Shares as to any matter provided therein might be held by a Cayman
Islands court not to be conclusive final and binding if, for example, it could
be shown to have an unreasonable or arbitrary basis, or in the event of
manifest error.

 

4

 

4.4                                 In
principle a Cayman Islands court will award costs and disbursements in
litigation in accordance with the relevant contractual provisions but there
remains some uncertainty as to the way in which the rules of the Grand Court
will be applied in practice.  Whilst it
is clear that costs incurred prior to judgment can be recovered in accordance
with the contract, it is likely that post-judgment costs (to the extent
recoverable at all) will be subject to taxation in accordance with Grand Court
Rules Order 62.

 

4.5                                 We
reserve our opinion as to the extent to which a Cayman Islands court would, in
the event of any relevant illegality, sever the offending provisions and
enforce the remainder of the transaction of which such provisions form a part,
notwithstanding any express provisions in this regard.

 

4.6                                 We
make no comment with regard to the references to foreign statutes in the Charge
of Shares.

 

4.7                                 The
interest of the Chargee created pursuant to the Charge of Shares will rank
after (i) any prior legal or perfected equitable interest in the Secured Shares
and (ii) any later legal interest in the Secured Shares created in favour of a
bona fide purchaser or mortgagee for value without notice of the charge created
pursuant to the Charge of Shares.

 

4.8                                 Following
the English decision in MacMillan Inc. V Bishopsgate Trust (No. 3) [1995] 1
W.L.R. 978, which would be persuasive although not technically binding in the
courts of the Cayman Islands, it is not necessarily the case that, as a matter
of Cayman Islands conflict of law rules, priorities of competing interests in
shares in a Cayman Islands company will be determined according to the
jurisdiction of incorporation of company, for example, when the register of
members is maintained in another jurisdiction.

 

4.9                                 The articles of association of the Cayman
Companies contain restrictions on the transferability of its shares which may
affect the ability of the Chargee to realise its security by, for example,
selling the Secured Shares.  For
example, Article 9 of the Articles of Association of AES El Salvador, Ltd and
Article 9 of the Articles of Association of AES South America Holdings, Ltd.
confer on the Board of Directors of the relevant Cayman Company the right to
refuse to register transfers of shares in its sole discretion.  Unless and until the Board of Directors
resolves to register a transfer of Secured Shares in accordance with the
Articles and such transfer is duly registered in the relevant Cayman Company’s
Register of Members, the Company shall, as a matter of Cayman Islands law,
remain the legal and registered holder of the Secured Shares

 

5

 

We express no view as to
the commercial terms of the Charge of Shares or whether such terms represent
the intentions of the parties and make no comment with regard to the
representations which may be made by the Company.

 

This opinion may be
relied upon by the addressees only. It may not be relied upon by any other
person except with our prior written consent.

 

 

	
  Yours faithfully,

  
	
   

  
	
   

  
	
  MAPLES and CALDER

  

 

6

 

SCHEDULE

 

	
  The Banks, Citicorp
  USA, Inc. as Administrative Agent

  
	
  and Citibank, N.A. as
  Collateral Agent

  
	
  c/o Citicorp USA, Inc.,
  as Administrative Agent

  
	
  and Collateral Agent

  
	
  388 Greenwich Street,
  21st Floor

  
	
  New York, New York
  10013

  
	
  Attn: Stuart Glen

  
	
   

  
	
  Wilmington Trust
  Company

  
	
  as Corporate Trustee

  
	
  Rodney Square North

  
	
  1100 North Market
  Street

  
	
  Wilmington, DE 19890

  
	
  Attn: Corporate Trust
  Division

  
	
   

  
	
  Bruce L. Bisson

  
	
  as Individual Trustee

  
	
  Rodney Square North

  
	
  1100 North Market
  Street

  
	
  Wilmington, DE 19890

  
	
  Attn: Corporate Trust
  Division

  

 

7

 

AES South American
Holdings, Ltd.

P
O Box 31106 SMB, West Bay Road,

Grand Cayman, Cayman Islands

 

11 March, 2004

 

To:                              Maples
and Calder

PO Box 309GT

Ugland House

South Church

Grand Cayman

Cayman Islands

 

Dear Sirs,

 

AES South American
Holdings, Ltd. (the “Company”)

 

I,
                         ,
being a director of the Company, am aware that you are being asked to provide a
legal opinion (the “Opinion”) in relation to certain aspects of
Cayman Islands law.  Capitalised terms
used in this certificate have the meaning given to them in the Opinion.  I hereby certify that:

 

1                                         The
Memorandum and Articles of Association of the Company as registered on 22
April, 2002 remain in full force and effect and are unamended.

 

2                                         The
authorised share capital of the Company is US$50,000 divided into 50,000 shares
of US$1.00 par value each.  The issued
share capital of the Company is 5,030 shares of US$1.00 each, which have been
issued and are fully paid up.

 

I confirm that you may
continue to rely on this Certificate as being true and correct on the day that
you issue the Opinion unless I shall have previously notified you personally to
the contrary.

 

 

	
   

  	
  Signature:

  	
   

  	
   

  
	
   

  	
   

  	
  Director

  

 

 

AES El Salvador, Ltd.

P
O Box 31106 SMB, West Bay Road,

Grand Cayman, Cayman Islands

 

11 March, 2004

 

To:                              Maples
and Calder

PO Box 309GT

Ugland House

South Church

Grand Cayman

Cayman Islands

 

Dear Sirs,

 

AES El Salvador, Ltd.
(the “Company”)

 

I,
                         ,
being a director of the Company, am aware that you are being asked to provide a
legal opinion (the “Opinion”) in relation to certain aspects of
Cayman Islands law.  Capitalised terms
used in this certificate have the meaning given to them in the Opinion.  I hereby certify that:

 

3                                         The
Memorandum and Articles of Association of the Company as registered on 14
October, 1997 remain in full force and effect and are unamended.

 

4                                         The
authorised share capital of the Company is US$50,000 divided into 50,000 shares
of US$1.00 par value each.  The issued
share capital of the Company is 1,000 shares of US$1.00 each, which have been
issued and are fully paid up.

 

I confirm that you may
continue to rely on this Certificate as being true and correct on the day that
you issue the Opinion unless I shall have previously notified you personally to
the contrary.

 

 

	
   

  	
  Signature:

  	
   

  	
   

  
	
   

  	
   

  	
  Director

  

 

 

DRAFT
(1)

Conyers
Dill & Pearman/AGE/ssx/951465/45341

March 10, 2004

 

March 17, 2004

 

	
  To the addressees
  listed on Schedule I

  	
   

  	
  DIRECT
  LINE:

  	
   

  	
   

  
	
   

  	
   

  	
  E-MAIL:

  	
   

  	
  ageldridge@cdp.bm

  
	
   

  	
   

  	
  OUR
  REF:

  	
   

  	
  AGE/ssx/951465/

  
	
   

  	
   

  	
  YOUR
  REF:

  	
   

  	
   

  

 

Dear Sirs:

 

Re:          AES International
Holdings II, Ltd. (the “Company”)

 

We have acted as special legal counsel in the British Virgin Islands to
The AES Corporation (“AES”) in connection with the Third Amended and Restated
Credit and Reimbursement Agreement (the “Credit Agreement”) dated as of March
17, 2004 among AES, the Subsidiary Guarantors listed therein, the Banks listed
on the signatures pages thereof, Citigroup Global Markets Inc., as Lead
Arranger and Book Runner, Banc Of America Securities LLC, as Lead Arranger and
Book Runner and as Co-Syndication Agent (for the Term Loan Facility (as defined
in the Credit Agreement)), Deutsche Bank Securities Inc. as Lead Arranger and
Book Runner (for the Term Loan Facility), Union Bank Of California, N.A., as
Co-Syndication Agent € for the Term Loan Facility) and as Lead Arranger and
Book Runner and as Syndication Agent (for the Revolving Credit Facility (as
defined in the Credit Agreement)), Lehman Commercial Paper Inc.,
as Co-Documentation Agent (Term Loan Facility), UBS Securities LLC, as
Co-Documentation Agent (Term Loan Facility), Société Générale, as
Co-Documentation Agent (Revolving Credit Facility), Credit Lyonnais New York
Branch, as Co-Documentation Agent (Revolving Credit Facility), Citicorp USA,
Inc., as Administrative Agent for the Bank Parties and Citibank, N.A., as
Collateral Agent for the Bank Parties. 
This opinion is being rendered to you at the request of the Obligors (as
defined in the Credit Agreement) pursuant to Section 3.01(c) of the Credit
Agreement.

 

For the purposes of giving this opinion, we have examined facsimile or
electronic copies of the following documents:

 

(i)                                     the
Charge and Assignment of Shares (“Charge Over Shares”) dated December 12, 2002,
between the Company, the Wilmington Trust Company, as corporate trustee and
Bruce L. Bisson, as the individual trustee;

 

(ii)                                  the
Collateral Trust Agreement (“Collateral Trust Agreement “) dated December 12,
2002, by and among AES, the Grantors (as therein defined) (including the
Company), the Wilmington Trust Company, as corporate trustee and Bruce L.
Bisson, as the individual trustee;

 

 

 

(iii)                               an
amending agreement dated July 29, 2003 by and among AES, the Grantors (as
defined in the Collateral Trust Agreement) (including the Company), the Wilmington
Trust Company, as corporate trustee and Bruce L. Bisson, as the individual
trustee, amending the terms of the Collateral Trust Agreement; and

 

(iv)                              an
amending agreement dated March 17, 2004 by and among AES, the Grantors (as
defined in the Collateral Trust Agreement) (including the Company), the
Wilmington Trust Company, as corporate trustee and Bruce L. Bisson, as the
individual trustee, amending the terms of the Collateral Trust Agreement.

 

The documents listed in items (i) through (iii) above are herein
sometimes collectively referred to as the “Documents”.

 

We have also reviewed the memorandum of association and the articles of
association of the Company, as obtained from the Registrar of Companies on
March 10, 2004, minutes of a meeting of its directors held on December 10,
2002, minutes of a meeting of its directors held on July 28, 2003, minutes of a
meeting of its directors held on March 12, 2004 (collectively, the “Minutes”),
and such other documents and made such enquiries as to questions of law as we
have deemed necessary in order to render the opinion set forth below.

 

We have assumed:

 

(a)                                  the
genuineness and authenticity of all signatures and the conformity to the
originals of all copies (whether or not certified) examined by us and the authenticity
and completeness of the originals from which such copies were taken;

 

(b)                                 that
where a document has been examined by us in draft form, it will be or has been
executed in substantively the form of that draft, and where a number of drafts
of a document have been examined by us all changes thereto have been marked or
otherwise drawn to our attention;

 

(c)                                  the
capacity, power and authority of each of the parties to the Documents, other
than the Company, to enter into and perform its respective obligations under
the Documents;

 

(d)                                 the
due execution of the Documents by each of the parties thereto, other than the
Company, and the delivery thereof by each of the parties thereto;

 

(e)                                  the
accuracy and completeness of all factual representations made in the Documents
and other documents reviewed by us;

 

(f)                                    that
the resolutions contained in the Minutes remain in full force and effect and
have not been rescinded or amended;

 

(g)                                 that
there is no provision of the law of any jurisdiction, other than the British
Virgin Islands, which would have any implication in relation to the opinions
expressed herein;

 

2

 

(h)                                 the
validity and binding effect under the laws of the Cayman Islands and the State
of Delaware (the “Foreign Laws”) of the Documents which are expressed to be
governed by such Foreign Laws in accordance with their respective terms; and

 

(i)                                     the
validity and binding effect under the Foreign Laws of the submission by the
Company pursuant to the Documents to the non-exclusive jurisdiction of the
courts of the Cayman Islands and the State of Delaware (the “Foreign Courts”).

 

The obligations of the Company under the Documents:

 

(a)                                  will
be subject to the laws from time to time in effect relating to bankruptcy,
insolvency, liquidation, possessory liens, rights of set off, reorganisation,
merger, consolidation, amalgamation, moratorium or any other laws or legal
procedures, whether of a similar nature or otherwise, generally affecting the
rights of creditors;

 

(b)                                 will
be subject to statutory limitation of the time within which proceedings may be
brought;

 

(c)                                  will
be subject to general principles of equity and, as such, specific performance
and injunctive relief, being equitable remedies, may not be available; and

 

(d)                                 may
not be given effect to by a British Virgin Islands court, whether or not it was
applying the Foreign Laws, if and to the extent they constitute the payment of
an amount which is in the nature of a penalty and not in the nature of
liquidated damages.

 

Notwithstanding any contractual submission to the jurisdiction of
specific courts, a British Virgin Islands court has inherent discretion to stay
or allow proceedings in the British Virgin Islands courts.

 

We express no opinion as to the enforceability of any provision of the
Documents which provides for the payment of a specified rate of interest on the
amount of a judgment after the date of judgment or which purports to fetter the
statutory powers of the Company.

 

We have made no investigation of and express no opinion in relation to
the laws of any jurisdiction other than the British Virgin Islands.  This opinion is to be governed by and
construed in accordance with the laws of the British Virgin Islands and is
limited to and is given on the basis of the current law and practice in the
British Virgin Islands.  This opinion is
issued solely for your benefit and is not to be relied upon by any other
person, firm or entity or in respect of any other matter.

 

On the basis of and subject to the foregoing, we are of the opinion
that:

 

1.                                       The
Company is duly incorporated and existing under the laws of the British Virgin
Islands in good standing (meaning solely that it has not failed to make any
filing with any British Virgin Islands governmental authority or to pay any
British Virgin Islands

 

3

 

government fee
or tax which would make it liable to be struck off the Register of Companies
and thereby cease to exist under the laws of the British Virgin Islands).

 

2.                                       The
Company has the necessary corporate power and authority to enter into and
perform its obligations under the Documents. 
The execution and delivery of the Documents by the Company and the
performance by the Company of its obligations thereunder will not violate the
memorandum of association or articles of association of the Company nor any
applicable law, regulation, order or decree in the British Virgin Islands.

 

3.                                       The
Company has taken all corporate action required to authorise its execution,
delivery and performance of the Documents. 
The Documents have been duly executed and delivered by or on behalf of
the Company, and constitute the valid and binding obligations of the Company in
accordance with the terms thereof.

 

4.                                       No
order, consent, approval, licence, authorisation or validation of or exemption
by any government or public body or authority of the British Virgin Islands or
any sub-division thereof is required to authorise or is required in connection
with the execution, delivery, performance and enforcement of the Documents.

 

5.                                       It
is not necessary or desirable to ensure the enforceability in the British
Virgin Islands of the Documents that they be registered in any register kept
by, or filed with, any governmental authority or regulatory body in the British
Virgin Islands.  However, to the extent
that any of the Documents creates a charge over assets of the Company, it may
be desirable to ensure the priority in the British Virgin Islands of the charge
that it be registered in the Register of Mortgages, Charges and other
Encumbrances of the Company at its registered office in accordance with Section
70A of the International Business Companies Act (Cap. 291) (the “Act”) and that
a copy of such register be filed at the office of the Registrar of Companies
pursuant to Section 111A of the Act.  On
registration, to the extent that British Virgin Islands law governs the
priority of a charge, such charge will have priority in the British Virgin
Islands over any unregistered charges, and over any subsequently registered
charges, in respect of the assets which are the subject of the charge.  A registration fee of $50.00 will be payable
in respect of the registration.

 

While there is
no exhaustive definition of a charge under British Virgin Islands law, a charge
normally has the following characteristics:

 

(i)                                             it
is a proprietary interest granted by way of security which entitles the chargee
to resort to the charged property only for the purposes of satisfying some
liability due to the chargee (whether from the chargor or a third party); and

 

(ii)                                          the
chargor retains an equity of redemption to have the property restored to him
when the liability has been discharged.

 

4

 

However, as
the Documents are governed by the Foreign Laws, the question of whether they
would possess these particular characteristics would be determined under the
Foreign Laws.  Assuming that each of the
Documents possesses such characteristics, each of the Documents creates a valid
and binding security interest in accordance with the terms thereof.

 

6.                                       The
Documents will not be subject to ad valorem stamp duty in the British Virgin
Islands.

 

7.                                       The
choice of the Foreign Laws as the governing law of the Documents is a valid
choice of law and would be recognised and given effect to in any action brought
before a court of competent jurisdiction in the British Virgin Islands, except
for those laws (i) which such court considers to be procedural in nature, (ii)
which are revenue or penal laws or (iii) the application of which would be
inconsistent with public policy, as such term is interpreted under the laws of
the British Virgin Islands.  The
submission in the Documents to the non-exclusive jurisdiction of the Foreign
Courts is valid and binding upon the Company.

 

8.                                       The
courts of the British Virgin Islands would recognise as a valid judgment, a
final and conclusive judgment in personam obtained in the Foreign Courts
against the Company based upon the Documents under which a sum of money is
payable (other than a sum of money payable in respect of multiple damages,
taxes or other charges of a like nature or in respect of a fine or other
penalty) and would give a judgment based thereon provided that (a) such courts
had proper jurisdiction over the parties subject to such judgment, (b) such
courts did not contravene the rules of natural justice of the British Virgin
Islands, (c) such judgment was not obtained by fraud, (d) the enforcement of
the judgment would not be contrary to the public policy of the British Virgin
Islands, (e) no new admissible evidence relevant to the action is submitted
prior to the rendering of the judgment by the courts of the British Virgin
Islands and (f) there is due compliance with the correct procedures under the
laws of the British Virgin Islands.

 

	
  Yours
  faithfully,

  
	
   

  
	
   

  
	
  CONYERS DILL & PEARMAN

  

 

5

 

SCHEDULE I

 

	
  The Banks, Citicorp USA, Inc., as Administrative Agent and

  
	
  Citibank, N.A., as Collateral Agent

  
	
  c/o Citicorp USA, Inc., as Administrative Agent

  
	
  388 Greenwich Street, 21st Floor

  
	
  New York, NY 10013

  
	
  Attention: Stuart Glen

  
	
   

  
	
  Wilmington Trust Company, as Corporate Trustee

  
	
  Rodney Square North

  
	
  1100 North Market Street

  
	
  Wilmington, DE 19890

  
	
  Attention: Corporate Trust Division

  
	
   

  
	
  Bruce L. Bisson, as Individual Trustee

  
	
  Rodney Square North

  
	
  1100 North Market Street

  
	
  Wilmington, DE 19890

  
	
  Attention: Corporate Trust
  Division

  

 

 

EXHIBIT B-7 to the

Third Amended and Restated

Credit and Reimbursement Agreement

 

FORM OF OPINION OF SHEARMAN & STERLING

 

March 17, 2004

 

To the Banks, BankBoston, N.A.,
Nassau Branch,

the Agent referred to below and
the Collateral Agent,

referred to below

 

c/o Citicorp USA, Inc.

388 Greenwich Street, 21st
Floor

New York, NY  10013

 

The AES Corporation

 

Ladies and Gentlemen:

 

We have acted
as special New York counsel to Citicorp USA, Inc., individually and as
Administrative Agent for the Bank Parties, and to Citibank, N.A., individually
and as Collateral Agent for the Bank Parties, in connection with the
preparation, negotiation, execution and delivery of the Third Amended and
Restated Credit and Reimbursement Agreement (including without limitation, the
Subsidiary Guaranty in Article IX thereto) dated as of March 17, 2004 (the “Credit
and Reimbursement Agreement”) among The AES Corporation, a Delaware
corporation (the “Borrower”), the Subsidiary Guarantors party thereto,
the Banks party thereto (the “Banks”), Citicorp USA, Inc., as
Administrative Agent (the “Agent”) for the Bank Parties and Citibank,
N.A., as Collateral Agent (the “Collateral Agent”) for the Bank
Parties.  Unless otherwise defined
herein, terms defined in the Credit and Reimbursement Agreement are used herein
as therein defined.  This opinion is
being delivered to you pursuant to Section 3.01(d) of the Credit and
Reimbursement Agreement.

 

In that
connection, we have examined (a) the Existing Bank Credit Agreement, (b) a
counterpart of the Credit and Reimbursement Agreement executed by each of the
Loan Parties, (c) the Notes executed by the Borrower and delivered on the date
hereof (the “Closing Date Notes”), (d) the Security Agreement and
(e) to the extent relevant to our opinions expressed below, the other documents
delivered by the Loan Parties pursuant to Section 3.01 of the Credit and
Reimbursement Agreement, including (A) the opinion of Vincent Mathis, Assistant
General Counsel of the Borrower, (B) the opinion of Davis, Polk & Wardwell,
special New York counsel for the Borrower (the “New York Opinion”), (C)
the opinions of local counsel for the Borrower as to certain Subsidiaries of
the Borrower, (D) the opinion of Conyers Dill & Pearman, special British
Virgin Islands counsel for the Borrower, (E) the opinion of Maples &
Calder, special Cayman Islands counsel for the Borrower, (F) the opinion of
Morris, Nichols, Arsht & Tunnell, special Delaware counsel for the Borrower
(the “Delaware Opinion”) and (G) all certificates,

 

 

resolutions and other similar
corporate documents furnished by the Loan Parties.  The documents listed in items (b) through (d) are referred to
herein as the “Transaction Documents”.

 

In our
examination of the Transaction Documents and the other Financing Documents, we
have assumed, without independent investigation (a) the due execution and
delivery of the Transaction Documents (other than the Closing Date Notes) and
the other Financing Documents by all parties thereto and of the Closing Date
Notes by the Borrower, (b) the genuineness of all signatures, (c) the
authenticity of the originals of the documents submitted to us and (d) the
conformity to originals of any documents submitted to us as copies.

 

In addition,
we have assumed, without independent investigation, that (i) each of the Loan
Parties is duly organized and validly existing under the laws of the
jurisdiction of its organization and has full power and authority (corporate
and otherwise) to execute, deliver and perform each of the Transaction
Documents to which it is a party and (ii) the execution, delivery and
performance by each of the Loan Parties of each of the Transaction Documents to
which it is a party has been duly authorized by all necessary corporate or
other organizational action and does not (A) contravene the certificate of
incorporation (or certificate of formation, as applicable), charter, bylaws,
memorandum and articles of association (or other organizational documents, as
applicable) or other constituent documents of such party, (B) conflict with,
constitute a default under or result in the breach of any agreement, judgment,
injunction, order, decree, document or instrument binding on such Loan Party or
(C) violate or require any governmental or regulatory authorization or other
action under any provision of law, rule or regulation applicable to the Loan
Parties other than New York law or United States Federal law applicable to
borrowers or pledgors generally.  We
have also assumed that the Credit and Reimbursement Agreement is the legal,
valid and binding obligation of each Bank Party, enforceable against such Bank
Party, as the case may be, in accordance with its terms.

 

Based upon the
foregoing examination and assumptions and upon such other investigation as we
have deemed necessary and subject to the qualifications set forth below, we are
of the following opinions:

 

1.  Each of the Credit and
Reimbursement Agreement and the Closing Date Notes is the legal, valid and
binding obligation of each Loan Party party thereto, enforceable against each
such Loan Party in accordance with its terms.

 

2.  The Security Agreement is
the legal, valid and binding obligation of the Borrower, enforceable against
the Borrower in accordance with its terms, and, to the extent that the Borrower
has rights in the “Collateral” referred to in the Security Agreement (as to
which we express no opinion), continues to create a valid security interest
enforceable against the Borrower with respect to such Security Agreement
Collateral as security for the payment of the Secured Obligations (as defined
in the Collateral Trust Agreement).  We
express no opinion as to matters of perfection or priority of such security
interest, and refer you to the New York Opinion and the Delaware Opinion with
regard to such matters to the extent covered therein.

 

Our opinions above are subject to the following qualifications:

 

2

 

(i)  Our opinions above are
subject to the effect of any applicable bankruptcy, insolvency (including,
without limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or similar law affecting creditors’ rights generally.

 

(ii)  Our opinions above are
also subject to the effect of general principles of equity, including, without
limitation, concepts of materiality, reasonableness, good faith and fair
dealing (regardless of whether considered in a proceeding in equity or at
law).  Further, pursuant to such
equitable principles, any provisions of the Transaction Documents which provide
that the grant of a security interest shall not be affected by changes in or
amendments to the Transaction Documents might be enforceable only to the extent
that such changes or amendments were not so material as to constitute a new
contract among the parties.

 

(iii)  We express no opinion as
to the creation of any security interest in Collateral that is excluded from
Article 9 of the New York Uniform Commercial Code under § 9-109(c) and (d)
thereof.

 

(iv)  We express no opinion as
to enforceability of indemnification provisions in the Transaction Documents to
the extent that enforcement thereof is contrary to public policy regarding the
exculpation of criminal violations, intentional harm and acts of gross
negligence or recklessness.

 

(v)  Our opinion in paragraph 2
above is also subject to the effect of applicable law that may limit the
enforceability or render ineffective certain of the provisions of the Security
Agreement, although the inclusion of such provisions does not affect the
validity of the Security Agreement as a whole, and there exist legally adequate
remedies for a realization of the principle benefits afforded thereby.

 

(vi)  Our opinions expressed
above are limited to the law of the State of New York and the Federal law of
the United States, and we do not express any opinion herein concerning any
other law.  Without limiting the
generality of the foregoing, we express no opinion as to the effect of the law
of any jurisdiction other than the State of New York wherein any Bank Party may
be located or wherein enforcement of the Credit and Reimbursement Agreement or
any other Transaction Document may be sought that limits the rates of interest
legally chargeable or collectible.

 

A copy of this
opinion letter may be delivered by any of you to any Person that becomes a Bank
Party in accordance with the provisions of the Credit and Reimbursement
Agreement. Any such Bank Party may rely on the opinions expressed above as if
this opinion letter were addressed and delivered to such Bank Party on the date
hereof.

 

This opinion
letter speaks only as of the date hereof. 
We expressly disclaim any responsibility to advise you or any other Bank
Party who is permitted to rely on any opinion expressed herein as specified in
the next preceding paragraph of any development or circumstance of any kind
including any change of law or fact that may occur after the date of this
opinion letter even though such development may affect the legal analysis, a
legal conclusion or

 

3

 

any other matter set forth in
or relating to this opinion letter. 
Accordingly, any Bank Party relying on this opinion letter at any time
should seek advice of its counsel as to the proper application of this opinion
letter at such time.

 

	
   

  	
  Very truly
  yours,

  

 

MEO:gi:mar

 

4

 

EXHIBIT C-1 to the

Third Amended and Restated Credit

and Reimbursement Agreement

 

FORM OF REVOLVING CREDIT LOAN FACILITY
ASSIGNMENT AND ASSUMPTION AGREEMENT

 

AGREEMENT
dated as of
                
    , 200   among [ASSIGNOR] (the “Assignor”), [ASSIGNEE] (the “Assignee”), each Revolving Fronting Bank
and, as required pursuant to the terms of the Credit Agreement (as defined
below), THE AES CORPORATION (the “Borrower”),
and CITICORP USA, Inc., as Administrative Agent (the “Agent”).

 

W I T N E S S E T H

 

WHEREAS, this
Assignment and Assumption Agreement (the “Agreement”)
relates to the Third Amended and Restated Credit and Reimbursement Agreement
(the “Credit and Reimbursement Agreement”) dated as of March 17, 2004 among the
Borrower, the Subsidiary Guarantors party thereto, the Banks party thereto, the
Agent and Citibank, N.A., as Collateral Agent; and

 

WHEREAS, the
Assignor proposes to assign to the Assignee all of the rights of the Assignor
under the Credit and Reimbursement Agreement in respect of a portion of its
Revolving Credit Loan Commitment thereunder in an amount equal to
$                      
(the “Assigned Amount”), together with a corresponding portion of its
outstanding Revolving Credit Loans and participating interests in outstanding
Revolving Letter of Credit Liabilities, and the Assignee proposes to accept
assignment of such rights and assume the corresponding obligations from the
Assignor on such terms;

 

NOW,
THEREFORE, in consideration of the foregoing and the mutual agreements
contained herein, the parties hereto agree as follows:

 

1.   Definitions.  All capitalized terms not otherwise defined
herein shall have the respective meanings set forth in the Credit and
Reimbursement Agreement.

 

2.   Assignment.  The Assignor hereby assigns and sells to the
Assignee all or a proportionate part of all of the rights of the Assignor under
the Credit and Reimbursement Agreement and the other Financing Documents to the
extent of the Assigned Amount, in each case in an amount not less than
$1,000,000 (or such lesser amount as may be agreed to by the Borrower and the
Agent) (except in the case of an assignment which will result in a group of
Banks which are managed by the Assignor holding a Revolving Credit Loan
Commitment of not less than $1,000,000), and the Assignee hereby accepts such
assignment from the Assignor and assumes all of the obligations of the Assignor
under the Credit and Reimbursement Agreement and the other Financing Documents
to the extent of the Assigned Amount, including the purchase from the Assignor
of the corresponding portion of the principal amount of the Revolving Credit

 

 

Loans made by the Assignor
outstanding at the date hereof and the corresponding portion of participating
interests purchased by the Assignor in Revolving Letter of Credit Liabilities
outstanding on the date hereof.  Upon
the execution and delivery hereof by the Assignor, the Assignee, each Revolving
Fronting Bank and, as required pursuant to the terms of the Credit and
Reimbursement Agreement, the Borrower and the Agent, and the payment of the
amounts specified in Section 3 hereof required to be paid on the date hereof,
(i) the Assignee shall, as of the date hereof, succeed to the rights and be
obligated to perform the obligations of a Bank Party under the Credit and
Reimbursement Agreement with a Revolving Credit Loan Commitment in an amount
equal to the Assigned Amount and (ii) the Revolving Credit Loan Commitment of
the Assignor shall, as of the date hereof, be reduced by a like amount and the
Assignor shall be released from its obligations under the Credit and
Reimbursement Agreement to the extent such obligations have been assumed by the
Assignee.

 

3.   Payments.  As consideration for the assignment and sale
contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the
date hereof in lawful money of the United States of America the amount
heretofore agreed between them.(1)  It
is understood that commitment fees and/or letter of credit commissions accrued
to the date hereof are for the account of the Assignor, and each of the
Assignor and the Assignee hereby agrees that if it receives any amount under
the Credit and Reimbursement Agreement which is for the account of the other
party hereto, it shall receive the same for the account of such other party to
the extent of such other party’s interest therein and shall promptly pay the
same to such other party.

 

4.   Consent
of the Revolving Fronting Banks, the Borrower and the Agent.  This Agreement is conditioned upon the
consent of each Revolving Fronting Bank and, as required pursuant to the terms
of the Credit and Reimbursement Agreement, the Borrower and the Agent.  The execution of this Agreement by each
Revolving Fronting Bank and, as required pursuant to the terms of the Credit
and Reimbursement Agreement, the Borrower and the Agent is evidence of this
consent.

 

5.   Non-Reliance
on Assignor.  The Assignor makes no
representation or warranty in connection with, and shall have no responsibility
with respect to, the solvency, financial condition, or statements of any
Obligor, or the validity and enforceability of the Obligations of any Obligor
in respect of the Credit and Reimbursement Agreement or any other Financing
Document.  The Assignee acknowledges
that it has, independently and without reliance on the Assignor, any other Bank
Party, any Revolving Credit Loan Bank or the Agent, and based on such documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement and will continue to be responsible for
making its own independent appraisal of the business, affairs and financial
condition of the Borrower.

 

(1)                                  Amount
should combine principal together with accrued interest and breakage
compensation, if any, to be paid by the Assignee, net of any portion of any
upfront fee to be paid by the Assignor to the Assignee.  It may be preferable in an appropriate case
to specify these amounts generically or by formula rather than as a fixed sum.

 

 

6.   Governing
Law.  This Agreement shall be
governed by and construed in accordance with the laws of the State of New York.

 

7.   Counterparts.  This
Agreement may be signed in any number of counterparts, each of which shall be
an original, with the same effect as if the signatures thereto and hereto were
upon the same instrument.

 

 

IN WITNESS WHEREOF, the parties have caused this Assignment and
Assumption Agreement to be executed and delivered by their duly authorized
officers as of the date first above written.

 

	
   

  	
  [ASSIGNOR]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  [ASSIGNEE]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  [EACH
  REVOLVING FRONTING BANK]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  [CITICORP
  USA, Inc., as Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:](2)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  [THE AES
  CORPORATION, as Borrower

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:](2)

  

 

(2)  As required pursuant to the terms of the Credit Agreement.

 

 

EXHIBIT C-2 to the

Third Amended and Restated Credit

and Reimbursement Agreement

 

FORM OF TERM LOAN FACILITY ASSIGNMENT AND
ASSUMPTION AGREEMENT

 

AGREEMENT
dated as of
                  
   , 200   among [ASSIGNOR] (the “Assignor”), [ASSIGNEE] (the “Assignee”) and CITICORP USA, Inc., as
Administrative Agent (the “Agent”).

 

W I T N E S S E T H

 

WHEREAS, this
Assignment and Assumption Agreement (the “Agreement”)
relates to the Third Amended and Restated Credit and Reimbursement Agreement
(the “Credit and Reimbursement Agreement”)
dated as of March 17, 2004 among The AES Corporation (the “Borrower”), the Subsidiary Guarantors party
thereto, the Banks party thereto, the Agent and Citibank, N.A., as Collateral
Agent; and

 

WHEREAS, the
Assignor proposes to assign to the Assignee all of the rights of the Assignor
under Credit and Reimbursement Agreement in respect of all or a portion of its
outstanding Term Loan in an amount equal to
$                       
(the “Assigned Amount”) and the
Assignee proposes to accept assignment of such rights and assume the
corresponding obligations from the Assignor on such terms;

 

NOW,
THEREFORE, in consideration of the foregoing and the mutual agreements
contained herein, the parties hereto agree as follows:

 

1.   Definitions.  All capitalized terms not otherwise defined
herein shall have the respective meanings set forth in the Credit and
Reimbursement Agreement.

 

2.   Assignment.  The Assignor hereby assigns and sells to the
Assignee all or a proportionate part of all of the rights of the Assignor under
the Credit and Reimbursement Agreement and the other Financing Documents to the
extent of the Assigned Amount, in each case in an amount not less than
$1,000,000 (or such lesser amount as may be agreed to by the Borrower and the
Agent) (except in the case of an assignment which will result in a group of
Banks which are managed by the Assignor holding a Term Loan Commitment of not
less than $1,000,000), and the Assignee hereby accepts such assignment from the
Assignor and assumes all of the obligations of the Assignor under the Credit
and Reimbursement Agreement and the other Financing Documents to the extent of
the Assigned Amount, including the purchase from the Assignor of the
corresponding portion of the Term Loan. 
Upon the execution and delivery hereof by the Assignor, the Assignee and
the Agent, and the payment of the amounts specified in Section 3 hereof
required to be paid on the date hereof, (i) the Assignee shall, as of the date

 

 

hereof, succeed to the rights
and be obligated to perform the obligations of a Bank Party under the Credit
and Reimbursement Agreement with a Term Loan in an amount equal to the Assigned
Amount, and (ii) the Assignor shall be released from its obligations under the
Credit and Reimbursement Agreement to the extent such obligations have been
assumed by the Assignee.

 

3.   Payments.  As consideration for the assignment and sale
contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the
date hereof in lawful money of the United States of America the amount
heretofore agreed between them. (1) It is understood that commitment fees
and/or letter of credit commissions accrued to the date hereof are for the
account of the Assignor, and each of the Assignor and the Assignee hereby
agrees that if it receives any amount under the Credit and Reimbursement
Agreement which is for the account of the other party hereto, it shall receive
the same for the account of such other party to the extent of such other
party’s interest therein and shall promptly pay the same to such other party.

 

4.   Consent
of the Agent.  This Agreement is
conditioned upon the consent of the Agent. 
The execution of this Agreement by the Agent is evidence of this
consent.

 

5.   Non-Reliance
on Assignor.  The Assignor makes no
representation or warranty in connection with, and shall have no responsibility
with respect to, the solvency, financial condition, or statements of any
Obligor, or the validity and enforceability of the Obligations of any Obligor
in respect of the Credit and Reimbursement Agreement or any other Financing
Document.  The Assignee acknowledges
that it has, independently and without reliance on the Assignor, any other Bank
Party and the Agent, and based on such documents and information as it has
deemed appropriate, made its own credit analysis and decision to enter into
this Agreement and will continue to be responsible for making its own
independent appraisal of the business, affairs and financial condition of the
Borrower.

 

6.   Governing
Law.  This Agreement shall be
governed by and construed in accordance with the laws of the State of New York.

 

7.   Counterparts.  This
Agreement may be signed in any number of counterparts, each of which shall be
an original, with the same effect as if the signatures thereto and hereto were
upon the same instrument.

 

[SIGNATURE PAGES IMMEDIATELY FOLLOW]

 

 

(1)                                  Amount
should combine principal together with accrued interest and breakage
compensation, if any, to be paid by the Assignee, net of any portion of any
upfront fee to be paid by the Assignor to the Assignee.  It may be preferable in an appropriate case
to specify these amounts generically or by formula rather than as a fixed sum.

 

 

IN WITNESS WHEREOF, the parties have caused this Assignment and
Assumption Agreement to be executed and delivered by their duly authorized
officers as of the date first above written.

 

	
   

  	
  [ASSIGNOR]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  [ASSIGNEE]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CITICORP
  USA, Inc., as Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  

 

 

EXHIBIT C-3 to the

Third Amended and Restated Credit

and Reimbursement Agreement

 

FORM OF THIRD PARTY FRONTING BANK ASSIGNMENT

AND ASSUMPTION AGREEMENT

 

AGREEMENT dated as of
                 
   , 200   among [ASSIGNOR] (the “Assignor”), [ASSIGNEE] (the “Assignee”), THE AES CORPORATION (the “Borrower”) and CITICORP USA, Inc., as
Administrative Agent (the “Agent”).

 

W I T N E S S E T H

 

WHEREAS, this Assignment and Assumption Agreement (the “Agreement”) relates to the Third Amended
and Restated Credit and Reimbursement Agreement (the “Credit and Reimbursement Agreement”) dated
as of March 17, 2004 among the Borrower, the Subsidiary Guarantors party
thereto, the Banks party thereto, and the Agent; and

 

WHEREAS, the Assignor proposes to assign to the Assignee all (and not
less than all) of the rights and obligations of the Assignor under the Credit
and Reimbursement Agreement (the “Assigned
Amount”) and the Assignee proposes to accept assignment of such
rights and assume the corresponding obligations from the Assignor on such
terms;

 

NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereto agree as follows:

 

1.   Definitions.  All capitalized terms not otherwise defined
herein shall have the respective meanings set forth in the Credit and
Reimbursement Agreement.

 

2.   Assignment.  The Assignor hereby assigns and sells to the
Assignee all but not less than all of the rights of the Assignor under the
Credit and Reimbursement Agreement and the other Financing Documents to the
extent of the Assigned Amount, and the Assignee hereby accepts such assignment
from the Assignor and assumes all of the obligations of the Assignor under the
Credit and Reimbursement Agreement and the other Financing Documents to the
extent of the Assigned Amount.  Upon the
execution and delivery hereof by the Assignor, the Assignee, the Borrower and the
Agent, and the payment of the amounts specified in Section 3 hereof required to
be paid on the date hereof, (i) the Assignee shall, as of the date hereof,
succeed to the rights and be obligated to perform the obligations of a
Revolving Fronting Bank under the Credit and Reimbursement Agreement with
Revolving Letter of Credit Liabilities in an amount equal to the Assigned
Amount and (ii) Revolving Letter of Credit Liabilities of the Assignor shall,
as of the date hereof, be reduced by a like amount and the Assignor shall be
released from

 

 

its obligations under the
Credit and Reimbursement Agreement to the extent such obligations have been
assumed by the Assignee.

 

3.             Payments.  As consideration for the assignment and sale
contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the
date hereof in lawful money of the United States of America the amount
heretofore agreed between them. 
(1)  It is understood that
commitment fees and/or letter of credit commissions accrued to the date hereof
are for the account of the Assignor, and each of the Assignor and the Assignee
hereby agrees that if it receives any amount under the Credit and Reimbursement
Agreement which is for the account of the other party hereto, it shall receive
the same for the account of such other party to the extent of such other
party’s interest therein and shall promptly pay the same to such other party.

 

4.             Consent of the
Borrower and the Agent.  This
Agreement is conditioned upon the consent of the Borrower and the Agent.  The execution of this Agreement by the
Borrower and the Agent is evidence of this consent.

 

5.             Non-Reliance on
Assignor.  The Assignor makes no
representation or warranty in connection with, and shall have no responsibility
with respect to, the solvency, financial condition, or statements of any
Obligor, or the validity and enforceability of the Obligations of any Obligor
in respect of the Credit and Reimbursement Agreement or any other Financing
Document.  The Assignee acknowledges
that it has, independently and without reliance on the Assignor, any other Bank
Party or the Agent, and based on such documents and information as it has
deemed appropriate, made its own credit analysis and decision to enter into
this Agreement and will continue to be responsible for making its own
independent appraisal of the business, affairs and financial condition of the
Borrower.

 

6.             Governing Law.  This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.

 

7.             Counterparts.  This
Agreement may be signed in any number of counterparts, each of which shall be
an original, with the same effect as if the signatures thereto and hereto were
upon the same instrument.

 

[SIGNATURE PAGES IMMEDIATELY FOLLOW]

 

 

(1)                                  Amount
should combine principal together with accrued interest and breakage
compensation, if any, to be paid by the Assignee, net of any portion of any
upfront fee to be paid by the Assignor to the Assignee.  It may be preferable in an appropriate case
to specify these amounts generically or by formula rather than as a fixed sum.

 

 

IN WITNESS
WHEREOF, the parties have caused this Assignment and Assumption Agreement to be
executed and delivered by their duly authorized officers as of the date first
above written.

 

	
   

  	
  [ASSIGNOR]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  [ASSIGNEE]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  THE AES
  CORPORATION, as Borrower

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  CITICORP
  USA, Inc., as Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  

 

 

EXHIBIT D to the

Third Amended and Restated

Credit and Reimbursement Agreement

 

FORM OF REVOLVING FRONTING BANK AGREEMENT

 

               
    , 200  

 

Citicorp USA, Inc., as Agent

388 Greenwich Street, 21st Floor

New York, New York 10013

 

Attention:  Stuart Glen

 

Ladies and Gentlemen:

 

Reference is
hereby made to the Third Amended and Restated Credit and Reimbursement
Agreement dated as of March 17, 2004 (as amended, amended and restated,
supplemented or otherwise modified from time to time, the “Credit Agreement”) among The AES Corporation,
a Delaware corporation (the “Borrower”), the Subsidiary Guarantors party thereto, the
Banks party thereto, Citibank, N.A., as Collateral Agent and Citicorp USA,
Inc., as Agent.  The capitalized terms
defined in the Credit Agreement and not otherwise defined herein are used
herein as therein defined.

 

Section
1.  Obligations Under the Credit
Agreement.  The undersigned hereby
agrees, as of the date first above written, to be bound as a Revolving Fronting
Bank by all of the terms and conditions of the Credit Agreement to the same
extent as each of the other Revolving Fronting Banks thereunder and agrees to
issue letters of credit in an aggregate Available Amount not to exceed
$[               ]
at any time outstanding pursuant to and in accordance with Section 2.03 of the
Credit Agreement.  The undersigned
further agrees, as of the date first above written, that each reference in the
Credit Agreement to a “Revolving Fronting Bank” shall also mean and be a
reference to the undersigned, and each reference in any other Financing
Document to a “Lender Party”
shall also mean and be a reference to the undersigned in its capacity as
Revolving Fronting Bank.

 

Section
2.  Representations and Warranties.  The undersigned hereby represents and
warrants that it (i) is a Revolving Credit Loan Bank under the Credit Agreement
or (ii) meets the definition of a “Third Party Fronting Bank”, as defined in
the Credit Agreement.

 

Section
3.  Delivery by Telecopier.  Delivery of an executed counterpart of a
signature page to this Revolving Fronting Bank Agreement by telecopier shall be
effective as delivery of an original executed counterpart of this Revolving
Fronting Bank Agreement.

 

Section 4.  Non-Reliance.  The undersigned acknowledges
that it has, independently and without reliance on any Revolving Fronting Bank,
any other Bank Party and

 

 

the Agent, and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement and will continue to be
responsible for making its own independent appraisal of the business, affairs
and financial condition of the Borrower.

 

Section
5.  Governing Law; Jurisdiction;
Waiver of Jury Trial, Etc.  This
Revolving Fronting Bank Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York.

 

 

	
   

  	
  Very truly
  yours,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  [NAME OF
  REVOLVING FRONTING BANK]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
  Acknowledged
  on the date hereof by:

  	
   

  
	
   

  	
   

  
	
  CITICORP
  USA, INC., as Agent

  	
   

  
	
   

  	
   

  
	
  By

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:Exhibit 4.1

 

 

MERITAGE CORPORATION,

 

THE GUARANTORS named herein

and

WELLS FARGO BANK, National Association, as Trustee

 

 

INDENTURE

Dated as of April 21, 2004

 

 

7% Senior Notes due 2014

 

 

 

CROSS-REFERENCE TABLE

 

	
  TIA

  Section

  	
   

  	
   

  	
  Indenture

  Section

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  310 

  	
  (a)(1)

  	
   

  	
   

  	
  7.10

  
	
   

  	
  (a)(2)

  	
   

  	
   

  	
  7.10

  
	
   

  	
  (a)(3)

  	
   

  	
   

  	
  N.A.

  
	
   

  	
  (a)(4)

  	
   

  	
   

  	
  N.A.

  
	
   

  	
  (a)(5)

  	
   

  	
   

  	
  N.A.

  
	
   

  	
  (b)

  	
   

  	
   

  	
  7.08; 7.10; 12.02

  
	
   

  	
  (b)(1)

  	
   

  	
   

  	
  7.10

  
	
   

  	
  (c)

  	
   

  	
   

  	
  N.A.

  
	
  311 

  	
  (a)

  	
   

  	
   

  	
  7.11

  
	
   

  	
  (b)

  	
   

  	
   

  	
  7.11

  
	
   

  	
  (c)

  	
   

  	
   

  	
  N.A.

  
	
  312 

  	
  (a)

  	
   

  	
   

  	
  2.06

  
	
   

  	
  (b)

  	
   

  	
   

  	
  12.03

  
	
   

  	
  (c)

  	
   

  	
   

  	
  12.03

  
	
  313 

  	
  (a)

  	
   

  	
   

  	
  7.06

  
	
   

  	
  (b)(1)

  	
   

  	
   

  	
  N.A.

  
	
   

  	
  (b)(2)

  	
   

  	
   

  	
  7.06

  
	
   

  	
  (c)

  	
   

  	
   

  	
  7.06; 12.02

  
	
   

  	
  (d)

  	
   

  	
   

  	
  7.06

  
	
  314 

  	
  (a)

  	
   

  	
   

  	
  4.02; 4.04; 12.02

  
	
   

  	
  (b)

  	
   

  	
   

  	
  N.A.

  
	
   

  	
  (c)(1)

  	
   

  	
   

  	
  12.04

  
	
   

  	
  (c)(2)

  	
   

  	
   

  	
  12.04

  
	
   

  	
  (c)(3)

  	
   

  	
   

  	
  N.A.

  
	
   

  	
  (d)

  	
   

  	
   

  	
  N.A.

  
	
   

  	
  (e)

  	
   

  	
   

  	
  12.05

  
	
   

  	
  (f)

  	
   

  	
   

  	
  N.A.

  
	
  315 

  	
  (a)

  	
   

  	
   

  	
  7.01(b)

  
	
   

  	
  (b)

  	
   

  	
   

  	
  7.05; 12.02

  
	
   

  	
  (c)

  	
   

  	
   

  	
  7.01(a)

  
	
   

  	
  (d)

  	
   

  	
   

  	
  7.01(c)

  
	
   

  	
  (e)

  	
   

  	
   

  	
  6.12

  
	
  316 

  	
  (a) (last sentence)

  	
   

  	
   

  	
  2.10

  
	
   

  	
  (a)(1)(A)

  	
   

  	
   

  	
  6.05

  
	
   

  	
  (a)(1)(B)

  	
   

  	
   

  	
  6.04

  
	
   

  	
  (a)(2)

  	
   

  	
   

  	
  N.A.

  
	
   

  	
  (b)

  	
   

  	
   

  	
  6.08

  
	
   

  	
  (c)

  	
   

  	
   

  	
  8.04

  
	
  317 

  	
  (a)(1)

  	
   

  	
   

  	
  6.09

  
	
   

  	
  (a)(2)

  	
   

  	
   

  	
  6.10

  
	
   

  	
  (b)

  	
   

  	
   

  	
  2.05; 7.12

  
	
  318 

  	
  (a)

  	
   

  	
   

  	
  12.01

  

 

N.A. means Not Applicable

Note:                   This Cross-Reference Table shall
not, for any purpose, be deemed to be a part of the Indenture

 

 

TABLE OF CONTENTS

 

	
  ARTICLE ONE

  
	
   

  
	
  DEFINITIONS
  AND INCORPORATION BY REFERENCE

  
	
   

  	
   

  	
   

  
	
  SECTION 1.01.

  	
  Definitions.

  	
   

  
	
  SECTION 1.02.

  	
  Other
  Definitions.

  	
   

  
	
  SECTION 1.03.

  	
  Incorporation
  by Reference of Trust Indenture Act.

  	
   

  
	
  SECTION 1.04.

  	
  Rules
  of Construction.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE TWO

  
	
   

  	
   

  	
   

  
	
  THE NOTES

  
	
   

  	
   

  	
   

  
	
  SECTION 2.01.

  	
  Amount
  of Notes.

  	
   

  
	
  SECTION 2.02.

  	
  Form
  and Dating.

  	
   

  
	
  SECTION 2.03.

  	
  Execution
  and Authentication.

  	
   

  
	
  SECTION 2.04.

  	
  Registrar
  and Paying Agent.

  	
   

  
	
  SECTION 2.05.

  	
  Paying
  Agent To Hold Money in Trust.

  	
   

  
	
  SECTION 2.06.

  	
  Holder
  Lists.

  	
   

  
	
  SECTION 2.07.

  	
  Transfer
  and Exchange.

  	
   

  
	
  SECTION 2.08.

  	
  Replacement
  Notes.

  	
   

  
	
  SECTION 2.09.

  	
  Outstanding
  Notes.

  	
   

  
	
  SECTION 2.10.

  	
  Treasury
  Notes.

  	
   

  
	
  SECTION 2.11.

  	
  Temporary
  Notes.

  	
   

  
	
  SECTION 2.12.

  	
  Cancellation.

  	
   

  
	
  SECTION 2.13.

  	
  Defaulted
  Interest.

  	
   

  
	
  SECTION 2.14.

  	
  CUSIP
  Number.

  	
   

  
	
  SECTION 2.15.

  	
  Deposit of
  Moneys.

  	
   

  
	
  SECTION 2.16.

  	
  Book-Entry
  Provisions for Global Notes.

  	
   

  
	
  SECTION 2.17.

  	
  Special
  Transfer Provisions.

  	
   

  
	
  SECTION 2.18.

  	
  Computation
  of Interest.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE THREE

  
	
   

  	
   

  	
   

  
	
  REDEMPTION

  
	
   

  	
   

  	
   

  
	
  SECTION 3.01.

  	
  Election To
  Redeem; Notices to Trustee.

  	
   

  
	
  SECTION 3.02.

  	
  Selection
  by Trustee of Notes To Be Redeemed.

  	
   

  
	
  SECTION 3.03.

  	
  Notice of
  Redemption.

  	
   

  

 

i

 

	
  SECTION 3.04.

  	
  Effect of
  Notice of Redemption.

  	
   

  
	
  SECTION 3.05.

  	
  Deposit of
  Redemption Price.

  	
   

  
	
  SECTION 3.06.

  	
  Notes
  Redeemed in Part.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE FOUR

  
	
   

  	
   

  	
   

  
	
  COVENANTS

  
	
   

  	
   

  	
   

  
	
  SECTION 4.01.

  	
  Payment of
  Notes.

  	
   

  
	
  SECTION 4.02.

  	
  Reports to
  Holders.

  	
   

  
	
  SECTION 4.03.

  	
  Waiver of
  Stay, Extension or Usury Laws.

  	
   

  
	
  SECTION 4.04.

  	
  Compliance
  Certificate.

  	
   

  
	
  SECTION 4.05.

  	
  Taxes.

  	
   

  
	
  SECTION 4.06.

  	
  Limitations
  on Additional Indebtedness.

  	
   

  
	
  SECTION 4.07.

  	
  Limitations
  on Layering Indebtedness.

  	
   

  
	
  SECTION 4.08.

  	
  Limitations
  on Restricted Payments.

  	
   

  
	
  SECTION 4.09.

  	
  Limitations
  on Asset Sales.

  	
   

  
	
  SECTION 4.10.

  	
  Limitations
  on Transactions with Affiliates.

  	
   

  
	
  SECTION 4.11.

  	
  Limitations
  on Liens.

  	
   

  
	
  SECTION 4.12.

  	
  Conduct of
  Business.

  	
   

  
	
  SECTION 4.13.

  	
  Additional
  Note Guarantees.

  	
   

  
	
  SECTION 4.14.

  	
  Limitations on Dividend and Other
  Restrictions Affecting Restricted Subsidiaries.

  	
   

  
	
  SECTION 4.15.

  	
  Limitations
  on Designation of Unrestricted Subsidiaries.

  	
   

  
	
  SECTION 4.16.

  	
  Maintenance
  of Consolidated Tangible Net Worth.

  	
   

  
	
  SECTION 4.17.

  	
  Maintenance
  of Properties; Insurance; Compliance with Law.

  	
   

  
	
  SECTION 4.18.

  	
  Payments
  for Consent.

  	
   

  
	
  SECTION 4.19.

  	
  Legal
  Existence.

  	
   

  
	
  SECTION 4.20.

  	
  Change of
  Control Offer.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE FIVE

  
	
   

  	
   

  	
   

  
	
  SUCCESSOR
  CORPORATION

  
	
   

  	
   

  	
   

  
	
  SECTION 5.01.

  	
  Limitations
  on Mergers, Consolidations, Etc.

  	
   

  
	
  SECTION 5.02.

  	
  Successor
  Person Substituted.

  	
   

  

 

ii

 

	
  ARTICLE SIX

  
	
   

  	
   

  	
   

  
	
  DEFAULTS
  AND REMEDIES

  
	
   

  	
   

  	
   

  
	
  SECTION 6.01.

  	
  Events of
  Default.

  	
   

  
	
  SECTION 6.02.

  	
  Acceleration.

  	
   

  
	
  SECTION 6.03.

  	
  Other
  Remedies.

  	
   

  
	
  SECTION 6.04.

  	
  Waiver of
  Past Defaults and Events of Default.

  	
   

  
	
  SECTION 6.05.

  	
  Control by
  Majority.

  	
   

  
	
  SECTION 6.06.

  	
  Limitation
  on Suits.

  	
   

  
	
  SECTION 6.07.

  	
  No Personal
  Liability of Directors, Officers, Employees and Stockholders.

  	
   

  
	
  SECTION 6.08.

  	
  Rights of
  Holders To Receive Payment.

  	
   

  
	
  SECTION 6.09.

  	
  Collection
  Suit by Trustee.

  	
   

  
	
  SECTION 6.10.

  	
  Trustee May
  File Proofs of Claim.

  	
   

  
	
  SECTION 6.11.

  	
  Priorities.

  	
   

  
	
  SECTION 6.12.

  	
  Undertaking
  for Costs.

  	
   

  
	
  SECTION 6.13.

  	
  Restoration
  of Rights and Remedies.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE SEVEN

  
	
   

  	
   

  	
   

  
	
  TRUSTEE

  
	
   

  	
   

  	
   

  
	
  SECTION 7.01.

  	
  Duties of
  Trustee.

  	
   

  
	
  SECTION 7.02.

  	
  Rights of
  Trustee.

  	
   

  
	
  SECTION 7.03.

  	
  Individual
  Rights of Trustee.

  	
   

  
	
  SECTION 7.04.

  	
  Trustee’s
  Disclaimer.

  	
   

  
	
  SECTION 7.05.

  	
  Notice of
  Defaults.

  	
   

  
	
  SECTION 7.06.

  	
  Reports by
  Trustee to Holders.

  	
   

  
	
  SECTION 7.07.

  	
  Compensation
  and Indemnity.

  	
   

  
	
  SECTION 7.08.

  	
  Replacement
  of Trustee.

  	
   

  
	
  SECTION 7.09.

  	
  Successor
  Trustee by Consolidation, Merger, etc.

  	
   

  
	
  SECTION 7.10.

  	
  Eligibility;
  Disqualification.

  	
   

  
	
  SECTION 7.11.

  	
  Preferential
  Collection of Claims Against Issuer.

  	
   

  
	
  SECTION 7.12.

  	
  Paying
  Agents.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE EIGHT

  
	
   

  	
   

  	
   

  
	
  AMENDMENTS, SUPPLEMENTS AND WAIVERS

  
	
   

  	
   

  	
   

  
	
  SECTION 8.01.

  	
  Without
  Consent of Holders.

  	
   

  

 

iii

 

	
  SECTION 8.02.

  	
  With
  Consent of Holders.

  	
   

  
	
  SECTION 8.03.

  	
  Compliance
  with Trust Indenture Act.

  	
   

  
	
  SECTION 8.04.

  	
  Revocation
  and Effect of Consents.

  	
   

  
	
  SECTION 8.05.

  	
  Notation on
  or Exchange of Notes.

  	
   

  
	
  SECTION 8.06.

  	
  Trustee To
  Sign Amendments, etc.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE NINE

  
	
   

  	
   

  	
   

  
	
  DISCHARGE OF
  INDENTURE; DEFEASANCE

  
	
   

  	
   

  	
   

  
	
  SECTION 9.01.

  	
  Discharge
  of Indenture.

  	
   

  
	
  SECTION 9.02.

  	
  Legal
  Defeasance.

  	
   

  
	
  SECTION 9.03.

  	
  Covenant
  Defeasance.

  	
   

  
	
  SECTION 9.04.

  	
  Conditions
  to Defeasance or Covenant Defeasance.

  	
   

  
	
  SECTION 9.05.

  	
  Deposited Money and U.S. Government
  Obligations To Be Held in Trust; Other Miscellaneous Provisions.

  	
   

  
	
  SECTION 9.06.

  	
  Reinstatement.

  	
   

  
	
  SECTION 9.07.

  	
  Moneys
  Held by Paying Agent.

  	
   

  
	
  SECTION 9.08.

  	
  Moneys
  Held by Trustee.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE TEN

  
	
   

  	
   

  	
   

  
	
  GUARANTEE
  OF NOTES

  
	
   

  	
   

  	
   

  
	
  SECTION 10.01.

  	
  Guarantee.

  	
   

  
	
  SECTION 10.02.

  	
  Execution
  and Delivery of Guarantee.

  	
   

  
	
  SECTION 10.03.

  	
  Limitation
  of Guarantee.

  	
   

  
	
  SECTION 10.04.

  	
  Release
  of Guarantor.

  	
   

  
	
  SECTION 10.05.

  	
  Waiver of
  Subrogation.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE ELEVEN

  
	
   

  	
   

  	
   

  
	
  [INTENTIONALLY
  OMITTED]

  
	
   

  	
   

  	
   

  
	
  ARTICLE TWELVE

  
	
   

  	
   

  	
   

  
	
  MISCELLANEOUS

  
	
   

  	
   

  	
   

  
	
  SECTION 12.01.

  	
  Trust
  Indenture Act Controls.

  	
   

  
	
  SECTION 12.02.

  	
  Notices.

  	
   

  

 

iv

 

	
  SECTION 12.03.

  	
  Communications
  by Holders with Other Holders.

  	
   

  
	
  SECTION 12.04.

  	
  Certificate
  and Opinion as to Conditions Precedent.

  	
   

  
	
  SECTION 12.05.

  	
  Statements
  Required in Certificate and Opinion.

  	
   

  
	
  SECTION 12.06.

  	
  Rules by
  Trustee and Agents.

  	
   

  
	
  SECTION 12.07.

  	
  Business
  Days; Legal Holidays.

  	
   

  
	
  SECTION 12.08.

  	
  Governing
  Law.

  	
   

  
	
  SECTION 12.09.

  	
  No
  Adverse Interpretation of Other Agreements.

  	
   

  
	
  SECTION 12.10.

  	
  No
  Recourse Against Others.

  	
   

  
	
  SECTION 12.11.

  	
  Successors.

  	
   

  
	
  SECTION 12.12.

  	
  Multiple
  Counterparts.

  	
   

  
	
  SECTION 12.13.

  	
  Table of
  Contents, Headings, etc.

  	
   

  
	
  SECTION 12.14.

  	
  Separability.

  	
   

  
	
   

  	
   

  	
   

  
	
  EXHIBITS

  
	
   

  	
   

  	
   

  
	
  Exhibit A.

  	
  Form of Note

  	
   

  
	
  Exhibit B.

  	
  Form
  of Legend for Rule 144A Notes and Other Notes That Are Restricted Notes

  	
   

  
	
  Exhibit C.

  	
  Form of Legend
  for Regulation S Note

  	
   

  
	
  Exhibit D.

  	
  Form of Legend
  for Global Note

  	
   

  
	
  Exhibit E.

  	
  Form
  of Certificate To Be Delivered in Connection with Transfers to Non-QIB
  Accredited Investors

  	
   

  
	
  Exhibit F.

  	
  Form
  of Certificate To Be Delivered in Connection with Transfers Pursuant to
  Regulation S

  	
   

  
	
  Exhibit G.

  	
  Form of Guarantee

  	
   

  

 

v

 

INDENTURE, dated as of
April 21, 2004, among MERITAGE CORPORATION, a Maryland corporation, as
issuer (the “Issuer”), the Guarantors (as hereinafter defined) and WELLS
FARGO BANK, NATIONAL ASSOCIATION, as trustee (the “Trustee”).

 

Each party agrees as
follows for the benefit of the other parties and for the equal and ratable
benefit of the Holders.

 

ARTICLE ONE

 

DEFINITIONS AND
INCORPORATION BY REFERENCE

 

SECTION 1.01.                                                                 Definitions.

 

“Acquired Indebtedness”
means (1) with respect to any Person that becomes a Restricted Subsidiary after
the Issue Date, Indebtedness of such Person and its Subsidiaries existing at
the time such Person becomes a Restricted Subsidiary that was not incurred in
connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary and (2) with respect to the Issuer or any Restricted Subsidiary, any
Indebtedness of a Person (other than the Issuer or a Restricted Subsidiary)
existing at the time such Person is merged with or into the Issuer or a
Restricted Subsidiary, or Indebtedness expressly assumed by the Issuer or any
Restricted Subsidiary in connection with the acquisition of an asset or assets
from another Person, which Indebtedness was not, in any case, incurred by such
other Person in connection with, or in contemplation of, such merger or acquisition.

 

“Additional Notes”
shall mean an unlimited principal amount of Notes having identical terms and
conditions to the Notes issued pursuant to Article Two and in compliance
with Section 4.06.

 

“Adjusted Net Assets”
of a Guarantor at any date shall mean the lesser of the amount by which
(x) the fair value of the property of such Guarantor exceeds the total
amount of liabilities, including, without limitation, contingent liabilities
(after giving effect to all other fixed and contingent liabilities), but
excluding liabilities under the Guarantee, of such Guarantor at such date and
(y) the present fair salable value of the assets of such Guarantor at such
date exceeds the amount that will be required to pay the probable liability of
such Guarantor on its debts and all other fixed and contingent liabilities
(after giving effect to all other fixed and contingent liabilities and after
giving effect to any collection from any Subsidiary of such Guarantor in
respect of the obligations of such Guarantor under the Guarantee), excluding Indebtedness
in respect of the Guarantee, as they become absolute and matured.

 

 

“Affiliate” of any
Person means any other Person which directly or indirectly controls or is
controlled by, or is under direct or indirect common control with, the referent
Person.  For purposes of
Section 4.10, Affiliates shall be deemed to include, with respect to any
Person, any other Person (1) which beneficially owns or holds, directly or
indirectly, 10% or more of any class of the Voting Stock of the referent
Person, (2) of which 10% or more of the Voting Stock is beneficially owned
or held, directly or indirectly, by the referent Person or (3) with
respect to an individual, any immediate family member of such Person.  For purposes of this definition, “control”
of a Person shall mean 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.

 

“Agent” means any
Registrar, Paying Agent or agent for service or notices and demands.

 

“amend” means to
amend, supplement, restate, amend and restate or otherwise modify; and “amendment”
shall have a correlative meaning.

 

“asset” means any
asset or property.

 

“Asset Acquisition”
means

 

(1)                                  an Investment by the Issuer or any
Restricted Subsidiary of the Issuer in any other Person if, as a result of such
Investment, such Person shall become a Restricted Subsidiary of the Issuer, or
shall be merged with or into the Issuer or any Restricted Subsidiary of the
Issuer, or

 

(2)                                  the acquisition by the Issuer or any
Restricted Subsidiary of the Issuer of all or substantially all of the assets
of any other Person or any division or line of business of any other Person.

 

“Asset Sale” means
any sale, issuance, conveyance, transfer, lease, assignment or other
disposition by the Issuer or any Restricted Subsidiary to any Person other than
the Issuer or any Restricted Subsidiary (including by means of a Sale and
Leaseback Transaction or a merger or consolidation) (collectively, for purposes
of this definition, a “transfer”), in one transaction or a series of
related transactions, of any assets (including Equity Interests) of the Issuer
or any of its Restricted Subsidiaries other than in the ordinary course of
business.  For purposes of this
definition, the term “Asset Sale” shall not include:

 

(1)                                  transfers of cash or Cash Equivalents;

 

(2)                                  transfers of assets (including Equity
Interests) that are governed by, and made in accordance with,
Section 5.01;

 

2

 

(3)                                  Permitted Investments and Restricted
Payments permitted under Section 4.08;

 

(4)                                  the creation or realization of any
Permitted Lien;

 

(5)                                  transactions in the ordinary course of
business, including, without limitation, sales (directly or indirectly),
dedications and other donations to governmental authorities, leases and sales
and leasebacks of (A) homes, improved land and unimproved land and
(B) real estate (including related amenities and improvements);

 

(6)                                  dispositions of mortgage loans and
related assets and mortgage-backed securities in the ordinary course of a
mortgage lending business; and

 

(7)                                  any transfer or series of related
transfers that, but for this clause, would be Asset Sales, if after giving effect
to such transfers, the aggregate Fair Market Value of the assets transferred in
such transaction or any such series of related transactions does not exceed
$1.0 million.

 

“Attributable
Indebtedness”, when used with respect to any Sale and Leaseback Transaction,
means, as at the time of determination, the present value (discounted at a rate
equivalent to the Issuer’s then-current weighted average cost of funds for
borrowed money as at the time of determination, compounded on a semi-annual
basis) of the total obligations of the lessee for rental payments during the
remaining term of any Capitalized Lease included in any such Sale and Leaseback
Transaction.

 

“Bankruptcy Law”
means Title 11 of the United States Code, as amended, or any similar federal or
state law for the relief of debtors.

 

“Board of Directors”
means, with respect to any Person, the board of directors or comparable
governing body of such Person.

 

“Board Resolution”
means a copy of a resolution certified pursuant to an Officers’ Certificate to
have been duly adopted by the Board of Directors of the Issuer and to be in
full force and effect, and delivered to the Trustee.

 

“Borrowing Base” means, at any time of determination, the
sum of the following without duplication:

 

(1)                                  100% of all cash and Cash Equivalents
held by the Issuer or any Restricted Subsidiary;

 

(2)                                  75% of the book value of Developed Land
for which no construction has occurred;

 

3

 

(3)                                  95% of the cost of the land and
construction costs including capitalized interest (as reasonably allocated by
the Issuer) for all Units for which there is an executed purchase contract with
a buyer not Affiliated with the Issuer, less any deposits, down payments or earnest
money;

 

(4)                                  80% of the cost of the land and
construction costs including capitalized interest (as reasonably allocated by
the Issuer) for all Units for which construction has begun and for which there
is not an executed purchase agreement with a buyer not Affiliated with the
Issuer; and

 

(5)                                  50% of the costs of Entitled Land (other
than Developed Land) on which improvements have not commenced, less mortgage
Indebtedness (other than under a Credit Facility) applicable to such land.

 

“Business Day”
means a day other than a Saturday, Sunday or other day on which banking
institutions in New York are authorized or required by law to close.

 

“Capitalized Lease”
means a lease required to be capitalized for financial reporting purposes in
accordance with GAAP.

 

“Capitalized Lease
Obligations” of any Person means the obligations of such Person to pay rent
or other amounts under a Capitalized Lease, and the amount of such obligation
shall be the capitalized amount thereof determined in accordance with GAAP.

 

“Cash Equivalents”
means:

 

(1)                                  marketable obligations with a maturity of
360 days or less issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof;

 

(2)                                  demand and time deposits and certificates
of deposit or acceptances with a maturity of 180 days or less of any financial
institution that is a member of the Federal Reserve System having combined
capital and surplus and undivided profits of not less than $500 million and is
assigned at least a “B” rating by Thomson Financial BankWatch;

 

(3)                                  commercial paper maturing no more than
180 days from the date of creation thereof issued by a corporation that is not
the Issuer or an Affiliate of the Issuer, and is organized under the laws of
any state of the United States of America or the District of Columbia and rated
at least A-1 by S&P or at least P-1 by Moody’s;

 

4

 

(4)                                  repurchase obligations with a term of not
more than ten days for underlying securities of the types described in clause (1)
above entered into with any commercial bank meeting the specifications of
clause (2) above; and

 

(5)                                  investments in money market or other
mutual funds substantially all of whose assets comprise securities of the types
described in clauses (1) through (4) above.

 

“Change of Control”
means the occurrence of any of the following events:

 

(1)                                  any “person” or “group” (as such terms
are used in Sections 13(d) and 14(d) of the Exchange Act), other than one or
more Permitted Holders, is or becomes the beneficial owner (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that for purposes of this clause
that person or group shall be deemed to have “beneficial ownership” of all
securities that any such person or group has the right to acquire, whether such
right is exercisable immediately or only after the passage of time), directly
or indirectly, of Voting Stock representing more than 50% of the voting power
of the total outstanding Voting Stock of the Issuer;

 

(2)                                  during any period of two consecutive
years, individuals who at the beginning of such period constituted the Board of
Directors of the Issuer (together with any new directors whose election to such
Board of Directors or whose nomination for election by the stockholders of the
Issuer was approved by a vote of the majority of the directors of the Issuer
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Board of Directors of the
Issuer;

 

(3)                                  (a) all or substantially all of the
assets of the Issuer and the Restricted Subsidiaries are sold or otherwise
transferred to any Person other than a Wholly-Owned Restricted Subsidiary or
one or more Permitted Holders or (b) the Issuer consolidates or merges with or
into another Person other than a Permitted Holder or any Person other than a
Permitted Holder consolidates or merges with or into the Issuer, in either case
under this clause (3), in one transaction or a series of related transactions
in which immediately after the consummation thereof Persons owning Voting Stock
representing in the aggregate 100% of the total voting power of the Voting
Stock of the Issuer immediately prior to such consummation do not own Voting
Stock representing a majority of the total voting power of the Voting Stock of
the Issuer or the surviving or transferee Person; or

 

(4)                                  the Issuer shall adopt a plan of
liquidation or dissolution or any such plan shall be approved by the stockholders
of the Issuer.

 

5

 

“Consolidated
Amortization Expense” for any period means the amortization expense of the
Issuer and the Restricted Subsidiaries for such period, determined on a consolidated
basis in accordance with GAAP.

 

“Consolidated Cash
Flow Available for Fixed Charges” for any period means, without duplication,
the sum of the amounts for such period of

 

(1)                                  Consolidated Net Income, plus

 

(2)                                  in each case only to the extent (and in
the same proportion) deducted in determining Consolidated Net Income and with
respect to the portion of Consolidated Net Income attributable to any
Restricted Subsidiary only if a corresponding amount would be permitted at the
date of determination to be distributed to the Issuer by such Restricted
Subsidiary without prior approval (that has not been obtained), pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to such
Restricted Subsidiary or its stockholders,

 

(a)                                  Consolidated Income Tax Expense,

 

(b)                                 Consolidated Amortization Expense (but
only to the extent not included in Consolidated Interest Expense),

 

(c)                                  Consolidated Depreciation Expense,

 

(d)                                 Consolidated Interest Expense and
interest and other charges amortized to cost of home sales and cost of land
sales, and

 

(e)                                  all other non-cash items reducing the
Consolidated Net Income (excluding any non-cash charge that results in an
accrual of a reserve for cash charges in any future period) for such period,

 

in each case
determined on a consolidated basis in accordance with GAAP, minus

 

(3)                                  the aggregate amount of all non-cash
items, determined on a consolidated basis, to the extent such items increased
Consolidated Net Income for such period.

 

“Consolidated
Depreciation Expense” for any period means the depreciation expense of the
Issuer and the Restricted Subsidiaries for such period, determined on a consolidated
basis in accordance with GAAP.

 

6

 

“Consolidated Fixed
Charge Coverage Ratio” means the ratio of Consolidated Cash Flow Available
for Fixed Charges during the most recent four consecutive full fiscal quarters
for which financial statements are available (the “Four-Quarter Period”)
ending on or prior to the date of the transaction giving rise to the need to
calculate the Consolidated Fixed Charge Coverage Ratio (the “Transaction
Date”) to Consolidated Interest Incurred for the Four-Quarter Period.  For purposes of this definition,
Consolidated Cash Flow Available for Fixed Charges and Consolidated Interest
Incurred shall be calculated after giving effect on a pro forma basis for the period
of such calculation to:

 

(1)                                  the incurrence of any Indebtedness or the
issuance of any Preferred Stock of the Issuer or any Restricted Subsidiary (and
the application of the proceeds thereof) and any repayment of other
Indebtedness or redemption of other Preferred Stock (and the application of the
proceeds therefrom) (other than the incurrence or repayment of Indebtedness in
the ordinary course of business for working capital purposes pursuant to any
revolving credit arrangement) occurring during the Four-Quarter Period or at
any time subsequent to the last day of the Four-Quarter Period and on or prior
to the Transaction Date, as if such incurrence, repayment, issuance or redemption,
as the case may be (and the application of the proceeds thereof), occurred on
the first day of the Four-Quarter Period; and

 

(2)                                  any Asset Sale or Asset Acquisition
(including, without limitation, any Asset Acquisition giving rise to the need
to make such calculation as a result of the Issuer or any Restricted Subsidiary
(including any Person who becomes a Restricted Subsidiary as a result of such
Asset Acquisition) incurring Acquired Indebtedness and also including any
Consolidated Cash Flow Available for Fixed Charges (including any pro forma
expense and cost reductions calculated on a basis consistent with Regulation
S-X under the Exchange Act) associated with any such Asset Acquisition) occurring
during the Four-Quarter Period or at any time subsequent to the last day of the
Four-Quarter Period and on or prior to the Transaction Date, as if such Asset
Sale or Asset Acquisition or other disposition (including the incurrence of, or
assumption or liability for, any such Indebtedness or Acquired Indebtedness)
occurred on the first day of the Four-Quarter Period.

 

If  the Issuer or any Restricted
Subsidiary directly or indirectly guarantees Indebtedness of a third Person,
the preceding sentence shall give effect to the incurrence of such guaranteed
Indebtedness as if the Issuer or such Restricted Subsidiary had directly incurred
or otherwise assumed such guaranteed Indebtedness.

 

For purposes of calculating
the Consolidated Fixed Charge Coverage Ratio prior to the expiration of the
first Four-Quarter Period subsequent to the Issue Date, such calculation

 

7

 

shall be on the same pro
forma basis as the pro forma financial statements are presented in the Offering
Memorandum.

 

In calculating
Consolidated Interest Incurred for purposes of determining the denominator (but
not the numerator) of the Consolidated Fixed Charge Coverage Ratio:

 

(1)                                  interest on outstanding Indebtedness
determined on a fluctuating basis as of the Transaction Date and which will
continue to be so determined thereafter shall be deemed to have accrued at a
fixed rate per annum equal to the rate of interest on this Indebtedness in
effect on the Transaction Date;

 

(2)                                  if interest on any Indebtedness actually
incurred on the Transaction Date may optionally be determined at an interest
rate based upon a factor of a prime or similar rate, a eurocurrency interbank
offered rate, or other rates, then the interest rate in effect on the
Transaction Date will be deemed to have been in effect during the Four-Quarter
Period; and

 

(3)                                  notwithstanding clause (1) or (2) above,
interest on Indebtedness determined on a fluctuating basis, to the extent such
interest is covered by agreements with a term of at least one year after the
Transaction Date relating to Hedging Obligations, shall be deemed to accrue at
the rate per annum resulting after giving effect to the operation of these agreements.

 

“Consolidated Income
Tax Expense” for any period means the provision for taxes of the Issuer and
the Restricted Subsidiaries, determined on a consolidated basis in accordance
with GAAP.

 

“Consolidated
Indebtedness” means, as of any date, the total Indebtedness of the Issuer
and the Restricted Subsidiaries as of such date, determined on a consolidated basis.

 

“Consolidated Interest
Expense” for any period means the sum, without duplication, of the total
interest expense (other than interest and other charges amortized to cost of
home sales and cost of land sales) of the Issuer and the Restricted
Subsidiaries for such period, determined on a consolidated basis in accordance
with GAAP and including, without duplication,

 

(1)                                  imputed interest on Capitalized Lease
Obligations and Attributable Indebtedness,

 

(2)                                  commissions, discounts and other fees and
charges owed with respect to letters of credit securing financial obligations,
bankers’ acceptance financing and receivables financings,

 

8

 

(3)                                  the net costs associated with Hedging
Obligations,

 

(4)                                  amortization of debt issuance costs, debt
discount or premium and other financing fees and expenses,

 

(5)                                  the interest portion of any deferred
payment obligations,

 

(6)                                  all other non-cash interest expense,

 

(7)                                  the product of (a) all dividend payments
on any series of Disqualified Equity Interests of the Issuer or any Preferred
Stock of any Restricted Subsidiary (other than any such Disqualified Equity
Interests or any Preferred Stock held by the Issuer or a Wholly-Owned
Restricted Subsidiary), multiplied  by (b) a fraction, the numerator of
which is one and the denominator of which is one minus the then current
combined federal, state and local statutory tax rate of the Issuer and the Restricted
Subsidiaries, expressed as a decimal,

 

(8)                                  all interest payable with respect to
discontinued operations, and

 

(9)                                  all interest on any Indebtedness of any
other Person guaranteed by the Issuer or any Restricted Subsidiary.

 

“Consolidated Interest
Incurred” for any period means the sum, without duplication, of
(1) Consolidated Interest Expense and (2) interest capitalized for
such period (including interest capitalized with respect to discontinued
operations but not including interest or other charges amortized to cost of
home sales and cost of land sales).

 

“Consolidated Net
Income” for any period means the net income (or loss) of the Issuer and the
Restricted Subsidiaries for such period determined on a consolidated basis in
accordance with GAAP; provided that there shall be excluded from such
net income (to the extent otherwise included therein), without duplication:

 

(1)                                  the net income (or loss) of any Person
(other than a Restricted Subsidiary) in which any Person other than the Issuer
and the Restricted Subsidiaries has an ownership interest, except to the extent
that cash in an amount equal to any such income has actually been received by
the Issuer or any of its Restricted Subsidiaries during such period;

 

(2)                                  except to the extent includible in the
consolidated net income of the Issuer pursuant to the foregoing clause (1), the
net income (or loss) of any Person that accrued prior to the date that (a) such
Person becomes a Restricted Subsidiary or is 

 

9

 

merged into or
consolidated with the Issuer or any Restricted Subsidiary or (b) the assets of
such Person are acquired by the Issuer or any Restricted Subsidiary;

 

(3)                                  the net income of any Restricted
Subsidiary during such period to the extent that the declaration or payment of
dividends or similar distributions by such Restricted Subsidiary of that income
is not permitted by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Subsidiary during such period;

 

(4)                                  for the purposes of calculating the
Restricted Payments Basket only, in the case of a successor to the Issuer by
consolidation, merger or transfer of its assets, any income (or loss) of the
successor prior to such merger, consolidation or transfer of assets;

 

(5)                                  other than for purposes of calculating
the Restricted Payments Basket, any gain (or loss), together with any related
provisions for taxes on any such gain (or the tax effect of any such loss),
realized during such period by the Issuer or any Restricted Subsidiary upon (a)
the acquisition of any securities, or the extinguishment of any Indebtedness,
of the Issuer or any Restricted Subsidiary or (b) any Asset Sale by the Issuer
or any Restricted Subsidiary; and

 

(6)                                  other than for purposes of calculating
the Restricted Payments Basket, any extraordinary gain (or extraordinary loss),
together with any related provision for taxes on any such extraordinary gain
(or the tax effect of any such extraordinary loss), realized by the Issuer or
any Restricted Subsidiary during such period.

 

In addition, any return
of capital with respect to an Investment that increased the Restricted Payments
Basket pursuant to clause (3)(d) of the first paragraph of Section 4.08 or
decreased the amount of Investments outstanding pursuant to clause (14) of the
definition of “Permitted Investments” shall be excluded from Consolidated Net
Income for purposes of calculating the Restricted Payments Basket.

 

“Consolidated Net
Worth” means, with respect to any Person as of any date, the consolidated
stockholders’ equity of such Person, determined on a consolidated basis in
accordance with GAAP, less (without duplication) (1) any amounts
thereof attributable to Disqualified Equity Interests of such Person or its
Subsidiaries or any amount attributable to Unrestricted Subsidiaries and
(2) all write-ups (other than write-ups resulting from foreign currency
translations and write-ups of tangible assets of a going concern business made
within twelve months after the acquisition of such business) subsequent to the
Issue Date in the book value of any asset owned by such Person or a Subsidiary
of such Person.

 

10

 

“Consolidated Tangible
Assets” means, as of any date, the total amount of assets of the Issuer and
the Restricted Subsidiaries on a consolidated basis at the end of the fiscal
quarter immediately preceding such date, as determined in accordance with GAAP,
less (1) Intangible Assets and (2) any assets securing Non-Recourse
Indebtedness.

 

“Consolidated Tangible
Net Worth” means, with respect to any Person as of any date, the
Consolidated Net Worth of such Person as of such date less (without
duplication) all Intangible Assets of such Person as of such date.

 

“Corporate Trust
Office” means the office of the Trustee at which at any particular time its
corporate trust business shall be principally administered, which office at the
date of execution is located at Wells Fargo Bank, National Association,
Corporate Trust Department, 707 Wilshire Boulevard, 17th Floor, Los Angeles,
California 90017.

 

“Credit Facilities”
means the Credit Agreement, dated as of December 12, 2002, as amended,
among the Issuer, Guaranty Bank, as administrative agent and swingline lender,
Bank One, NA, as syndication agent, Fleet National Bank, as documentation
agent, and the other lenders party thereto, including any notes, guarantees,
collateral and security documents, instruments and agreements executed in connection
therewith (including Hedging Obligations related to the Indebtedness incurred
thereunder), and in each case as amended or refinanced from time to time,
including any agreement extending the maturity of, refinancing, replacing or
otherwise restructuring (including increasing the amount of borrowings or other
Indebtedness outstanding or available to be borrowed thereunder) all or any
portion of the Indebtedness under such agreements, and any successor or
replacement agreement or agreements with the same or any other agents,
creditor, lender or group of creditors or lenders.

 

“Custodian” means
any receiver, trustee, assignee, liquidator or similar official under any
Bankruptcy Law.

 

“Default” means
(1) any Event of Default or (2) any event, act or condition that,
after notice or the passage of time or both, would be an Event of Default.

 

“Depository”
means, with respect to the Notes issued in the form of one or more Global
Notes, The Depository Trust Company or another Person designated as Depository
by the Issuer, which Person must be a clearing agency registered under the Exchange
Act.

 

“Designation”
has the meaning given to this term in Section 4.15.

 

“Designation Amount” has
the meaning given to this term in Section 4.15.

 

“Developed Land” means all Entitled Land of the Issuer
and its Restricted Subsidiaries which is undergoing active development or is
ready for vertical construction.

 

11

 

“Disposition”
means, with respect to any Person, any merger, consolidation or other business
combination involving such Person (whether or not such Person is the Surviving
Person) or the sale, assignment, transfer, lease, conveyance or other
disposition of all or substantially all of such Person’s assets.

 

“Disqualified Equity
Interests” of any Person means any Equity Interests of such Person that, by
their terms, or by the terms of any related agreement or of any security into
which they are convertible, puttable or exchangeable, are, or upon the
happening of any event or the passage of time would be, required to be redeemed
by such Person, whether or not at the option of the holder thereof, or mature
or are mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, in whole or in part, on or prior to the date which is 91 days after
the final maturity date of the Notes; provided, however, that any
class of Equity Interests of such Person that, by its terms, authorizes such
Person to satisfy in full its obligations with respect to the payment of
dividends or upon maturity, redemption (pursuant to a sinking fund or
otherwise) or repurchase thereof or otherwise by the delivery of Equity
Interests that are not Disqualified Equity Interests, and that are not
convertible, puttable or exchangeable for Disqualified Equity Interests or
Indebtedness, will not be deemed to be Disqualified Equity Interests so long as
such Person satisfies its obligations with respect thereto solely by the delivery
of Equity Interests that are not Disqualified Equity Interests; provided,  further,  however,
that any Equity Interests that would not constitute Disqualified Equity
Interests but for provisions thereof giving holders thereof (or the holders of
any security into or for which such Equity Interests are convertible, exchangeable
or exercisable) the right to require the Issuer to redeem such Equity Interests
upon the occurrence of a change in control occurring prior to the final
maturity date of the Notes shall not constitute Disqualified Equity Interests
if the change in control provisions applicable to such Equity Interests are no
more favorable to such holders than the provisions of Section 4.20 and
such Equity Interests specifically provide that the Issuer will not redeem any
such Equity Interests pursuant to such provisions prior to the Issuer’s
purchase of the Notes as required pursuant to the provisions of
Section 4.20.

 

“Entitled Land” means all land of the Issuer and its
Restricted Subsidiaries (a) on which Units may be constructed or which may be
utilized for commercial, retail or industrial uses, in each case, under
applicable laws and regulations and (b) the intended use by the Issuer for
which is permissible under the applicable regional plan, development agreement
or applicable zoning ordinance.

 

“Equity Interests”
of any Person means (1) any and all shares or other equity interests
(including common stock, preferred stock, limited liability company interests
and partnership interests) in such Person and (2) all rights to purchase,
warrants or options (whether or not currently exercisable), participations or
other equivalents of or interests in (however designated) such shares or other
interests in such Person.

 

12

 

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

 

“Exchange Notes”
has the meaning provided in the Registration Rights Agreement.

 

“Fair Market Value”
means, with respect to any asset, the price (after taking into account any
liabilities relating to such assets) that would be negotiated in an
arm’s-length transaction for cash between a willing seller and a willing and
able buyer, neither of which is under any compulsion to complete the
transaction, as such price is determined in good faith by the Board of
Directors of the Issuer or a duly authorized committee thereof, as evidenced by
a resolution of such Board or committee.

 

“Financing Documents”
means this Indenture, the Registration Rights Agreement, the Notes and the
Guarantees.

 

“GAAP” means
generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other entity as
may be approved by a significant segment of the accounting profession of the
United States, as in effect on the Measurement Date.

 

“guarantee” means
a direct or indirect guarantee by any Person of any Indebtedness of any other
Person and includes any obligation, direct or indirect, contingent or otherwise,
of such Person:  (1) to purchase or
pay (or advance or supply funds for the purchase or payment of) Indebtedness of
such other Person (whether arising by virtue of partnership arrangements, or by
agreements to keep-well, to purchase assets, goods, securities or services
(unless such purchase arrangements are on arm’s-length terms and are entered
into in the ordinary course of business), to take-or-pay, or to maintain
financial statement conditions or otherwise); or (2) entered into for
purposes of assuring in any other manner the obligee of such Indebtedness of
the payment thereof or to protect such obligee against loss in respect thereof
(in whole or in part).  “guarantee,”
when used as a verb, and “guaranteed” have correlative meanings.

 

“Guarantors” means
each Restricted Subsidiary of the Issuer on the Issue Date, and each other
Person that is required to become a Guarantor by the terms of this Indenture
after the Issue Date, in each case, until such Person is released from its Note
Guarantee.

 

“Hedging Obligations”
of any Person means the obligations of such Person pursuant to (1) any
interest rate swap agreement, interest rate collar agreement or other similar
agreement or arrangement designed to protect such Person against fluctuations
in interest 

 

13

 

rates,
(2) agreements or arrangements designed to protect such Person against fluctuations
in foreign currency exchange rates in the conduct of its operations, or (3) any
forward contract, commodity swap agreement, commodity option agreement or other
similar agreement or arrangement designed to protect such Person against
fluctuations in commodity prices, in each case entered into in the ordinary
course of business for bona fide hedging purposes and not for the purpose of
speculation.

 

“Holder” means any
registered holder, from time to time, of the Notes.

 

“incur” means,
with respect to any Indebtedness or Obligation, incur, create, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to such Indebtedness or Obligation; provided that (1) the
Indebtedness of a Person existing at the time such Person became a Restricted
Subsidiary or at the time such Person merged with or into the Issuer or a
Restricted Subsidiary shall be deemed to have been incurred at such time and
(2) neither the accrual of interest nor the accretion of original issue
discount shall be deemed to be an incurrence of Indebtedness.

 

“Indebtedness” of
any Person at any date means, without duplication:

 

(1)                                  all liabilities, contingent or otherwise,
of such Person for borrowed money (whether or not the recourse of the lender is
to the whole of the assets of such Person or only to a portion thereof);

 

(2)                                  all obligations of such Person evidenced
by bonds, debentures, notes or other similar instruments;

 

(3)                                  all obligations of such Person in respect
of letters of credit or other similar instruments (or reimbursement obligations
with respect thereto);

 

(4)                                  all obligations of such Person to pay the
deferred and unpaid purchase price of property or services, except trade
payables and accrued expenses incurred by such Person in the ordinary course of
business in connection with obtaining goods, materials or services;

 

(5)                                  the maximum fixed redemption or
repurchase price of all Disqualified Equity Interests of such Person;

 

(6)                                  all Capitalized Lease Obligations of such
Person;

 

(7)                                  all Indebtedness of others secured by a
Lien on any asset of such Person, whether or not such Indebtedness is assumed
by such Person;

 

14

 

(8)                                  all Indebtedness of others guaranteed by
such Person to the extent of such guarantee; provided that Indebtedness
of the Issuer or its Subsidiaries that is guaranteed by the Issuer or the
Issuer’s Subsidiaries shall be counted only once in the calculation of the
amount of Indebtedness of the Issuer and its Subsidiaries on a consolidated
basis;

 

(9)                                  all Attributable Indebtedness;

 

(10)                            to the extent not otherwise included in
this definition, Hedging Obligations of such Person;

 

(11)                            all obligations of such Person under
conditional sale or other title retention agreements relating to assets
purchased by such Person; and

 

(12)                            the liquidation value of Preferred Stock
of a Subsidiary of such Person issued and outstanding and held by any Person
other than such Person (or one of its Wholly-Owned Restricted Subsidiaries).

 

Notwithstanding the
foregoing, (a) earn-outs or similar profit sharing arrangements provided
for in acquisition agreements which are determined on the basis of future operating
earnings or other similar performance criteria (which are not determinable at
the time of acquisition) of the acquired assets or entities and (b) accrued
expenses, trade payables, customer deposits or deferred income taxes arising in
the ordinary course of business shall not be considered Indebtedness.  Any Indebtedness which is incurred at a discount
to the principal amount at maturity thereof shall be deemed to have been
incurred in the amount of the full principal amount at maturity thereof.  The amount of Indebtedness of any Person at
any date shall be the outstanding balance at such date of all unconditional
obligations as described above, the maximum liability of such Person for any
such contingent obligations at such date and, in the case of clause (7), the
lesser of (a) the Fair Market Value of any asset subject to a Lien
securing the Indebtedness of others on the date that the Lien attaches and
(b) the amount of the Indebtedness secured.  For purposes of clause (5), the “maximum fixed redemption or
repurchase price” of any Disqualified Equity Interests that do not have a fixed
redemption or repurchase price shall be calculated in accordance with the terms
of such Disqualified Equity Interests as if such Disqualified Equity Interests
were redeemed on any date on which an amount of Indebtedness outstanding shall
be required to be determined pursuant to this Indenture.

 

Notwithstanding the
above, this Indenture does not restrict any Unrestricted Subsidiary from
incurring Indebtedness nor will Indebtedness of any Unrestricted Subsidiaries
be included in the Consolidated Fixed Charge Coverage Ratio or the ratio of
Consolidated Indebtedness to Consolidated Tangible Net Worth hereunder, as long
as the Unrestricted Subsidiary incurring such Indebtedness remains an
Unrestricted Subsidiary.

 

15

 

“Indenture” means
this Indenture as amended, restated or supplemented from time to time.

 

“Independent Director”
means a director of the Issuer who

 

(1)                                  is independent with respect to the
transaction at issue;

 

(2)                                  does not have any material financial
interest in the Issuer or any of its Affiliates (other than as a result of
holding securities of the Issuer); and

 

(3)                                  has not and whose Affiliates or
affiliated firm has not, at any time during the twelve months prior to the
taking of any action hereunder, directly or indirectly, received, or entered
into any understanding or agreement to receive, compensation, payment or other
benefit, of any type or form, from the Issuer or any of its Affiliates in
excess of $60,000, other than customary directors’ fees for serving on the
Board of Directors of the Issuer or any Affiliate and reimbursement of
out-of-pocket expenses for attendance at the Issuer’s or Affiliate’s board and
board committee meetings.

 

“Independent Financial
Advisor” means an accounting, appraisal or investment banking firm of
nationally recognized standing that is, in the reasonable judgment of the Issuer’s
Board of Directors, qualified to perform the task for which it has been engaged
and disinterested and independent with respect to the Issuer and its
Affiliates; provided, however, that the prior rendering of
service to the Issuer or an Affiliate of the Issuer shall not, by itself,
disqualify the advisor.

 

“Initial Purchaser”
means Citigroup Global Markets Inc.

 

“Institutional
Accredited Investor” means an institution that is an “accredited investor”
as that term is defined in Rule 501(a)(1), (2), (3) or (7) promulgated under
the Securities Act.

 

“Intangible Assets”
means, with respect to any Person, all unamortized debt discount and expense,
unamortized deferred charges, goodwill, patents, trademarks, service marks,
trade names, copyrights, write-ups of assets over their carrying value (other
than write-ups which occurred prior to the Measurement Date and other than, in
connection with the acquisition of an asset, the write-up of the value of such
asset to its Fair Market Value in accordance with GAAP on the date of
acquisition) and all other items which would be treated as intangibles on the
consolidated balance sheet of such Person prepared in accordance with GAAP.

 

16

 

“interest” means,
with respect to the Notes, interest and Liquidated Damages, if any, on the
Notes.

 

“Interest Payment
Dates” means each May 1 and November 1, commencing November 1,
2004.

 

“Investments” of
any Person means:

 

(1)                                  all direct or indirect investments by
such Person in any other Person in the form of loans, advances or capital
contributions or other credit extensions constituting Indebtedness of such
other Person, and any guarantee of Indebtedness of any other Person;

 

(2)                                  all purchases (or other acquisitions for
consideration) by such Person of Indebtedness, Equity Interests or other
securities of any other Person;

 

(3)                                  all other items that would be classified
as investments on a balance sheet of such Person prepared in accordance with
GAAP; and

 

(4)                                  the Designation of any Subsidiary as an
Unrestricted Subsidiary.

 

Except as otherwise
expressly specified in this definition, the amount of any Investment (other
than an Investment made in cash) shall be the Fair Market Value thereof on the
date such Investment is made.  The
amount of Investment pursuant to clause (4) shall be the Designation Amount
determined in accordance with Section 4.15.  If the Issuer or any Subsidiary sells or otherwise disposes of
any Equity Interests of any direct or indirect Subsidiary such that, after
giving effect to any such sale or disposition, such Person is no longer a
Subsidiary, the Issuer shall be deemed to have made an Investment on the date
of any such sale or other disposition equal to the Fair Market Value of the
Equity Interests of and all other Investments in such Subsidiary not sold or
disposed of, which amount shall be determined by the Board of Directors of the
Issuer.  Notwithstanding the foregoing,
redemptions of Equity Interests of the Issuer shall be deemed not to be Investments.

 

“Issue Date” means
April 21, 2004.

 

“Issuer” means the
party named as such in the first paragraph of this Indenture until a successor
replaces such party pursuant to Article Five and thereafter means the
successor.

 

“Issuer Request”
means any written request signed in the name of the Issuer by the Chairman of
the Board of Directors, the Chief Executive Officer, the President, any 

 

17

 

Vice President, the Chief
Financial Officer or the Treasurer of the Issuer and attested to by the Secretary
or any Assistant Secretary of the Issuer.

 

“Lien” means, with
respect to any asset, any mortgage, deed of trust, lien (statutory or other),
pledge, lease, easement, restriction, covenant, charge, security interest or
other encumbrance of any kind or nature in respect of such asset, whether or
not filed, recorded or otherwise perfected under applicable law, including any
conditional sale or other title retention agreement, and any lease in the
nature thereof, any option or other agreement to sell, and any filing of, or
agreement to give, any financing statement under the Uniform Commercial Code
(or equivalent statutes) of any jurisdiction (other than cautionary filings in
respect of operating leases).

 

“Liquidated Damages”
has the meaning set forth in the Registration Rights Agreement.

 

“Measurement Date”
means May 30, 2001.

 

“Moody’s” means
Moody’s Investors Service, Inc., and its successors.

 

“Net Available
Proceeds” means, with respect to any Asset Sale, the proceeds thereof in
the form of cash or Cash Equivalents, net of

 

(1)                                  brokerage commissions and other fees and
expenses (including fees and expenses of legal counsel, accountants and
investment banks) of such Asset Sale;

 

(2)                                  provisions for taxes payable as a result
of such Asset Sale (after taking into account any available tax credits or
deductions and any tax sharing arrangements);

 

(3)                                  amounts required to be paid to any Person
(other than the Issuer or any Restricted Subsidiary) owning a beneficial
interest in the assets subject to the Asset Sale or having a Lien thereon;

 

(4)                                  payments of unassumed liabilities (not
constituting Indebtedness) relating to the assets sold at the time of, or
within 30 days after the date of, such Asset Sale; and

 

(5)                                  appropriate amounts to be provided by the
Issuer or any Restricted Subsidiary, as the case may be, as a reserve required
in accordance with GAAP against any liabilities associated with such Asset Sale
and retained by the Issuer or any Restricted Subsidiary, as the case may be,
after such Asset Sale, including pensions and other postemployment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale,

 

18

 

all as reflected
in an Officers’ Certificate delivered to the Trustee; provided, however,
that any amounts remaining after adjustments, revaluations or liquidations of
such reserves shall constitute Net Available Proceeds.

 

“Non-Recourse
Indebtedness” with respect to any Person means Indebtedness of such Person
for which (1) the sole legal recourse for collection of principal and interest
on such Indebtedness is against the specific property identified in the
instruments evidencing or securing such Indebtedness and such property was
acquired with the proceeds of such Indebtedness or such Indebtedness was
incurred within 90 days after the acquisition of such property and (2) no
other assets of such Person may be realized upon in collection of principal or
interest on such Indebtedness.

 

“Non-U.S. Person”
means a Person who is not a U.S. person, as defined in Regulation S.

 

“Notes” means the
7% Senior Notes due 2014 issued by the Issuer, including, without limitation,
the Private Exchange Notes, if any, and the Exchange Notes, treated as a single
class of securities, as amended from time to time in accordance with the terms
hereof, that are issued pursuant to this Indenture.

 

“Obligation” means
any principal, interest, penalties, fees, indemnification, reimbursements,
costs, expenses, damages and other liabilities payable under the documentation
governing any Indebtedness.

 

“Offer” has the
meaning set forth in the definition of “Offer to Purchase.”

 

“Offer Expiration Date”
has the meaning set forth in the definition of “Offer to Purchase.”

 

“Offer to Purchase”
means a written offer (the “Offer”) sent by or on behalf of the Issuer
by first-class mail, postage prepaid, to each Holder at its address appearing
in the register for the Notes on the date of the Offer offering to purchase up
to the principal amount of Notes specified in such Offer at the purchase price
specified in such Offer (as determined pursuant to this Indenture).  Unless otherwise required by applicable law,
the Offer shall specify an expiration date (the “Offer Expiration Date”)
of the Offer to Purchase, which shall be not less than 30 Business Days nor
more than 60 days after the date of such Offer, and a settlement date (the “Purchase
Date”) for purchase of Notes to occur no later than three Business Days
after the Offer Expiration Date.  The
Offer shall contain all the information required by applicable law to be
included therein.  The Offer shall also
contain information concerning the business of the Issuer and its Subsidiaries
which the Issuer in good faith believes will enable such Holders to make an
informed decision with respect to the Offer to Purchase.  Such information shall include, at a
minimum, (i) the most recent annual and quarterly financial

 

19

 

statements and
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” contained in the document required to be delivered to Holders
pursuant to Section 4.02 (which requirements may be satisfied by delivery
of such documents together with the Offer), (ii) a description of material
developments in the Issuer’s business subsequent to the date of the latest of
such financial statements referred to in clause (i) (including a description of
the events requiring the Issuer to make the Offer to Purchase), (iii) if
applicable, appropriate pro forma financial information concerning the Offer to
Purchase and the events requiring the Issuer to make the Offer to Purchase and
(iv) any other information required by applicable law to be included
therein.  The Offer shall contain all
instructions and materials necessary to enable such Holders to tender Notes
pursuant to the Offer to Purchase.  The
Offer shall also state:

 

(1)                                  the Section of this Indenture
pursuant to which the Offer to Purchase is being made;

 

(2)                                  the Offer Expiration Date and the
Purchase Date;

 

(3)                                  the aggregate principal amount of the
outstanding Notes offered to be purchased by the Issuer pursuant to the Offer
to Purchase (including, if less than 100%, the manner by which such amount has
been determined pursuant to the Section of this Indenture requiring the
Offer to Purchase) (the “Purchase Amount”);

 

(4)                                  the purchase price to be paid by the
Issuer for each $1,000 aggregate principal amount of Notes accepted for payment
(the “Purchase Price”);

 

(5)                                  that the Holder may tender all or any
portion of the Notes registered in the name of such Holder and that any portion
of a Note tendered must be tendered in an integral multiple of $1,000 principal
amount;

 

(6)                                  the place or places where Notes are to be
surrendered for tender pursuant to the Offer to Purchase;

 

(7)                                  that interest on any Note not tendered or
tendered but not purchased by the Issuer pursuant to the Offer to Purchase will
continue to accrue;

 

(8)                                  that on the Purchase Date the Purchase
Price will become due and payable upon each Note being accepted for payment
pursuant to the Offer to Purchase and that interest thereon shall cease to
accrue on and after the Purchase Date;

 

(9)                                  that each Holder electing to tender all
or any portion of a Note pursuant to the Offer to Purchase will be required to
surrender such Note, with the form entitled “Option of Holder to Elect
Purchase” on the reverse of the Note completed, at the 

 

20

 

place or places specified
in the Offer prior to the close of business on the Offer Expiration Date (such
Note being, if the Issuer so requires, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Issuer duly executed
by, the Holder thereof or its attorney duly authorized in writing);

 

(10)                            that Holders will be entitled to withdraw
all or any portion of Notes tendered if the Issuer receives, not later than the
close of business on the fifth Business Day preceding the Offer Expiration
Date, a telegram, telex, facsimile transmission or letter setting forth the
name of the Holder, the principal amount of the Note the Holder tendered, the
certificate number of the Note the holder tendered and a statement that such
Holder is withdrawing all or a portion of its tender;

 

(11)                            that (a) if Notes in an aggregate
principal amount less than or equal to the Purchase Amount are duly tendered
and not withdrawn pursuant to the Offer to Purchase, the Issuer shall purchase
all such Notes and (b) if Notes in an aggregate principal amount in excess of
the Purchase Amount are tendered and not withdrawn pursuant to the Offer to
Purchase, the Issuer shall purchase Notes having an aggregate principal amount
equal to the Purchase Amount on a pro rata basis (with such adjustments
as may be deemed appropriate so that only Notes in denominations of $1,000
principal amount or integral multiples thereof shall be purchased); and

 

(12)                            that in the case of any Holder whose Note
is purchased only in part, the Issuer shall execute and deliver to the Holder
of such Note without service charge, a new Note or Notes, of any authorized
denomination as requested by such Holder, in an aggregate principal amount
equal to and in exchange for the unpurchased portion of the Note so tendered.

 

An Offer to Purchase
shall be governed by and effected in accordance with the provisions above
pertaining to any Offer.

 

On or before the Purchase
Date, the Issuer shall (i) accept for payment Notes or portions thereof
tendered and not withdrawn pursuant to the Offer, (ii) deposit with the
Trustee U.S. Dollars sufficient to pay the Purchase Price, plus accrued
interest, if any, of all Notes to be purchased and (iii) deliver to the
Trustee Notes so accepted together with an Officers’ Certificate stating the
Notes or portions thereof being purchased by the Issuer.  The Trustee shall promptly mail to the
Holders of Notes so accepted payment in an amount equal to the Purchase Price,
plus accrued interest, if any, thereon.

 

“Offering” means
the offering of the Notes as described in the Offering Memorandum.

 

21

 

“Offering Memorandum”
means the Offering Memorandum dated April 14, 2004 pursuant to which the
Notes were offered.

 

“Officer” means
any of the following of the Issuer:  the
Chairman of the Board of Directors, the Chief Executive Officer, the Chief
Financial Officer, the President, any Vice President, the Treasurer or the Secretary.

 

“Officers’ Certificate”
means a certificate signed by two Officers.

 

“Opinion of Counsel”
means a written opinion reasonably satisfactory in form and substance to the
Trustee from legal counsel, which counsel is reasonably acceptable to the
Trustee, stating the matters required by Section 12.05 and delivered to
the Trustee.

 

“Pari Passu
Indebtedness” means any Indebtedness of the Issuer or any Guarantor that
ranks pari passu as to payment with the Notes or the Note Guarantees, as
applicable.

 

“Permitted Business”
means the businesses engaged in by the Issuer and its Subsidiaries on the Issue
Date as described in the Offering Memorandum and businesses that are reasonably
related thereto or reasonable extensions thereof (including, without limitation,
land development, home alarm, pest control, title and other ancillary businesses).

 

“Permitted Holders”
means Steven J. Hilton and John R. Landon, their respective wives and children,
any corporation, limited liability company or partnership in which either of
them has voting control and is the direct and beneficial owner of a majority of
the Equity Interests and any trust for the benefit of either of them or their
wives or children.

 

“Permitted Investment”
means:

 

(1)                                  Investments by the Issuer or any
Restricted Subsidiary in (a) any Restricted Subsidiary or (b) any
Person that is or will become immediately after such Investment a Restricted
Subsidiary or that will merge or consolidate into the Issuer or a Restricted
Subsidiary;

 

(2)                                  Investments in the Issuer by any
Restricted Subsidiary;

 

(3)                                  loans and advances to directors,
employees and officers of the Issuer and the Restricted Subsidiaries for bona
fide business purposes and to purchase Equity Interests of the Issuer not in
excess of $2.0 million at any one time outstanding;

 

(4)                                  Hedging Obligations incurred pursuant to
clause (4) of the second paragraph of Section 4.06;

 

(5)                                  Cash Equivalents;

 

22

 

(6)                                  receivables owing to the Issuer or any
Restricted Subsidiary if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms; provided, however,
that such trade terms may include such concessionary trade terms as the Issuer
or any such Restricted Subsidiary deems reasonable under the circumstances;

 

(7)                                  Investments in securities of trade
creditors or customers received pursuant to any plan of reorganization or
similar arrangement upon the bankruptcy or insolvency of such trade creditors
or customers;

 

(8)                                  Investments made by the Issuer or any
Restricted Subsidiary as a result of consideration received in connection with
an Asset Sale made in compliance with Section 4.09;

 

(9)                                  lease, utility and other similar deposits
in the ordinary course of business;

 

(10)                            Investments made by the Issuer or a
Restricted Subsidiary for consideration consisting only of Qualified Equity
Interests of the Issuer;

 

(11)                            stock, obligations or securities received
in settlement of debts created in the ordinary course of business and owing to
the Issuer or any Restricted Subsidiary or in satisfaction of judgments;

 

(12)                            Investments in existence on the Issue
Date;

 

(13)                            Investments made by the Issuer or any
Restricted Subsidiary in joint ventures in a Permitted Business with
unaffiliated third parties in an aggregate amount at any one time outstanding
not to exceed 10% of the Issuer’s Consolidated Tangible Net Worth at such time
(with each Investment being valued as of the date made and without regard to
subsequent changes in value); and

 

(14)                            other Investments in an aggregate amount
not to exceed $5.0 million at any one time outstanding (with each Investment
being valued as of the date made and without regard to subsequent changes in
value).

 

The amount of Investments
outstanding at any time pursuant to clause (14) above shall be deemed to be
reduced:

 

(a)                                  upon the disposition or repayment of or
return on any Investment made pursuant to clause (14) above, by an amount equal
to the return of capital with respect to such Investment to the Issuer or any
Restricted Subsidiary (to the extent not included

 

23

 

in the computation
of Consolidated Net Income), less the cost of the disposition of such
Investment and net of taxes; and

 

(b)                                 upon a Redesignation of an Unrestricted
Subsidiary as a Restricted Subsidiary, by an amount equal to the lesser of (x)
the Fair Market Value of the Issuer’s proportionate interest in such Subsidiary
immediately following such Redesignation, and (y) the aggregate amount of
Investments in such Subsidiary that increased (and did not previously decrease)
the amount of Investments outstanding pursuant to clause (14) above.

 

“Permitted Liens”  means
the following types of Liens:

 

(1)                                  (a) statutory Liens of landlords and
Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen
and other Liens imposed by law incurred in the ordinary course of business and
(b) Liens for taxes, assessments or governmental charges or claims, in
either case, for sums not yet delinquent or being contested in good faith, if
such reserve or other appropriate provision, if any, as shall be required by
GAAP shall have been made in respect thereof;

 

(2)                                  Liens incurred or deposits made in the
ordinary course of business in connection with workers’ compensation,
unemployment insurance and other types of social security, or to secure the
performance of tenders, statutory obligations, surety and appeal bonds, bids,
leases, government contracts, performance and return-of-money bonds and other
similar obligations (exclusive of obligations for the payment of borrowed
money);

 

(3)                                  Liens upon specific items of inventory or
other goods and proceeds of any Person securing such Person’s obligations in
respect of bankers’ acceptances issued or created for the account of such
Person to facilitate the purchase, shipment or storage of such inventory or
other goods;

 

(4)                                  Liens securing reimbursement obligations
with respect to commercial letters of credit which encumber documents and other
assets relating to such letters of credit and products and proceeds thereof;

 

(5)                                  Liens encumbering deposits made to secure
obligations arising from statutory, regulatory, contractual or warranty
requirements of the Issuer or any Restricted Subsidiary, including rights of
offset and setoff;

 

(6)                                  bankers’ Liens, rights of setoff and
other similar Liens existing solely with respect to cash and Cash Equivalents
on deposit in one or more accounts maintained by the Issuer or any Restricted
Subsidiary, in each case granted in the ordinary 

 

24

 

course of business
in favor of the bank or banks with which such accounts are maintained, securing
amounts owing to such bank with respect to cash management and operating account
arrangements, including those involving pooled accounts and netting
arrangements; provided that in no case shall any such Liens secure
(either directly or indirectly) the repayment of any Indebtedness;

 

(7)                                  leases or subleases (or any Liens related
thereto) granted to others that do not materially interfere with the ordinary
course of business of the Issuer or any Restricted Subsidiary;

 

(8)                                  Liens arising from filing Uniform
Commercial Code financing statements regarding leases;

 

(9)                                  Liens securing all of the Notes and Liens
securing any Note Guarantee;

 

(10)                            Liens existing on the Issue Date securing
Indebtedness outstanding on the Issue Date and Liens securing Refinancing
Indebtedness with respect to Indebtedness incurred pursuant to clause (2) of the
second paragraph of Section 4.06;

 

(11)                            Liens in favor of the Issuer or a
Guarantor;

 

(12)                            Liens securing Indebtedness under the
Credit Facilities incurred pursuant to clause (1) of the second paragraph
of Section 4.06;

 

(13)                            without limiting any other clause in this
definition of “Permitted Liens,” Liens securing Indebtedness of the Issuer or
any Restricted Subsidiary permitted to be incurred under this Indenture; provided
that the aggregate amount of all consolidated Indebtedness of the Issuer and
the Restricted Subsidiaries secured by Liens (including all Indebtedness
permitted to be secured by the other provisions of this definition, but
excluding Non-Recourse Indebtedness) shall not exceed 40% of Consolidated
Tangible Assets at any one time outstanding (after giving effect to the incurrence
of such Indebtedness and the use of the proceeds thereof);

 

(14)                            Liens securing Non-Recourse Indebtedness
of the Issuer or any Restricted Subsidiary permitted to be incurred under this
Indenture; provided that such Liens apply only to the property financed
out of the net proceeds of such Non-Recourse Indebtedness within 90 days after
the incurrence of such Non-Recourse Indebtedness;

 

(15)                            Liens securing Purchase Money
Indebtedness permitted to be incurred under this Indenture; provided
that such Liens apply only to the property acquired,

 

25

 

constructed or
improved with the proceeds of such Purchase Money Indebtedness within 90 days
after the incurrence of such Purchase Money Indebtedness;

 

(16)                            Liens securing Acquired Indebtedness
permitted to be incurred under this Indenture; provided that the Liens
do not extend to assets not subject to such Lien at the time of acquisition
(other than improvements thereon) and are no more favorable to the lienholders
than those securing such Acquired Indebtedness prior to the incurrence of such
Acquired Indebtedness by the Issuer or a Restricted Subsidiary;

 

(17)                            Liens on assets of a Person existing at
the time such Person is acquired or merged with or into or consolidated with
the Issuer or any such Restricted Subsidiary (and not created in anticipation
or contemplation thereof);

 

(18)                            Liens to secure Attributable Indebtedness
permitted to be incurred under this Indenture; provided that any such
Lien shall not extend to or cover any assets of the Issuer or any Restricted
Subsidiary other than the assets which are the subject of the Sale and
Leaseback Transaction in which the Attributable Indebtedness is incurred;

 

(19)                            attachment or judgment Liens not giving
rise to a Default and which are being contested in good faith by appropriate
proceedings;

 

(20)                            easements, rights-of-way, restrictions
and other similar charges or encumbrances not materially interfering with the
ordinary course of business of the Issuer and its Subsidiaries;

 

(21)                            zoning restrictions, licenses,
restrictions on the use of real property or minor irregularities in title
thereto, which do not materially impair the use of such real property in the
ordinary course of business of the Issuer and its Subsidiaries or the value of
such real property for the purpose of such business; and

 

(22)                            any option, contract or other agreement
to sell an asset; provided such sale is not otherwise prohibited under
this Indenture.

 

“Permitted
Unrestricted Subsidiary Debt” means Indebtedness of an Unrestricted Subsidiary:

 

(1)                                  as to which neither the Issuer nor any
Restricted Subsidiary (a) provides credit support of any kind (including any
undertaking, agreement or instrument that would constitute Indebtedness), (b)
is directly or indirectly liable as a guarantor or otherwise, or (c)
constitutes the lender;

 

26

 

(2)                                  no default with respect to which
(including any rights that the holders thereof may have to take enforcement
action against an Unrestricted Subsidiary) would permit upon notice, lapse of
time or both any holder of any other Indebtedness (other than the Notes) of the
Issuer or any Restricted Subsidiary to declare a default on the other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and

 

(3)                                  as to which the lenders have been
notified in writing that they will not have any recourse to the Equity
Interests or assets of the Issuer or any Restricted Subsidiary.

 

“Person” means any
individual, corporation, partnership, limited liability company, joint venture,
incorporated or unincorporated association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof or other entity of any kind.

 

“Physical Notes”
means certificated Notes in registered form in substantially the form set forth
in Exhibit A.

 

“Plan of Liquidation”
with respect to any Person, means a plan that provides for, contemplates or the
effectuation of which is preceded or accompanied by (whether or not
substantially contemporaneously, in phases or otherwise):  (1) the sale, lease, conveyance or
other disposition of all or substantially all of the assets of such Person
otherwise than as an entirety or substantially as an entirety; and (2) the
distribution of all or substantially all of the proceeds of such sale, lease,
conveyance or other disposition of all or substantially all of the remaining
assets of such Person to creditors and holders of Equity Interests of such Person.

 

“Preferred Stock”
means, with respect to any Person, any and all preferred or preference stock or
other equity interests (however designated) of such Person whether now
outstanding or issued after the Issue Date.

 

“principal” means,
with respect to the Notes, the principal of, and premium, if any, on the Notes.

 

“Private Exchange”
has the meaning set forth in the Registration Rights Agreement.

 

“Private Exchange
Notes” has the meaning set forth in the Registration Rights Agreement.

 

“Private Placement
Legend” means the legend initially set forth on the Rule 144A Notes and
Other Notes that are Restricted Notes in the form set forth in Exhibit B.

 

27

 

“Purchase Amount”
has the meaning set forth in the definition of “Offer to Purchase.”

 

“Purchase Date”
has the meaning set forth in the definition of “Offer to Purchase.”

 

“Purchase Money
Indebtedness” means Indebtedness, including Capitalized Lease Obligations,
of the Issuer or any Restricted Subsidiary incurred for the purpose of financing
all or any part of the purchase price of property, plant or equipment used in
the business of the Issuer or any Restricted Subsidiary or the cost of
installation, construction or improvement thereof; provided, however,
that (1) the amount of such Indebtedness shall not exceed such purchase price
or cost, (2) such Indebtedness shall not be secured by any asset other than the
specified asset being financed or, in the case of real property or fixtures,
including additions and improvements, the real property to which such asset is
attached and (3) such Indebtedness shall be incurred within 90 days after such
acquisition of such asset by the Issuer or such Restricted Subsidiary or such
installation, construction or improvement.

 

“Purchase Price”
has the meaning set forth in the definition of “Offer to Purchase.”

 

“Qualified Equity
Interests” means Equity Interests of the Issuer other than Disqualified
Equity Interests; provided that such Equity Interests shall not be
deemed Qualified Equity Interests to the extent sold or owed to a Subsidiary of
the Issuer or financed, directly or indirectly, using funds (1) borrowed from
the Issuer or any Subsidiary of the Issuer until and to the extent such
borrowing is repaid or (2) contributed, extended, guaranteed or advanced by the
Issuer or any Subsidiary of the Issuer (including, without limitation, in respect
of any employee stock ownership or benefit plan).

 

“Qualified Equity
Offering” means the issuance and sale of Qualified Equity Interests of the
Issuer to Persons other than any Permitted Holder or any other Person who is
not, prior to such issuance and sale, an Affiliate of the Issuer.

 

“Qualified
Institutional Buyer” or “QIB” shall have the meaning specified in
Rule 144A promulgated under the Securities Act.

 

“Receivables” means an amount owed with respect to
completed sales of housing units, lots and parcels sold to an unaffiliated
purchaser.

 

“redeem” means to
redeem, repurchase, purchase, defease, retire, discharge or otherwise acquire
or retire for value; and “redemption” shall have a correlative meaning.

 

28

 

“Redemption Date”
when used with respect to any Note to be redeemed means the date fixed for such
redemption pursuant to the terms of the Notes.

 

“refinance” means
to refinance, repay, prepay, replace, renew or refund.

 

“Refinancing
Indebtedness” means Indebtedness of the Issuer or a Restricted Subsidiary
issued in exchange for, or the proceeds from the issuance and sale or disbursement
of which are used substantially concurrently to redeem or refinance in whole or
in part, or constituting an amendment of, any Indebtedness of the Issuer or any
Restricted Subsidiary (the “Refinanced Indebtedness”) in a principal
amount not in excess of the principal amount of the Refinanced Indebtedness so
repaid or amended (plus the amount of any premium paid and the amount of
reasonable expenses incurred by the Issuer or any Restricted Subsidiary in
connection with such repayment or amendment) (or, if such Refinancing
Indebtedness refinances Indebtedness under a revolving credit facility or other
agreement providing a commitment for subsequent borrowings, with a maximum
commitment not to exceed the maximum commitment under such revolving credit
facility or other agreement); provided that:

 

(1)                                  if the Refinanced Indebtedness was
subordinated to or pari passu with the Notes or the Note Guarantees, as the
case may be, then such Refinancing Indebtedness, by its terms, is expressly
pari passu with (in the case of Refinanced Indebtedness that was pari passu
with) or subordinate in right of payment to (in the case of Refinanced
Indebtedness that was subordinated to) the Notes or the Note Guarantees, as the
case may be, at least to the same extent as the Refinanced Indebtedness;

 

(2)                                  the Refinancing Indebtedness is scheduled
to mature either (a) no earlier than the Refinanced Indebtedness being repaid
or amended or (b) after the maturity date of the Notes;

 

(3)                                  the portion, if any, of the Refinancing
Indebtedness that is scheduled to mature on or prior to the maturity date of
the Notes has a Weighted Average Life to Maturity at the time such Refinancing
Indebtedness is incurred that is equal to or greater than the Weighted Average
Life to Maturity of the portion of the Refinanced Indebtedness being repaid
that is scheduled to mature on or prior to the maturity date of the Notes; and

 

(4)                                  the Refinancing Indebtedness is secured
only to the extent, if at all, and by the assets, that the Refinanced
Indebtedness being repaid, extended or amended is secured.

 

“Registration Rights
Agreement” means the registration rights agreement dated as of the Issue
Date among the Issuer, the Guarantors and the Initial Purchaser.

 

29

 

“Regulation S”
means Regulation S promulgated under the Securities Act.

 

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

 

“Restricted Note”
has the same meaning as “Restricted Security” set forth in Rule 144(a)(3)
promulgated under the Securities Act; provided, that the Trustee shall
be entitled to request and conclusively rely upon an Opinion of Counsel with
respect to whether any Note is a Restricted Note.

 

“Restricted Payment”
means any of the following:

 

(1)                                  the declaration or payment of any
dividend or any other distribution on Equity Interests of the Issuer or any
Restricted Subsidiary or any payment made to the direct or indirect holders (in
their capacities as such) of Equity Interests of the Issuer or any Restricted
Subsidiary, including, without limitation, any payment in connection with any
merger or consolidation involving the Issuer, but excluding (a) dividends
or distributions payable solely in Qualified Equity Interests and (b) in
the case of Restricted Subsidiaries, dividends or distributions payable to the
Issuer or to a Restricted Subsidiary and pro rata dividends or distributions
payable to minority stockholders of any Restricted Subsidiary;

 

(2)                                  the redemption of any Equity Interests of
the Issuer or any Restricted Subsidiary, including, without limitation, any
payment in connection with any merger or consolidation involving the Issuer,
but excluding any such Equity Interests held by the Issuer or any Restricted Subsidiary;

 

(3)                                  any Investment other than a Permitted
Investment; or

 

(4)                                  any redemption prior to the scheduled
maturity or prior to any scheduled repayment of principal or sinking fund
payment, as the case may be, in respect of Subordinated Indebtedness.

 

“Restricted Payments
Basket” has the meaning given to such term in clause (3) of the first
paragraph of Section 4.08.

 

“Restricted Subsidiary”
means any Subsidiary of the Issuer other than an Unrestricted Subsidiary.

 

30

 

“Rule 144” means
Rule 144 promulgated under the Securities Act.

 

“Rule 144A” means
Rule 144A promulgated under the Securities Act.

 

“S&P” means
Standard & Poor’s Ratings Services, a division of the McGraw-Hill
Companies, Inc., and its successors.

 

“Sale and Leaseback
Transaction” means, with respect to any Person, an arrangement with any
bank, insurance company or other lender or investor or to which such lender or
investor is a party, providing for the leasing by such Person of any asset of
such Person which has been or is being sold or transferred by such Person to
such lender or investor or to any Person to whom funds have been or are to be
advanced by such lender or investor on the security of such asset.

 

“SEC” means the
U.S. Securities and Exchange Commission.

 

“Secretary’s
Certificate” means a certificate signed by the Secretary of the Issuer.

 

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

 

“Significant
Subsidiary” means (1) any Restricted Subsidiary that would be a
“significant subsidiary” as defined in Regulation S-X promulgated pursuant to
the Securities Act as such Regulation is in effect on the Issue Date and (2)
any Restricted Subsidiary that, when aggregated with all other Restricted
Subsidiaries that are not otherwise Significant Subsidiaries and as to which
any event described in clause (7) or (8) of Section 6.01 has occurred and
is continuing, would constitute a Significant Subsidiary under clause (1) of
this definition.

 

“Subordinated
Indebtedness” means Indebtedness of the Issuer or any Restricted Subsidiary
that is subordinated in right of payment to the Notes or the Note Guarantees,
respectively.

 

“Subsidiary”
means, with respect to any Person:

 

(1)                                  any corporation, limited liability
company, association or other business entity of which more than 50% of the
total voting power of the Equity Interests entitled (without regard to the
occurrence of any contingency) to vote in the election of the Board of
Directors thereof are at the time owned or controlled, directly or indirectly,
by such Person or one or more of the other Subsidiaries of that Person (or a
combination thereof); and

 

(2)                                  any partnership (a) the sole general
partner or the managing general partner of which is such Person or a Subsidiary
of such Person or (b) the only general 

 

31

 

partners of which
are such Person or of one or more Subsidiaries of such Person (or any
combination thereof).

 

Unless otherwise
specified, “Subsidiary” refers to a Subsidiary of the Issuer.

 

“Surviving Person”
means, with respect to any Person involved in or that makes any Disposition,
the Person formed by or surviving such Disposition or the Person to which such
Disposition is made.

 

“Trust Indenture Act”
or “TIA” means the Trust Indenture Act of 1939, as amended.

 

“Trustee” means
the party named as such in this Indenture until a successor replaces it
pursuant to this Indenture and thereafter means the successor.

 

“Unit” means a residence, whether single or part
of a multifamily building, whether completed or under construction, held by the
Issuer or any Restricted Subsidiary for sale or rental in the ordinary course
of business; provided, however, that the number of Units that are
rental Units at the time of determination shall not exceed 25% of the total
Units sold or rented by the Issuer and its Restricted Subsidiaries during the
immediately preceding twelve month period.

 

“Unrestricted
Subsidiary” means (1) any Subsidiary that at the time of determination
shall be designated an Unrestricted Subsidiary by the Board of Directors of the
Issuer in accordance with Section 4.15 and (2) any Subsidiary of an
Unrestricted Subsidiary.

 

“U.S. Government
Obligations” means direct non-callable obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.

 

“Voting Stock”
with respect to any Person, means securities of any class of Equity Interests
of such Person entitling the holders thereof (whether at all times or only so
long as no senior class of stock or other relevant equity interest has voting
power by reason of any contingency) to vote in the election of members of the
Board of Directors of such Person.

 

“Weighted Average Life
to Maturity” when applied to any Indebtedness at any date, means the number
of years obtained by dividing (1) the sum of the products obtained by
multiplying (a) the amount of each then remaining installment, sinking fund, serial
maturity or other required payment of principal, including payment at final
maturity, in respect thereof by (b) the number of years (calculated to the
nearest one-twelfth) that will elapse between such date and the making of such
payment by (2) the then outstanding principal amount of such Indebtedness.

 

32

 

“Wholly-Owned
Restricted Subsidiary” means a Restricted Subsidiary of which 100% of the
Equity Interests (except for directors’ qualifying shares or certain minority
interests owned by other Persons solely due to local law requirements that
there be more than one stockholder, but which interest is not in excess of what
is required for such purpose) are owned directly by the Issuer or through one
or more Wholly-Owned Restricted Subsidiaries.

 

SECTION 1.02.                                                                 Other Definitions.

 

The definitions of the
following terms may be found in the sections indicated as follows:

 

	
  Term

  	
   

  	
  Defined in
  Section

  
	
   

  	
   

  	
   

  	
   

  
	
  “Affiliate Transaction”

  	
   

  	
  4.10

  	
   

  
	
  “Agent Members”

  	
   

  	
  2.16

  	
  (a)

  
	
  “Business Day”

  	
   

  	
  12.07

  	
   

  
	
  “Change of Control Date”

  	
   

  	
  4.20

  	
   

  
	
  “Change of Control Offer”

  	
   

  	
  4.20

  	
   

  
	
  “Change of Control Payment Date”

  	
   

  	
  4.20

  	
   

  
	
  “Change of Control Purchase Price”

  	
   

  	
  4.20

  	
   

  
	
  “Company Bankruptcy Proceeding”

  	
   

  	
  11.02

  	
   

  
	
  “Covenant Defeasance”

  	
   

  	
  9.03

  	
   

  
	
  “Custodian”

  	
   

  	
  6.01

  	
   

  
	
  “Designation”

  	
   

  	
  4.15

  	
  (a)

  
	
  “Events of Default”

  	
   

  	
  6.01

  	
   

  
	
  “Excess Proceeds”

  	
   

  	
  4.09

  	
   

  
	
  “Global Notes”

  	
   

  	
  2.16

  	
  (a)

  
	
  “Guarantor Bankruptcy Proceeding”

  	
   

  	
  10.07

  	
   

  
	
  “Legal Defeasance”

  	
   

  	
  9.02

  	
   

  
	
  “Legal Holiday”

  	
   

  	
  12.07

  	
   

  
	
  “Note Portion of Excess Proceeds”

  	
   

  	
  4.09

  	
   

  
	
  “Other Debt”

  	
   

  	
  4.09

  	
   

  
	
  “Other Notes”

  	
   

  	
  2.02

  	
   

  
	
  “Paying Agent”

  	
   

  	
  2.04

  	
   

  
	
  “Ratio Exception”

  	
   

  	
  4.06

  	
   

  
	
  “Redesignation”

  	
   

  	
  4.15

  	
   

  
	
  “Registrar”

  	
   

  	
  2.04

  	
   

  
	
  “Regulation S Global Notes”

  	
   

  	
  2.16

  	
  (a)

  
	
  “Regulation S Notes”

  	
   

  	
  2.02

  	
   

  
	
  “Replacement Assets

  	
   

  	
  4.09

  	
   

  
	
  “Restricted Global Note”

  	
   

  	
  2.16

  	
  (a)

  

 

33

 

	
  “Restricted Payment”

  	
   

  	
  4.08

  	
   

  
	
  “Revocation”

  	
   

  	
  4.15

  	
  (c)

  
	
  “Rule 144A Notes”

  	
   

  	
  2.02

  	
   

  

 

SECTION 1.03.                                                                 Incorporation by Reference of Trust
Indenture Act.

 

Whenever this Indenture
refers to a provision of the TIA, the portion of such provision required to be
incorporated herein in order for this Indenture to be qualified under the TIA
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 Notes.

 

“indenture
securityholder” means a Holder or Noteholder.

 

“indenture
to be qualified” means this Indenture.

 

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

 

“obligor
on the indenture securities” means the Issuer, the Guarantors or any other
obligor on the Notes.

 

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

 

SECTION 1.04.                                                                 Rules of Construction.

 

Unless the context
otherwise requires:

 

(1)                                  a term has the meaning assigned to it
herein, whether defined expressly or by reference;

 

(2)                                  “or” is not exclusive;

 

(3)                                  words in the singular include the plural,
and in the plural include the singular;

 

(4)                                  words used herein implying any gender
shall apply to both genders;

 

(5)                                  “herein”, “hereof” and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other Subsection;

 

34

 

(6)                                  unless otherwise specified herein, all
accounting terms used herein shall be interpreted, all accounting
determinations hereunder shall be made, and all financial statements required
to be delivered hereunder shall be prepared in accordance with GAAP as in
effect from time to time, applied on a basis consistent with the most recent
audited consolidated financial statements of the Issuer;

 

(7)                                  “$,” “U.S. Dollars” and “United States
Dollars” each refer to United States dollars, or such other money of the United
States that at the time of payment is legal tender for payment of public and
private debts; and

 

(8)                                  whenever in this Indenture there is
mentioned, in any context, principal, interest or any other amount payable
under or with respect to any Note, such mention shall be deemed to include
mention of the payment of Additional Interest to the extent that, in such
context, Additional Interest is, was or would be payable in respect thereof.

 

ARTICLE TWO

 

THE NOTES

 

SECTION 2.01.                                                                 Amount of Notes.

 

The Trustee shall
authenticate (i) Notes for original issue on the Issue Date in the
aggregate principal amount not to exceed $130,000,000 and (ii) subject to
Section 4.06, Additional Notes in an unlimited principal amount, upon a
written order of the Issuer in the form of an Officers’ Certificate of the
Issuer.  The Officers’ Certificate shall
specify the amount of Notes to be authenticated and the date on which the Notes
are to be authenticated.

 

Upon receipt of a written
order of the Issuer in the form of an Officers’ Certificate, the Trustee shall
authenticate Notes in substitution for Notes originally issued to reflect any
name change of the Issuer.  Any
Additional Notes shall be part of the same issue as the Notes being issued on
the date hereof and will vote on all matters as one class with the Notes being
issued on the date hereof, including, without limitation, waivers, amendments,
redemptions and Offers to Purchase.  For
the purposes of this Indenture, except for Section 4.06, references to the
Notes include Additional Notes, if any.

 

Upon receipt of an Issuer
Request and an Officers’ Certificate certifying that a registration statement
relating to an exchange offer specified in the Registration Rights Agreement or
any registration rights agreement relating to the Additional Notes is effective
or that the conditions precedent to a private exchange thereunder have been
met, the Trustee shall authenticate an additional series of Notes for issuance
in exchange for the Notes tendered 

 

35

 

for exchange pursuant to
such exchange offer registered under the Securities Act or pursuant to a
Private Exchange.  Exchange Notes or
Private Exchange Notes may have such distinctive series designations and such
changes in the form thereof as are specified in the Issuer Request referred to
in the preceding sentence.

 

SECTION 2.02.                                                                 Form and Dating.

 

The Notes and the
Trustee’s certificate of authentication with respect thereto shall be
substantially in the form set forth in Exhibit A, which is incorporated
in and forms a part of this Indenture. 
The Notes may have notations, legends or endorsements required by law,
rule or usage to which the Issuer is subject. 
Without limiting the generality of the foregoing, Notes offered and sold
to Qualified Institutional Buyers in reliance on Rule 144A (“Rule 144A Notes”)
shall bear the legend and include the form of assignment set forth in Exhibit
B, Notes offered and sold in offshore transactions in reliance on
Regulation S (“Regulation S Notes”) shall bear the legend and include
the form of assignment set forth in Exhibit C, and Notes offered
and sold to Institutional Accredited Investors in transactions exempt from registration
under the Securities Act not made in reliance on Rule 144A or Regulation S (“Other
Notes”) may be represented by a Restricted Global Note or, if such an
investor may not hold an interest in the Restricted Global Note, a Physical
Note, in each case, bearing the Private Placement Legend.  Each Note shall be dated the date of its authentication.

 

The terms and provisions
contained in the Notes shall constitute, and are expressly made, a part of this
Indenture and, to the extent applicable, the Issuer, the Guarantors and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and agree to be bound thereby.

 

The Notes may be
presented for registration of transfer and exchange at the offices of the
Registrar.

 

SECTION 2.03.                                                                 Execution and Authentication.

 

Two Officers shall sign,
or one Officer shall sign and one Officer (each of whom shall, in each case,
have been duly authorized by all requisite corporate actions) shall attest to,
the Notes for the Issuer by manual or facsimile signature.

 

If an Officer whose
signature is on a Note was an Officer at the time of such execution but no longer
holds that office at the time the Trustee authenticates the Note, the Note
shall be valid nevertheless.

 

No Note shall be entitled
to any benefit under this Indenture or be valid or obligatory for any purpose
unless there appears on such Note a certificate of authentication substantially
in the form provided for herein executed by the Trustee by manual signature,
and 

 

36

 

such certificate upon any
Note shall be conclusive evidence, and the only evidence, that such Note has
been duly authenticated and delivered hereunder.  Notwithstanding the foregoing, if any Note shall have been
authenticated and delivered hereunder but never issued and sold by the Issuer,
and the Issuer shall deliver such Note to the Trustee for cancellation as
provided in Section 2.12, for all purposes of this Indenture such Note
shall be deemed never to have been authenticated and delivered hereunder and
shall never be entitled to the benefits of this Indenture.

 

The Trustee may appoint
an authenticating agent reasonably acceptable to the Issuer to authenticate the
Notes.  Unless otherwise provided in the
appointment, an authenticating agent may authenticate the Notes whenever the
Trustee may do so.  Each reference in
this Indenture to authentication by the Trustee includes authentication by such
agent.  An authenticating agent has the
same rights as an Agent to deal with the Issuer and Affiliates of the
Issuer.  Each Paying Agent is designated
as an authenticating agent for purposes of this Indenture.

 

The Notes shall be
issuable only in registered form without coupons in denominations of $1,000 and
any integral multiple thereof.

 

SECTION 2.04.                                                                 Registrar and Paying Agent.

 

The Issuer shall maintain
an office or agency (which shall be located in the Borough of Manhattan in The
City of New York, State of New York) where Notes may be presented for
registration of transfer or for exchange (the “Registrar”), and an
office or agency where Notes may be presented for payment (the “Paying Agent”)
and an office or agency where notices and demands to or upon the Issuer, if
any, in respect of the Notes and this Indenture may be served.  The Registrar shall keep a register of the
Notes and of their transfer and exchange. 
The Issuer may have one or more additional Paying Agents.  The term “Paying Agent” includes any
additional Paying Agent.  Neither the
Issuer nor any Affiliate thereof may act as Paying Agent.

 

The Issuer shall enter
into an appropriate agency agreement, which shall incorporate the provisions of
the TIA, with any Agent that is not a party to this Indenture.  The agreement shall implement the provisions
of this Indenture that relate to such Agent. 
The Issuer shall notify the Trustee of the name and address of any such
Agent.  If the Issuer fails to maintain
a Registrar or Paying Agent, or fails to give the foregoing notice, the Trustee
shall act as such and shall be entitled to appropriate compensation in
accordance with Section 7.07.

 

The Issuer initially
appoints the Trustee as Registrar, Paying Agent and Agent for service of
notices and demands in connection with the Notes and this Indenture.

 

37

 

SECTION 2.05.                                                                 Paying Agent To Hold Money in Trust.

 

Each Paying Agent shall
hold in trust for the benefit of the Holders or the Trustee all money held by
the Paying Agent for the payment of principal of or premium or interest on the
Notes (whether such money has been paid to it by the Issuer or any other
obligor on the Notes or the Guarantors), and the Issuer and the Paying Agent
shall notify the Trustee of any default by the Issuer (or any other obligor on
the Notes) in making any such payment. 
Money held in trust by the Paying Agent need not be segregated except as
required by law and in no event shall the Paying Agent be liable for any
interest on any money received by it hereunder.  The Issuer at any time may require the Paying Agent to pay all
money held by it to the Trustee and account for any funds disbursed and the
Trustee may at any time during the continuance of any Event of Default
specified in Section 6.01 (1) or (2), upon written request to the Paying
Agent, require such Paying Agent to pay forthwith all money so held by it to
the Trustee and to account for any funds disbursed.  Upon making such payment, the Paying Agent shall have no further
liability for the money delivered to the Trustee.

 

SECTION 2.06.                                                                 Holder Lists.

 

The Trustee shall preserve
in as current a form as is reasonably practicable the most recent list
available to it of the names and addresses of the Holders.  If the Trustee is not the Registrar, the
Issuer shall furnish to the Trustee at least five Business Days before each
Interest Payment Date, and at such other times as the Trustee may request in
writing, a list in such form and as of such date as the Trustee may reasonably
require of the names and addresses of the Holders.

 

SECTION 2.07.                                                                 Transfer and Exchange.

 

Subject to Sections 2.16
and 2.17, when Notes are presented to the Registrar with a request from the
Holder of such Notes to register a transfer or to exchange them for an equal
principal amount of Notes of other authorized denominations, the Registrar
shall register the transfer as requested. 
Every Note presented or surrendered for registration of transfer or
exchange shall be duly endorsed or be accompanied by a written instrument of
transfer in form satisfactory to the Issuer and the Registrar, duly executed by
the Holder thereof or his attorneys duly authorized in writing.  To permit registrations of transfers and
exchanges, the Issuer shall issue and execute and the Trustee shall
authenticate new Notes (and the Guarantors shall execute the guarantee thereon)
evidencing such transfer or exchange at the Registrar’s request.  No service charge shall be made to the
Holder for any registration of transfer or exchange.  The Issuer may require from the Holder payment of a sum
sufficient to cover any transfer taxes or other governmental charge that may be
imposed in relation to a transfer or exchange, but this provision shall not
apply to any exchange pursuant to Section 2.11, 3.06, 4.09, 4.20 or 8.05
(in which events the Issuer shall be responsible for the payment of such taxes).  The Registrar shall not be required to exchange
or register a transfer of any Note for a

 

38

 

period of 15 days
immediately preceding the mailing of notice of redemption of Notes to be
redeemed or of any Note selected, called or being called for redemption except
the unredeemed portion of any Note being redeemed in part.

 

Any Holder of the Global
Note shall, by acceptance of such Global Note, agree that transfers of the
beneficial interests in such Global Note may be effected only through a book
entry system maintained by the Holder of such Global Note (or its agent), and
that ownership of a beneficial interest in the Global Note shall be required to
be reflected in a book entry.

 

Each Holder of a Note
agrees to indemnify the Issuer and the Trustee against any liability that may
result from the transfer, exchange or assignment of such Holder’s Note in
violation of any provision of this Indenture and/or applicable U.S. Federal or
state securities law.

 

Except as expressly
provided herein, neither the Trustee nor the Registrar shall have any duty to
monitor the Issuer’s compliance with or have any responsibility with respect to
the Issuer’s compliance with any Federal or state securities laws.

 

SECTION 2.08.                                                                 Replacement Notes.

 

If a mutilated Note is
surrendered to the Registrar or the Trustee, or if the Holder of a Note claims
that the Note has been lost, destroyed or wrongfully taken, the Issuer shall
issue and the Trustee shall authenticate a replacement Note (and the Guarantors
shall execute the guarantee thereon) if the Holder of such Note furnishes to
the Issuer and the Trustee evidence reasonably acceptable to them of the
ownership and the destruction, loss or theft of such Note and if the requirements
of Section 8-405 of the New York Uniform Commercial Code as in effect on
the date of this Indenture are met.  If
required by the Trustee or the Issuer, an indemnity bond shall be posted,
sufficient in the judgment of both to protect the Issuer, the Guarantors, the
Trustee or any Paying Agent from any loss that any of them may suffer if such
Note is replaced.  The Issuer may charge
such Holder for the Issuer’s reasonable out-of-pocket expenses in replacing
such Note and the Trustee may charge the Issuer for the Trustee’s expenses
(including, without limitation, attorneys’ fees and disbursements) in replacing
such Note.  Every replacement Note shall
constitute a contractual obligation of the Issuer.

 

SECTION 2.09.                                                                 Outstanding Notes.

 

The Notes outstanding at
any time are all Notes that have been authenticated by the Trustee except for
(a) those cancelled by it, (b) those delivered to it for
cancellation, (c) to the extent set forth in Sections 9.01 and 9.02,
on or after the date on which the conditions set forth in Section 9.01 or
9.02 have been satisfied, those Notes theretofore authenticated

 

39

 

and delivered by the
Trustee hereunder and (d) those described in this Section 2.09 as not
outstanding.  Subject to
Section 2.10, a Note does not cease to be outstanding because the Issuer
or one of its Affiliates holds the Note.

 

If a Note is replaced
pursuant to Section 2.08, it ceases to be outstanding unless the Trustee
receives proof satisfactory to it that the replaced Note is held by a bona fide
purchaser in whose hands such Note is a legal, valid and binding obligation of
the Issuer.

 

If the Paying Agent
holds, in its capacity as such, on any maturity date, money sufficient to pay
all accrued interest and principal with respect to the Notes payable on that
date and is not prohibited from paying such money to the Holders thereof
pursuant to the terms of this Indenture, then on and after that date such Notes
cease to be outstanding and interest on them ceases to accrue.

 

SECTION 2.10.                                                                 Treasury Notes.

 

In determining whether
the Holders of the required principal amount of Notes have concurred in any
declaration of acceleration or notice of default or direction, waiver or
consent or any amendment, modification or other change to this Indenture, Notes
owned by the Issuer or any other Affiliate of the Issuer shall be disregarded
as though they were not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent or any amendment, modification or other change to
this Indenture, only Notes as to which a Responsible Officer of the Trustee has
received an Officers’ Certificate stating that such Notes are so owned shall be
so disregarded.  Notes so owned which
have been pledged in good faith shall not be disregarded if the pledgee
established to the satisfaction of the Trustee the pledgee’s right so to act
with respect to the Notes and that the pledgee is not the Issuer, a Guarantor,
any other obligor on the Notes or any of their respective Affiliates.

 

SECTION 2.11.                                                                 Temporary Notes.

 

Until definitive Notes
are prepared and ready for delivery, the Issuer may prepare and the Trustee
shall authenticate temporary Notes. 
Temporary Notes shall be substantially in the form of definitive Notes
but may have variations that the Issuer considers appropriate for temporary
Notes.  Without unreasonable delay, the
Issuer shall prepare and the Trustee shall authenticate definitive Notes in
exchange for temporary Notes.  Until
such exchange, temporary Notes shall be entitled to the same rights, benefits
and privileges as definitive Notes.

 

40

 

SECTION 2.12.                                                                 Cancellation.

 

The Issuer at any time
may deliver Notes to the Trustee for cancellation.  The Registrar and the Paying Agent shall forward to the Trustee
any Notes surrendered to them for registration of transfer, exchange or
payment.  The Trustee shall cancel all
Notes surrendered for registration of transfer, exchange, payment, replacement
or cancellation and shall (subject to the record-retention requirements of the
Exchange Act) destroy cancelled Notes. 
The Issuer may not reissue or resell, or issue new Notes to replace,
Notes that the Issuer has redeemed or paid, or that have been delivered to the
Trustee for cancellation.

 

SECTION 2.13.                                                                 Defaulted Interest.

 

If the Issuer defaults on
a payment of interest on the Notes, it shall pay the defaulted interest, plus
(to the extent permitted by law) any interest payable on the defaulted interest,
in accordance with the terms hereof, to the Persons who are Holders on a subsequent
special record date, which date shall be at least five Business Days prior to
the payment date.  The Issuer shall fix
such special record date and payment date in a manner satisfactory to the
Trustee.  At least 10 days before such
special record date, the Issuer shall mail to each Holder a notice that states
the special record date, the payment date and the amount of defaulted interest,
and interest payable on defaulted interest, if any, to be paid.  The Issuer may make payment of any defaulted
interest in any other lawful manner not inconsistent with the requirements (if
applicable) of any securities exchange on which the Notes may be listed and,
upon such notice as may be required by such exchange, if, after written notice
given by the Issuer to the Trustee of the proposed payment pursuant to this
sentence, such manner of payment shall be deemed practicable by the Trustee.

 

SECTION 2.14.                                                                 CUSIP Number.

 

The Issuer in issuing the
Notes may use a “CUSIP” number, and if so, such CUSIP number shall be included
in notices of redemption or exchange as a convenience to Holders; provided,
that any such notice may state that no representation is made as to the correctness
or accuracy of the CUSIP number printed in the notice or on the Notes, and that
reliance may be placed only on the other identification numbers printed on the
Notes.  The Issuer shall promptly notify
the Trustee of any such CUSIP number used by the Issuer in connection with the
issuance of the Notes and of any change in the CUSIP number.

 

SECTION 2.15.                                                                 Deposit of Moneys.

 

Prior to 10:00 a.m., New
York City time, on each Interest Payment Date and maturity date, the Issuer
shall have deposited with the Paying Agent in immediately available funds money
sufficient to make cash payments, if any, due on such Interest Payment Date or
maturity date, as the case may be, in a timely manner which permits the Trustee
to remit payment

 

41

 

to the Holders on such
Interest Payment Date or maturity date, as the case may be.  The principal and interest on Global Notes
shall be payable to the Depository or its nominee, as the case may be, as the
sole registered owner and the sole holder of the Global Notes represented
thereby.  The principal and interest on
Physical Notes shall be payable, either in person or by mail, at the office of
the Paying Agent.

 

SECTION 2.16.                                                                 Book-Entry Provisions for Global Notes.

 

(a)  Rule 144A
Notes initially shall be represented by one or more notes in registered, global
form without interest coupons (collectively, the “Restricted Global Note”).  Regulation S Notes initially shall be
represented by one or more notes in registered, global form without interest
coupons (collectively, the “Regulation S Global Note,” and, together
with the Restricted Global Note and any other global notes representing Notes,
the “Global Notes”).  The Global
Notes shall bear legends as set forth in Exhibit D.  The Global Notes initially shall (i) be
registered in the name of the Depository or the nominee of such Depository, in
each case for credit to an account of an Agent Member (or, in the case of the
Regulation S Global Notes, of Euroclear System and Cedel Bank, S.A.), (ii) be
delivered to the Trustee as custodian for such Depository and (iii) bear
legends as set forth in Exhibit B with respect to Restricted Global
Notes and Exhibit C with respect to Regulation S Global Notes.

 

Members of, or direct or
indirect participants in, the Depository (“Agent Members”) shall have no
rights under this Indenture with respect to any Global Note held on their
behalf by the Depository, or the Trustee as its custodian, or under the Global
Notes, and the Depository may be treated by the Issuer, the Trustee and any
agent of the Issuer or the Trustee as the absolute owner of the Global Note for
all purposes whatsoever. 
Notwithstanding the foregoing, nothing herein shall prevent the Issuer,
the Trustee or any agent of the Issuer or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depository
or impair, as between the Depository and its Agent Members, the operation of
customary practices governing the exercise of the rights of a Holder of any
Note.

 

(b)  Transfers
of Global Notes shall be limited to transfer in whole, but not in part, to the
Depository, its successors or their respective nominees.  Interests of beneficial owners in the Global
Notes may be transferred or exchanged for Physical Notes in accordance with the
rules and procedures of the Depository and the provisions of
Section 2.17.  In addition, a
Global Note shall be exchangeable for Physical Notes if (i) the Depository (x)
notifies the Issuer that it is unwilling or unable to continue as depository
for such Global Note and the Issuer thereupon fails to appoint a successor depository
or (y) has ceased to be a clearing agency registered under the Exchange Act or
(ii) there shall have occurred and be continuing an Event of Default with
respect to the Notes.  In all cases,
Physical Notes delivered in exchange for any Global Note or beneficial interests
therein shall be registered in the names, and

 

42

 

issued in any approved
denominations, requested by or on behalf of the Depository (in accordance with
its customary procedures).

 

(c)  In
connection with any transfer or exchange of a portion of the beneficial
interest in any Global Note to beneficial owners pursuant to paragraph (b), the
Registrar shall (if one or more Physical Notes are to be issued) reflect on its
books and records the date and a decrease in the principal amount of the Global
Note in an amount equal to the principal amount of the beneficial interest in
the Global Note to be transferred, and the Issuer shall execute, and the
Trustee shall upon receipt of a written order from the Issuer authenticate and
make available for delivery, one or more Physical Notes of like tenor and
amount.

 

(d)  In connection
with the transfer of Global Notes as an entirety to beneficial owners pursuant
to paragraph (b), the Global Notes shall be deemed to be surrendered to the
Trustee for cancellation, and the Issuer shall execute, and the Trustee shall
authenticate and deliver, to each beneficial owner identified by the Depository
in writing in exchange for its beneficial interest in the Global Notes, an
equal aggregate principal amount of Physical Notes of authorized denominations.

 

(e)  Any
Physical Note constituting a Restricted Note delivered in exchange for an
interest in a Global Note pursuant to paragraph (b), (c) or (d) shall, except
as otherwise provided by paragraphs (a)(i)(x) and (c) of Section 2.17,
bear the Private Placement Legend or, in the case of the Regulation S Global
Note, the legend set forth in Exhibit C, in each case, unless the Issuer
determines otherwise in compliance with applicable law.

 

(f)  On or
prior to the 40th day after the later of the commencement of the offering of
the Notes represented by the Regulation S Global Note and the issue date of
such Notes (such period through and including such 40th day, the “Restricted
Period”), a beneficial interest in a Regulation S Global Note may be
transferred to a Person who takes delivery in the form of an interest in the
corresponding Restricted Global Note only upon receipt by the Trustee of a
written certification from the transferor to the effect that such transfer is
being made (i)(a) to a Person whom the transferor reasonably believes is a Qualified
Institutional Buyer in a transaction meeting the requirements of Rule 144A or
(b) pursuant to another exemption from the registration requirements under the
Securities Act which is accompanied by an Opinion of Counsel regarding the
availability of such exemption and (ii) in accordance with all applicable
securities laws of any state of the United States or any other jurisdiction.

 

(g)  Beneficial
interests in the Restricted Global Note may be transferred to a Person who
takes delivery in the form of an interest in the Regulation S Global Note,
whether before or after the expiration of the Restricted Period, only if the
transferor first delivers to the Trustee a written certificate to the effect
that such transfer is being made in accordance with Rule 903 or 904 of
Regulation S or Rule 144 (if available).

 

43

 

(h)  Any
beneficial interest in one of the Global Notes that is transferred to a Person
who takes delivery in the form of an interest in another Global Note shall,
upon transfer, cease to be an interest in such Global Note and become an
interest in such other Global Note and, accordingly, shall thereafter be
subject to all transfer restrictions and other procedures applicable to
beneficial interests in such other Global Note for as long as it remains such
an interest.

 

(i)  The Holder
of any Global Note may grant proxies and otherwise authorize any Person,
including Agent Members and Persons that may hold interests through Agent
Members, to take any action which a Holder is entitled to take under this
Indenture or the Notes.

 

SECTION 2.17.                                                                 Special Transfer Provisions.

 

(a)  Transfers
to Non-QIB Institutional Accredited Investors and Non-U.S. Persons.  The following provisions shall apply with
respect to the registration of any proposed transfer of a Note constituting a
Restricted Note to any Institutional Accredited Investor which is not a QIB or
to any Non-U.S. Person:

 

(i)                                     the Registrar shall register the transfer
of any Note constituting a Restricted Note, whether or not such Note bears the
Private Placement Legend, if (x) the requested transfer is after April 21,
2006 or such other date as such Note shall be freely transferable under Rule
144 as certified in an Officers’ Certificate or (y) (1) in the case
of a transfer to an Institutional Accredited Investor which is not a QIB
(excluding Non-U.S. Persons), the proposed transferee has delivered to the
Registrar a certificate substantially in the form of Exhibit E hereto or
(2) in the case of a transfer to a Non-U.S. Person (including a QIB), the
proposed transferor has delivered to the Registrar a certificate substantially
in the form of Exhibit F hereto; provided that in the case of any
transfer of a Note bearing the Private Placement Legend for a Note not bearing
the Private Placement Legend, the Registrar has received an Officers’
Certificate authorizing such transfer; and

 

(ii)                                  if the proposed transferor is an Agent
Member holding a beneficial interest in a Global Note, upon receipt by the
Registrar of (x) the certificate, if any, required by paragraph (i) above and
(y) instructions given in accordance with the Depository’s and the Registrar’s
procedures,

 

whereupon (a) the
Registrar shall reflect on its books and records the date and (if the transfer
does not involve a transfer of outstanding Physical Notes) a decrease in the
principal amount of a Global Note in an amount equal to the principal amount of
the beneficial interest in a Global Note to be transferred, and (b) the
Registrar shall reflect on its books and records the date and an increase in
the principal amount of a Global Note in an amount equal to the principal 

 

44

 

amount of the beneficial
interest in the Global Note transferred or the Issuer shall execute and the
Trustee shall authenticate and make available for delivery one or more Physical
Notes of like tenor and amount.

 

(b)  Transfers
to QIBs.  The following provisions
shall apply with respect to the registration or any proposed registration of
transfer of a Note constituting a Restricted Note to a QIB (excluding transfers
to Non-U.S. Persons):

 

(i)                                     the Registrar shall register the transfer
if such transfer is being made by a proposed transferor who has checked the box
provided for on such Holder’s Note stating, or has otherwise advised the Issuer
and the Registrar in writing, that the sale has been made in compliance with
the provisions of Rule 144A to a transferee who has signed the certification
provided for on such Holder’s Note stating, or has otherwise advised the Issuer
and the Registrar in writing, that it is purchasing the Note for its own
account or an account with respect to which it exercises sole investment discretion
and that it and any such account is a QIB within the meaning of Rule 144A, and
is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Issuer as it
has requested pursuant to Rule 144A or has determined not to request such
information and that it is aware that the transferor is relying upon its
foregoing representations in order to claim the exemption from registration
provided by Rule 144A; and

 

(ii)                                  if the proposed transferee is an Agent
Member, and the Notes to be transferred consist of Physical Notes which after
transfer are to be evidenced by an interest in the Global Note, upon receipt by
the Registrar of instructions given in accordance with the Depository’s and the
Registrar’s procedures, the Registrar shall reflect on its books and records
the date and an increase in the principal amount of the Global Note in an
amount equal to the principal amount of the Physical Notes to be transferred,
and the Trustee shall cancel the Physical Notes so transferred.

 

(c)  Private
Placement Legend.  Upon the
registration of transfer, exchange or replacement of Notes not bearing the
Private Placement Legend, the Registrar shall deliver Notes that do not bear
the Private Placement Legend.  Upon the
registration of transfer, exchange or replacement of Notes bearing the Private
Placement Legend, the Registrar shall deliver only Notes that bear the Private
Placement Legend unless (i) it has received the Officers’ Certificate
required by paragraph (a)(i)(y) of this Section 2.17, (ii) there is
delivered to the Registrar an Opinion of Counsel reasonably satisfactory to the
Issuer and the Trustee to the effect that neither such legend nor the related
restrictions on transfer are required in order to maintain compliance with the
provisions of the Securities Act or (iii) such Note has been sold pursuant to
an effective registration statement under the Securities Act and the Registrar
has received an Officers’ Certificate from the Issuer to such effect.

 

45

 

(d)  General.  By its acceptance of any Note bearing the
Private Placement Legend, each Holder of such Note acknowledges the
restrictions on transfer of such Note set forth in this Indenture and in the
Private Placement Legend and agrees that it will transfer such Note only as
provided in this Indenture.

 

The Registrar shall
retain for a period of two years copies of all letters, notices and other
written communications received pursuant to Section 2.16 or this
Section 2.17.  The Issuer shall
have the right to inspect and make copies of all such letters, notices or other
written communications at any reasonable time upon the giving of reasonable
notice to the Registrar.

 

SECTION 2.18.                                                                 Computation of Interest.

 

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

 

ARTICLE THREE

 

REDEMPTION

 

SECTION 3.01.                                                                 Election To Redeem; Notices to Trustee.

 

If the Issuer elects to
redeem Notes pursuant to paragraph 6 of the Notes, at least 45 days prior to
the Redemption Date (unless a shorter notice shall be agreed to in writing by
the Trustee) but not more than 65 days before the Redemption Date, the Issuer
shall notify the Trustee in writing of the Redemption Date, the principal
amount of Notes to be redeemed and the redemption price, and deliver to the
Trustee an Officers’ Certificate stating that such redemption will comply with
the conditions contained in paragraph 6 of the Notes.  Notice given to the Trustee pursuant to this Section 3.01
may not be revoked after the time that notice is given to Holders pursuant to
Section 3.03.

 

SECTION 3.02.                                                                 Selection by Trustee of Notes To Be
Redeemed.

 

In the event that less
than all of the Notes are to be redeemed pursuant to a redemption made pursuant
to paragraph 6 of the Notes, selection of the Notes for redemption shall
be made by the Trustee in compliance with the requirements of the principal national
securities exchange, if any, on which the Notes are listed or, if the Notes are
not then listed on a national security exchange, on a pro  rata
basis, by lot or by such method as the Trustee shall deem fair and appropriate;
provided, however, that no Notes of a principal amount of $1,000
or less shall be redeemed in part.  If a
partial redemption is made pursuant to the second paragraph 

 

46

 

of paragraph 6 of the
Notes, selection of the Notes or portions thereof for redemption shall be made
by the Trustee only on a pro  rata basis or on as nearly a pro
rata basis as is practicable (subject to the procedures of the
Depository), unless that method is otherwise prohibited.  The Trustee shall promptly notify the Issuer
of the Notes selected for redemption and, in the case of any Notes selected for
partial redemption, the principal amount thereof to be redeemed.  The Trustee may select for redemption
portions of the principal of the Notes that have denominations larger than
$1,000.  For all purposes of this
Indenture unless the context otherwise requires, provisions of this Indenture
that apply to Notes called for redemption also apply to portions of Notes
called for redemption.  The Issuer may
acquire Notes by means other than redemption, whether pursuant to an Issuer
tender offer, open market purchase or otherwise provided such
acquisition does not otherwise violate the other terms of this Indenture.

 

SECTION 3.03.                                                                 Notice of Redemption.

 

At least 30 days, and no
more than 60 days, before a Redemption Date, the Issuer shall mail, or cause to
be mailed, a notice of redemption by first-class mail to each Holder of Notes
to be redeemed at his or her last address as the same appears on the registry
books maintained by the Registrar pursuant to Section 2.04.

 

The notice shall identify
the Notes to be redeemed (including the CUSIP numbers thereof) and shall state:

 

(1)                                  the Redemption Date;

 

(2)                                  the redemption price and the amount of
premium and accrued interest to be paid;

 

(3)                                  if any Note is being redeemed in part,
the portion of the principal amount of such Note to be redeemed and that, after
the Redemption Date and upon surrender of such Note, a new Note or Notes in
principal amount equal to the unredeemed portion will be issued;

 

(4)                                  the name and address of the Paying Agent;

 

(5)                                  that Notes called for redemption must be
surrendered to the Paying Agent to collect the redemption price;

 

(6)                                  that unless the Issuer defaults in making
the redemption payment, interest on Notes called for redemption ceases to
accrue on and after the Redemption Date;

 

47

 

(7)                                  the provision of paragraph 6 of the
Notes, as the case may be, pursuant to which the Notes called for redemption
are being redeemed; and

 

(8)                                  the aggregate principal amount of Notes
that are being redeemed.

 

At the Issuer’s written
request made at least five Business Days prior to the date on which notice is
to be given, the Trustee shall give the notice of redemption in the Issuer’s
name and at the Issuer’s sole expense.

 

SECTION 3.04.                                                                 Effect of Notice of Redemption.

 

Once the notice of
redemption described in Section 3.03 is mailed, Notes called for
redemption become due and payable on the Redemption Date and at the redemption
price, including any premium, plus interest accrued to the Redemption
Date.  Upon surrender to the Paying
Agent, such Notes shall be paid at the redemption price, including any premium,
plus interest accrued to the Redemption Date, provided that if the Redemption
Date is after a regular record date and on or prior to the Interest Payment
Date, the accrued interest shall be payable to the Holder of the redeemed Notes
registered on the relevant record date, and provided, further,
that if a Redemption Date is a Legal Holiday, payment shall be made on the next
succeeding Business Day and no interest shall accrue for the period from such
Redemption Date to such succeeding Business Day.

 

SECTION 3.05.                                                                 Deposit of Redemption Price.

 

On or prior to
10:00 A.M., New York City time, on each Redemption Date, the Issuer shall
deposit with the Paying Agent in immediately available funds money sufficient
to pay the redemption price of, including premium, if any, and accrued interest
on all Notes to be redeemed on that date other than Notes or portions thereof
called for redemption on that date which have been delivered by the Issuer to
the Trustee for cancellation.

 

On and after any
Redemption Date, if money sufficient to pay the redemption price of, including
premium, if any, and accrued interest on Notes called for redemption shall have
been made available in accordance with the preceding paragraph, the Notes called
for redemption will cease to accrue interest and the only right of the Holders
of such Notes will be to receive payment of the redemption price of and,
subject to the first proviso in Section 3.04, accrued and unpaid interest
on such Notes to the Redemption Date. 
If any Note surrendered for redemption shall not be so paid, interest
will be paid, from the Redemption Date until such redemption payment is made,
on the unpaid principal of the Note and any interest not paid on such unpaid
principal, in each case, at the rate and in the manner provided in the Notes.

 

48

 

SECTION 3.06.                                                                 Notes Redeemed in Part.

 

Upon surrender of a Note
that is redeemed in part, the Trustee shall authenticate for the Holder thereof
a new Note equal in principal amount to the unredeemed portion of the Note
surrendered.

 

ARTICLE FOUR

 

COVENANTS

 

SECTION 4.01.                                                                 Payment of Notes.

 

The Issuer shall pay the
principal of and interest (including all Additional Interest as provided in the
Registration Rights Agreement) on the Notes on the dates and in the manner
provided in the Notes and this Indenture. 
An installment of principal or interest shall be considered paid on the
date it is due if the Trustee or Paying Agent holds on that date money
designated for and sufficient to pay such installment.

 

The Issuer shall pay
interest on overdue principal (including post-petition interest in a proceeding
under any Bankruptcy Law), and overdue interest, to the extent lawful, at the
rate specified in the Notes.

 

SECTION 4.02.                                                                 Reports to Holders.

 

Whether or not required
by the SEC, so long as any Notes are outstanding, the Issuer shall furnish to
the Holders of Notes, within the time periods specified in the SEC’s rules and
regulations (including any grace periods or extensions permitted by the SEC):

 

(1)                                  all quarterly and annual financial
information that would be required to be contained in a filing with the SEC on
Forms 10-Q and 10-K if the Issuer were required to file these Forms, including
a “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and, with respect to the annual information only, a report on the
annual financial statements by the Issuer’s certified independent accountants;
and

 

(2)                                  all current reports that would be
required to be filed with the SEC on Form 8-K if the Issuer were required to
file these reports.

 

In addition, whether or not required by the SEC, the
Issuer shall file a copy of all of the information and reports referred to in
clauses (1) and (2) above with the SEC for public availability within the time
periods specified in the SEC’s rules and regulations (unless 

 

49

 

the SEC will not accept
the filing) and make the information available to securities analysts and
prospective investors upon request.  For
so long as any Notes remain outstanding, the Issuer shall furnish to the
Holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.

 

SECTION 4.03.                                                                 Waiver of Stay, Extension or Usury Laws.

 

Each of the Issuer and
the Guarantors covenants (to the extent that it may lawfully do so) that it
shall not at any time insist upon, or plead (as a defense or otherwise) or in
any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law which would prohibit or forgive any
of the Issuer and the Guarantors from paying all or any portion of the
principal of, premium, if any, and/or interest on the Notes as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which may
affect the covenants or the performance of this Indenture; and (to the extent
that they may lawfully do so) each of the Issuer and the Guarantors 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 4.04.                                                                 Compliance Certificate.

 

(a)  The Issuer
shall deliver to the Trustee, within 90 days after the end of each fiscal year,
an Officers’ Certificate stating that a review of the activities of the Issuer
and its Subsidiaries during such fiscal year has been made under the
supervision of the signing Officers with a view to determining whether the
Issuer and the Guarantors have kept, observed, performed and fulfilled their obligations
under this Indenture, and further stating, as to each such Officer signing such
certificate, that to the best of his or her knowledge, the Issuer and the
Guarantors have kept, observed, performed and fulfilled each and every covenant
contained in this Indenture and are not in default in the performance or observance
of any of the terms, provisions and conditions hereof (or, if a Default shall
have occurred, describing all such Defaults of which he or she may have
knowledge and what action they are taking or propose to take with respect
thereto) and that to the best of his or her knowledge no event has occurred and
remains in existence by reason of which payments on account of the principal of
or interest, if any, on the Notes is prohibited or if such event has occurred,
a description of the event and what action the Issuer and the Guarantors is
taking or propose to take with respect thereto.

 

(b)  The Issuer
and the Guarantors shall, so long as any of the Notes are outstanding, deliver
to the Trustee, forthwith upon any Officer becoming aware of any Default, an
Officers’ Certificate specifying such Default and what action the Issuer and
the Guarantors are taking or propose to take with respect thereto.

 

50

 

(c)  The
Issuer’s fiscal year currently ends on December 31.  The Issuer will provide written notice to
the Trustee of any change in its fiscal year.

 

SECTION 4.05.                                                                 Taxes.

 

The Issuer and the
Guarantors shall, and shall cause each of their Subsidiaries to, pay prior to
delinquency all material taxes, assessments, and governmental levies except as
contested in good faith and by appropriate proceedings.

 

SECTION 4.06.                                                                 Limitations on Additional Indebtedness.

 

The Issuer shall not, and
shall not permit any Restricted Subsidiary to, directly or indirectly, incur
any Indebtedness; provided that the Issuer or any Restricted Subsidiary
may incur additional Indebtedness (including Acquired Indebtedness) if no
Default shall have occurred and be continuing at the time of or as a
consequence of the incurrence of the Indebtedness and if, after giving effect
thereto, either (a) the Consolidated Fixed Charge Coverage Ratio would be
at least 2.00 to 1.00 or (b) the ratio of Consolidated Indebtedness to
Consolidated Tangible Net Worth would be less than 3.00 to 1.00 (either (a) or
(b), the “Ratio Exception”).

 

Notwithstanding the
above, so long as no Default shall have occurred and be continuing at the time
of or as a consequence of the incurrence of the following Indebtedness, each of
the following shall be permitted (the “Permitted Indebtedness”):

 

(1)                                  Indebtedness of the Issuer and any
Restricted Subsidiary under the Credit Facilities in an aggregate amount at any
time outstanding (whether incurred under the Ratio Exception or as Permitted
Indebtedness) not to exceed the greater of (x) $165.0 million and
(y) the amount of the Borrowing Base as of the date of such incurrence;

 

(2)                                  the Notes and the Note Guarantees issued
on the Issue Date;

 

(3)                                  Indebtedness of the Issuer and the
Restricted Subsidiaries to the extent outstanding on the Issue Date (other than
Indebtedness referred to in clauses (1) and (2) above, and after
giving effect to the intended use of proceeds of the Notes);

 

(4)                                  Indebtedness of the Issuer and the Restricted
Subsidiaries under Hedging Obligations; provided that (a) such
Hedging Obligations relate to payment obligations on Indebtedness otherwise
permitted to be incurred by this Section 4.06, and (b) the notional
principal amount of such Hedging Obligations at the time incurred does not
exceed the principal amount of the Indebtedness to which such Hedging Obligations
relate;

 

51

 

(5)                                  Indebtedness of the Issuer owed to a
Restricted Subsidiary and Indebtedness of any Restricted Subsidiary owed to the
Issuer or any other Restricted Subsidiary; provided, however,
that (a) any Indebtedness of the Issuer owed to a Restricted Subsidiary is
unsecured and subordinated, pursuant to a written agreement, to the Issuer’s
obligation, under this Indenture and the Notes and (b) upon any such
Restricted Subsidiary ceasing to be a Restricted Subsidiary or such
Indebtedness being owed to any Person other than the Issuer or a Restricted
Subsidiary, the Issuer or such Restricted Subsidiary, as applicable, shall be
deemed to have incurred Indebtedness not permitted by this clause (5);

 

(6)                                  Indebtedness in respect of bid,
performance or surety bonds issued for the account of the Issuer or any
Restricted Subsidiary in the ordinary course of business, including guarantees
or obligations of the Issuer or any Restricted Subsidiary with respect to
letters of credit supporting such bid, performance or surety obligations (in
each case other than for an obligation for money borrowed);

 

(7)                                  Purchase Money Indebtedness incurred by
the Issuer or any Restricted Subsidiary, in an aggregate amount not to exceed
at any time outstanding $15.0 million;

 

(8)                                  Non-Recourse Indebtedness of the Issuer
or any Restricted Subsidiary incurred for the acquisition, development and/or
improvement of real property and secured by Liens only on such real property;

 

(9)                                  Indebtedness arising from the honoring by
a bank or other financial institution of a check, draft or similar instrument
inadvertently (except in the case of daylight overdrafts) drawn against
insufficient funds in the ordinary course of business; provided, however,
that such Indebtedness is extinguished within five Business Days of incurrence;

 

(10)                            Indebtedness arising in connection with
endorsement of instruments for deposit in the ordinary course of business;

 

(11)                            Refinancing Indebtedness with respect to
Indebtedness incurred pursuant to the Ratio Exception or clause (2) or (3)
above; and

 

(12)                            Indebtedness of the Issuer or any
Restricted Subsidiary in an aggregate amount not to exceed $15.0 million at any
time outstanding.

 

For purposes of
determining compliance with this Section 4.06, in the event that an item
of Indebtedness meets the criteria of more than one of the categories of Permitted
Indebtedness described in clauses (1) through (12) above or is entitled to be
incurred pursuant 

 

52

 

to the Ratio Exception,
the Issuer shall, in its sole discretion, classify such item of Indebtedness
and may divide and classify such Indebtedness in more than one of the types of
Indebtedness described, except that Indebtedness outstanding under the Credit
Facilities on the Issue Date shall be deemed to have been incurred under clause
(1) above.

 

SECTION 4.07.                                                                 Limitations on Layering Indebtedness.

 

The Issuer shall not, and
shall not permit any Restricted Subsidiary to, directly or indirectly, incur
any Indebtedness that is or purports to be by its terms (or by the terms of any
agreement governing such Indebtedness) contractually subordinated to any other
Indebtedness of the Issuer or of such Restricted Subsidiary, as the case may
be, unless such Indebtedness is also by its terms (or by the terms of any
agreement governing such Indebtedness) contractually made expressly subordinate
to the Notes or the Note Guarantee of such Restricted Subsidiary, to the same
extent and in the same manner as such Indebtedness is contractually
subordinated to such other Indebtedness of the Issuer or such Restricted Subsidiary,
as the case may be.

 

SECTION 4.08.                                                                 Limitations on Restricted Payments.

 

The Issuer shall not, and
shall not permit any Restricted Subsidiary to, directly or indirectly, make any
Restricted Payment if at the time of such Restricted Payment:

 

(1)                                  a Default shall have occurred and be
continuing or shall occur as a consequence thereof;

 

(2)                                  the Issuer cannot incur $1.00 of
additional Indebtedness pursuant to the Ratio Exception; or

 

(3)                                  the amount of such Restricted Payment,
when added to the aggregate amount of all other Restricted Payments made after
the Measurement Date (other than Restricted Payments made pursuant to clause
(2), (3) or (5) of the next paragraph), exceeds the sum (the “Restricted
Payments Basket”) of (without duplication):

 

(a)                                  50% of Consolidated Net Income for the
period (taken as one accounting period) commencing on the first day of the
first full fiscal quarter commencing after the Measurement Date to and
including the last day of the fiscal quarter ended immediately prior to the
date of such calculation for which consolidated financial statements are
available (or, if such Consolidated Net Income shall be a deficit, minus 100%
of such aggregate deficit), plus

 

(b)                                 100% of the aggregate net cash proceeds
or the Fair Market Value of any assets to be used in a Permitted Business
(other than securities)

 

53

 

received by the
Issuer either (x) as contributions to the common equity of the Issuer
after the Measurement Date or (y) from the issuance and sale of Qualified
Equity Interests after the Measurement Date, other than to the extent any such
proceeds are used to redeem Notes in accordance with Section 6(b) of the
Notes, plus

 

(c)                                  the aggregate amount by which
Indebtedness of the Issuer or any Restricted Subsidiary is reduced on the
Issuer’s balance sheet upon the conversion or exchange (other than by a
Subsidiary of the Issuer) subsequent to the Measurement Date into Qualified
Equity Interests (less the amount of any cash, or the fair value of assets, distributed
by the Issuer or any Restricted Subsidiary upon such conversion or exchange), plus

 

(d)                                 in the case of the disposition or
repayment of or return on any Investment that was treated as a Restricted
Payment made after the Measurement Date, an amount (to the extent not included
in the computation of Consolidated Net Income) equal to the lesser of
(i) the return of capital with respect to such Investment and
(ii) the amount of such Investment that was treated as a Restricted
Payment, in either case, less the cost of the disposition of such Investment
and net of taxes, plus

 

(e)                                  upon a Redesignation of an Unrestricted
Subsidiary as a Restricted Subsidiary, the lesser of (i) the Fair Market
Value of the Issuer’s proportionate interest in such Subsidiary immediately
following such Redesignation, and (ii) the aggregate amount of the Issuer’s
Investments in such Subsidiary to the extent such Investments reduced the
amount available for subsequent Restricted Payments under this clause
(3) and were not previously repaid or otherwise reduced, plus

 

(f)                                    $10.0 million.

 

The foregoing provisions
will not prohibit:

 

(1)                                  the payment by the Issuer or any
Restricted Subsidiary of any dividend within 60 days after the date of
declaration thereof, if on the date of declaration the payment would have
complied with the provisions of this Indenture;

 

(2)                                  so long as no Default shall have occurred
and be continuing at the time of or as a consequence of such redemption, the
redemption of any Equity Interests of the Issuer or any Restricted Subsidiary
in exchange for, or out of the proceeds of the substantially concurrent
issuance and sale of, Qualified Equity Interests;

 

54

 

(3)                                  so long as no Default shall have occurred
and be continuing at the time of or as a consequence of such redemption, the
redemption of Subordinated Indebtedness of the Issuer or any Restricted
Subsidiary (a) in exchange for, or out of the proceeds of the substantially
concurrent issuance and sale of, Qualified Equity Interests or (b) in exchange
for, or out of the proceeds of the substantially concurrent incurrence of,
Refinancing Indebtedness permitted to be incurred under Section 4.06 and
the other terms of this Indenture;

 

(4)                                  so long as no Default shall have occurred
and be continuing at the time of or as a consequence of such redemption, the
redemption of Equity Interests of the Issuer held by officers, directors or
employees or former officers, directors or employees (or their transferees,
estates or beneficiaries under their estates), upon their death, disability,
retirement, severance or termination of employment or service; provided
that the aggregate cash consideration paid for all such redemptions shall not
exceed $2.0 million during any calendar year (with unused amounts in any
calendar year being carried over to succeeding calendar years subject to a
maximum of $4.0 million in any calendar year); or

 

(5)                                  repurchases of Equity Interests deemed to
occur upon the exercise of stock options if the Equity Interests represents a
portion of the exercise price thereof;

 

provided that no issuance and sale of Qualified
Equity Interests pursuant to clause (2) or (3) above shall increase the
Restricted Payments Basket, except to the extent the proceeds thereof exceed
the amounts used to effect the transactions described therein.

 

SECTION 4.09.                                                                 Limitations on Asset Sales.

 

The Issuer shall not, and
shall not permit any Restricted Subsidiary to, directly or indirectly,
consummate any Asset Sale unless:

 

(1)                                  the Issuer or such Restricted Subsidiary
receives consideration at the time of such Asset Sale at least equal to the
Fair Market Value of the assets included in such Asset Sale; and

 

(2)                                  at least 75% of the total consideration
received in such Asset Sale or series of related Asset Sales consists of cash
or Cash Equivalents.

 

For purposes of clause
(2), the following shall be deemed to be cash:

 

(a)                                  the amount (without duplication) of any
Indebtedness (other than Subordinated Indebtedness) of the Issuer or such Restricted
Subsidiary that is expressly assumed by the transferee in such Asset Sale and
with respect to which the Issuer or 

 

55

 

such Restricted
Subsidiary, as the case may be, is unconditionally released by the holder of
such Indebtedness,

 

(b)                                 the amount of any obligations received
from such transferee that are within 30 days converted by the Issuer or such
Restricted Subsidiary to cash (to the extent of the cash actually so received),
and

 

(c)                                  the Fair Market Value of any assets
(other than securities, unless such securities represent Equity Interests in an
entity engaged solely in a Permitted Business, such entity becomes a Restricted
Subsidiary and the Issuer or a Restricted Subsidiary acquires voting and management
control of such entity) received by the Issuer or any Restricted Subsidiary to
be used by it in the Permitted Business.

 

If at any time any
non-cash consideration received by the Issuer or any Restricted Subsidiary of
the Issuer, as the case may be, in connection with any Asset Sale is repaid or
converted into or sold or otherwise disposed of for cash (other than interest received
with respect to any such non-cash consideration), then the date of such
repayment, conversion or disposition shall be deemed to constitute the date of
an Asset Sale hereunder and the Net Available Proceeds thereof shall be applied
in accordance with this Section 4.09.

 

If the Issuer or any
Restricted Subsidiary engages in an Asset Sale, the Issuer or such Restricted
Subsidiary shall, no later than one year following the consummation thereof,
apply all or any of the Net Available Proceeds therefrom to:

 

(1)                                  repay any Indebtedness under the Credit
Facilities;

 

(2)                                  repay any Indebtedness which was secured
by the assets sold in such Asset Sale; and/or

 

(3)                                  invest all or any part of the Net
Available Proceeds thereof in the purchase of assets (other than securities,
unless such securities represent Equity Interests in an entity engaged solely
in a Permitted Business, such entity becomes a Restricted Subsidiary and the
Issuer or a Restricted Subsidiary acquires voting and management control of
such entity) to be used by the Issuer or any Restricted Subsidiary in the
Permitted Business.

 

The amount of Net
Available Proceeds not applied or invested as provided in this paragraph will
constitute “Excess Proceeds.”

 

When the aggregate amount
of Excess Proceeds equals or exceeds $10.0 million, the Issuer shall be
required to make an Offer to Purchase from all Holders and, if applicable, redeem
(or make an offer to do so) any Pari Passu Indebtedness of the Issuer the

 

56

 

provisions of which
require the Issuer to redeem such Indebtedness with the proceeds from any Asset
Sales (or offer to do so), in an aggregate principal amount of Notes and such
Pari Passu Indebtedness equal to the amount of such Excess Proceeds as follows:

 

(1)                                  the Issuer shall (a) make an Offer to
Purchase (a “Net Proceeds Offer”) to all Holders, and (b) redeem (or
make an offer to do so) any such other Pari Passu Indebtedness, pro rata in
proportion to the respective principal amounts of the Notes and such other
Indebtedness required to be redeemed, the maximum principal amount of Notes and
Pari Passu Indebtedness that may be redeemed out of the amount (the “Payment
Amount”) of such Excess Proceeds;

 

(2)                                  the offer price for the Notes shall be
payable in cash in an amount equal to 100% of the principal amount of the Notes
tendered pursuant to a Net Proceeds Offer, plus accrued and unpaid interest
thereon, if any, to the date such Net Proceeds Offer is consummated (the “Offered
Price”), and the redemption price for such Pari Passu Indebtedness (the “Pari
Passu Indebtedness Price”) shall be as set forth in the related documentation
governing such Indebtedness;

 

(3)                                  if the aggregate Offered Price of Notes
validly tendered and not withdrawn by Holders thereof exceeds the pro rata
portion of the Payment Amount allocable to the Notes, Notes to be purchased
shall be selected on a pro rata basis; and

 

(4)                                  upon completion of such Net Proceeds
Offer in accordance with the foregoing provisions, the amount of Excess
Proceeds with respect to which such Net Proceeds Offer was made shall be deemed
to be zero.

 

To the extent that the
sum of the aggregate Offered Price of Notes tendered pursuant to a Net Proceeds
Offer and the aggregate Pari Passu Indebtedness Price paid to the holders of
such Pari Passu Indebtedness is less than the Payment Amount relating thereto
(such shortfall constituting a “Net Proceeds Deficiency”), the Issuer
may use the Net Proceeds Deficiency, or a portion thereof, for general
corporate purposes, subject to the provisions of this Indenture.

 

In the event of the
transfer of substantially all (but not all) of the assets of the Issuer and the
Restricted Subsidiaries as an entirety to a Person in a transaction covered by
and effected in accordance with Section 5.01 the successor corporation
shall be deemed to have sold for cash at Fair Market Value the assets of the Issuer
and the Restricted Subsidiaries not so transferred for purposes of this
covenant, and shall comply with the provisions of this covenant with respect to
such deemed sale as if it were an Asset Sale (with such Fair Market Value being
deemed to be Net Available Proceeds for such purpose).

 

57

 

The Issuer shall comply
with applicable tender offer rules, including the requirements of Rule 14e-1
under the Exchange Act and any other applicable laws and regulations in connection
with the purchase of Notes pursuant to a Net Proceeds Offer.  To the extent that the provisions of any
securities laws or regulations conflict with this Section 4.09, the Issuer
shall comply with the applicable securities laws and regulations and shall not
be deemed to have breached its obligations under this Section 4.09 by
virtue of this compliance.

 

SECTION 4.10.                                                                 Limitations on Transactions with
Affiliates.

 

The Issuer shall not, and
shall not permit any Restricted Subsidiary to, directly or indirectly, in one
transaction or a series of related transactions, sell, lease, transfer or otherwise
dispose of any of its assets to, or purchase any assets from, or enter into any
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate involving aggregate consideration in excess of
$60,000 (an “Affiliate Transaction”), unless:

 

(1)                                  such Affiliate Transaction is on terms
that are no less favorable to the Issuer or the relevant Restricted Subsidiary
than those that may have been obtained in a comparable transaction at such time
on an arm’s-length basis by the Issuer or that Restricted Subsidiary from a
Person that is not an Affiliate of the Issuer or that Restricted Subsidiary;
and

 

(2)                                  the Issuer delivers to the Trustee:

 

(a)                                  with respect to any Affiliate Transaction
involving aggregate value of $1.0 million or more, an Officers’ Certificate
certifying that such Affiliate Transaction complies with clause (1) above;

 

(b)                                 with respect to any Affiliate Transaction
involving aggregate value in excess of $2.0 million, an Officers’
Certificate certifying that such Affiliate Transaction complies with clause
(1) above and a Secretary’s Certificate which sets forth and authenticates
a resolution that has been adopted by the Independent Directors approving such
Affiliate Transaction; and

 

(c)                                  with respect to any Affiliate Transaction
involving aggregate value of $10.0 million or more, the certificates described
in the preceding clause (b) and (x) a written opinion as to the fairness
of such Affiliate Transaction to the Issuer or such Restricted Subsidiary from
a financial point of view or (y) a written appraisal supporting the value
of such Affiliate Transaction, in either case, issued by an Independent
Financial Advisor.

 

The foregoing
restrictions shall not apply to:

 

58

 

(1)                                  transactions exclusively between or among
(a) the Issuer and one or more Restricted Subsidiaries or
(b) Restricted Subsidiaries; provided, in each case, that no
Affiliate of the Issuer (other than another Restricted Subsidiary) owns Equity
Interests of any such Restricted Subsidiary;

 

(2)                                  reasonable director, officer, employee
and consultant compensation (including bonuses) and other benefits (including
retirement, health, stock and other benefit plans) and indemnification arrangements;

 

(3)                                  loans and advances permitted by clause
(3) of the definition of “Permitted Investments”;

 

(4)                                  any agreement as in effect as of the
Issue Date or any extension, amendment or modification thereto (so long as any
such extension, amendment or modification satisfies the requirements set forth
in clause (1) of the first paragraph of this Section 4.10) or any
transaction contemplated thereby;

 

(5)                                  Restricted Payments of the type described
in clause (1), (2) or (4) of the definition of “Restricted Payment” and which
are made in accordance with Section 4.08; or

 

(6)                                  sales of Qualified Equity Interests for
cash by the Issuer to an Affiliate.

 

SECTION 4.11.                                                                 Limitations on Liens.

 

The Issuer shall not, and
shall not permit any Restricted Subsidiary to, directly or indirectly, create,
incur, assume or permit or suffer to exist any Lien of any nature whatsoever
against (other than Permitted Liens) any assets of the Issuer or any Restricted
Subsidiary (including Equity Interests of a Restricted Subsidiary), whether
owned at the Issue Date or thereafter acquired, or any proceeds therefrom, or
assign or otherwise convey any right to receive income or profits therefrom,
which Lien secures Indebtedness or trade payables, unless contemporaneously
therewith:

 

(1)                                  in the case of any Lien securing an
obligation that ranks pari passu with the Notes or a Note Guarantee,
effective provision is made to secure the Notes or such Note Guarantee, as the
case may be, at least equally and ratably with or prior to such obligation with
a Lien on the same collateral; and

 

(2)                                  in the case of any Lien securing an
obligation that is subordinated in right of payment to the Notes or a Note
Guarantee, effective provision is made to secure the Notes or such Note
Guarantee, as the case may be, with a Lien on the same collateral that is prior
to the Lien securing such subordinated obligation,

 

59

 

in each case, for so long
as such obligation is secured by such Lien.

 

SECTION 4.12.                                                                 Conduct of Business.

 

The Issuer will not, and
will not permit any Restricted Subsidiary to, engage in any business other than
the Permitted Business.

 

SECTION 4.13.                                                                 Additional Note Guarantees.

 

If, after the Issue Date,
(a) the Issuer or any Restricted Subsidiary shall acquire or create another
Subsidiary (other than a Subsidiary that has been designated an Unrestricted
Subsidiary) or (b) any Unrestricted Subsidiary is redesignated a Restricted Subsidiary,
then, in each such case, the Issuer shall cause such Restricted Subsidiary to:

 

(1)                                  execute and deliver to the Trustee (a) a
supplemental indenture in form and substance satisfactory to the Trustee
pursuant to which such Restricted Subsidiary shall unconditionally guarantee
all of the Issuer’s obligations under the Notes and this Indenture and (b) a
notation of guarantee in respect of its Note Guarantee; and

 

(2)                                  deliver to the Trustee one or more
Opinions of Counsel that such supplemental indenture (a) has been duly
authorized, executed and delivered by such Restricted Subsidiary and (b)
constitutes a valid and legally binding obligation of such Restricted
Subsidiary in accordance with its terms.

 

SECTION 4.14.                                                                 Limitations on Dividend and Other
Restrictions Affecting Restricted Subsidiaries.

 

The Issuer shall not, and
shall not permit any Restricted Subsidiary to, directly or indirectly, create
or otherwise cause or permit to exist or become effective any consensual
encumbrance or consensual restriction on the ability of any Restricted Subsidiary
to:

 

(a)                                  pay dividends or make any other
distributions on or in respect of its Equity Interests;

 

(b)                                 make loans or advances or pay any
Indebtedness or other obligation owed to the Issuer or any other Restricted
Subsidiary; or

 

(c)                                  transfer any of its assets to the Issuer
or any other Restricted Subsidiary;

 

60

 

except for:

 

(1)                                  encumbrances or restrictions existing
under or by reason of applicable law;

 

(2)                                  encumbrances or restrictions existing
under this Indenture, the Notes and the Note Guarantees;

 

(3)                                  non-assignment provisions of any contract
or any lease entered into in the ordinary course of business;

 

(4)                                  encumbrances or restrictions existing
under agreements existing on the date hereof (including, without limitation,
the Credit Facilities) as in effect on the date hereof;

 

(5)                                  restrictions on the transfer of assets
subject to any Lien permitted under this Indenture imposed by the holder of
such Lien;

 

(6)                                  restrictions on the transfer of assets
imposed under any agreement to sell such assets permitted under this Indenture
to any Person pending the closing of such sale;

 

(7)                                  any instrument governing Acquired
Indebtedness, which encumbrance or restriction is not applicable to any Person,
or the assets of any Person, other than the Person or the assets so acquired;

 

(8)                                  encumbrances or restrictions arising in
connection with Refinancing Indebtedness; provided, however, that
any such encumbrances and restrictions are not materially more restrictive with
respect to any Restricted Subsidiary than those in effect on the Issue Date
with respect to that Restricted Subsidiary pursuant to the agreements creating
or evidencing the Indebtedness being refinanced;

 

(9)                                  customary provisions in leases,
partnership agreements, limited liability company organizational governance
documents, joint venture agreements and other similar agreements entered into
in the ordinary course of business that restrict the transfer of leasehold
interests or ownership interests in such partnership, limited liability
company, joint venture or similar Person;

 

(10)                            Purchase Money Indebtedness incurred in
compliance with Section 4.06 that impose restrictions of the nature
described in clause (c) above on the assets acquired; and

 

61

 

(11)                            any encumbrances or restrictions imposed
by any amendments or refinancings of the contracts, instruments or obligations
referred to in clauses (1) through (10) above; provided that such
amendments or refinancings are, in the good faith judgment of the Issuer’s
Board of Directors, no more materially restrictive with respect to such
encumbrances and restrictions than those prior to such amendment or refinancing.

 

SECTION 4.15.                                                                 Limitations on Designation of
Unrestricted Subsidiaries.

 

The Issuer may designate
any Subsidiary of the Issuer as an “Unrestricted Subsidiary” under this
Indenture (a “Designation”) only if:

 

(1)                                  no Default shall have occurred and be
continuing at the time of or after giving effect to such Designation; and

 

(2)                                  the Issuer would be permitted to make, at
the time of such Designation, (a) a Permitted Investment or (b) an Investment
pursuant to the first paragraph of Section 4.08, in either case, in an
amount (the “Designation Amount”) equal to the Fair Market Value of the
Issuer’s proportionate interest in such Subsidiary on such date.

 

No Subsidiary shall be
Designated as an “Unrestricted Subsidiary” unless such Subsidiary:

 

(1)                                  has no Indebtedness other than Permitted
Unrestricted Subsidiary Debt;

 

(2)                                  is not party to any agreement, contract,
arrangement or understanding with the Issuer or any Restricted Subsidiary
unless the terms of the agreement, contract, arrangement or understanding are
no less favorable to the Issuer or the Restricted Subsidiary than those that
might be obtained at the time from Persons who are not Affiliates of the Issuer
or such Restricted Subsidiary;

 

(3)                                  is a Person with respect to which neither
the Issuer nor any Restricted Subsidiary has any direct or indirect obligation
(a) to subscribe for additional Equity Interests or (b) to maintain or preserve
the Person’s financial condition or to cause the Person to achieve any
specified levels of operating results; and

 

(4)                                  has not guaranteed or otherwise directly
or indirectly provided credit support for any Indebtedness of the Issuer or any
Restricted Subsidiary, except for any guarantee given solely to support the
pledge by the Issuer or any Restricted Subsidiary of the Equity Interests of
such Unrestricted Subsidiary, which guarantee is not recourse

 

62

 

to the Issuer or
any Restricted Subsidiary, and except to the extent the amount thereof
constitutes a Restricted Payment permitted pursuant to Section 4.08.

 

If, at any time, any
Unrestricted Subsidiary fails to meet the preceding requirements as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes
of this Indenture and any Indebtedness of the Subsidiary and any Liens on
assets of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary as of the date and, if the Indebtedness is not permitted to be
incurred under Section 4.06 or the Lien is not permitted under Section 4.11,
the Issuer shall be in default of the applicable covenant.

 

As of the Issue Date, the
Issuer shall be deemed to have Designated MTH Mortgage, LLC and Texas Home
Mortgage Company as Unrestricted Subsidiaries.

 

The Issuer may
redesignate an Unrestricted Subsidiary as a Restricted Subsidiary (a “Redesignation”)
only if:

 

(1)                                  no Default shall have occurred and be
continuing at the time of and after giving effect to such Redesignation; and

 

(2)                                  all Liens, Indebtedness and Investments
of such Unrestricted Subsidiary outstanding immediately following such
Redesignation would, if incurred or made at such time, have been permitted to
be incurred or made for all purposes of this Indenture.

 

All Designations and
Redesignations must be evidenced by resolutions of the Board of Directors of
the Issuer, delivered to the Trustee certifying compliance with the foregoing
provisions.

 

SECTION 4.16.                                                                 Maintenance of Consolidated Tangible Net
Worth.

 

If the Issuer’s
Consolidated Tangible Net Worth declines below $60.0 million (the “Minimum
Tangible Net Worth”) at the end of any fiscal quarter, the Issuer must
deliver an Officers’ Certificate to the Trustee within 55 days after the end of
that fiscal quarter (110 days after the end of any fiscal year) to notify the
Trustee.  If, on the last day of each of
any two consecutive fiscal quarters (the last day of the second fiscal quarter
being referred to as a “Deficiency Date”), the Issuer’s Consolidated
Tangible Net Worth is less than the Minimum Tangible Net Worth of the Issuer,
then the Issuer must make an Offer to Purchase (a “Net Worth Offer”) to
all Holders of Notes to purchase 10% of the aggregate principal amount of the
Notes originally issued (the “Net Worth Offer Amount”) at a purchase
price equal to 100% of the principal amount of the Notes, plus accrued and unpaid
interest thereon, if any, to the date of purchase; provided, however,
that no such Net Worth Offer shall be required if, after the Deficiency Date
but prior to the date the Issuer is required to make the Net Worth 

 

63

 

Offer, capital in cash or
Cash Equivalents is contributed for Qualified Equity Interests of the Issuer
sufficient to increase the Issuer’s Consolidated Tangible Net Worth after
giving effect to such contribution to an amount equal to or above the Minimum
Tangible Net Worth.

 

The Issuer must make the
Net Worth Offer no later than 65 days after each Deficiency Date (120 days if
such Deficiency Date is the last day of the Issuer’s fiscal year).  The Net Worth Offer is required to remain
open for a period of 20 Business Days following its commencement or for such
longer period as required by law.  The
Issuer is required to purchase the Net Worth Offer Amount of the Notes on a
designated date no later than five Business Days after the termination of the
Net Worth Offer, or if less than the Net Worth Offer Amount of Notes shall have
been tendered, all Notes then tendered.

 

If the aggregate
principal amount of Notes tendered exceeds the Net Worth Offer Amount, the
Issuer is required to purchase the Notes tendered to it pro rata among
the Notes tendered (with such adjustments as may be appropriate so that only
Notes in denominations of $1,000 and integral multiples thereof shall be
purchased).

 

In no event shall the
failure of the Issuer’s Consolidated Tangible Net Worth to equal or exceed the
Minimum Tangible Net Worth at the end of any fiscal quarter be counted toward
the requirement to make more than one Net Worth Offer.  The Issuer may reduce the principal amount
of Notes to be purchased pursuant to the Net Worth Offer by subtracting 100% of
the principal amount (excluding premium) of the Notes redeemed by the Issuer
prior to the purchase (otherwise than under this provision).  The Issuer, however, may not credit Notes
that have been previously used as a credit against any obligation to repurchase
Notes pursuant to this provision.

 

The Issuer shall comply
with applicable tender offer rules, including the requirements of Rule 14e-1
under the Exchange Act and any other applicable laws and regulations in
connection with the purchase of Notes pursuant to a Net Worth Offer.  To the extent that the provisions of any
securities laws or regulations conflict with this Section 4.16, the Issuer
shall comply with the applicable securities laws and regulations and shall not
be deemed to have breached its obligations under this Section 4.16 by
virtue of this compliance.

 

SECTION 4.17.                                                                 Maintenance of Properties; Insurance;
Compliance with Law.

 

(a)  The Issuer
shall, and shall cause each of its Restricted Subsidiaries to, at all times
cause all properties used or useful in the conduct of their business to be
maintained and kept in good condition, repair and working order (reasonable
wear and tear excepted) and supplied with all necessary equipment, and shall
cause to be made all necessary repairs, renewals, replacements, necessary
betterments and necessary improvements thereto.

 

64

 

(b)  The Issuer
shall maintain, and shall cause to be maintained for each of its Restricted
Subsidiaries, insurance covering such risks as are usually and customarily insured
against by corporations similarly situated in the markets where the Issuer and
the Restricted Subsidiaries conduct homebuilding operations, in such amounts as
shall be customary for corporations similarly situated and with such
deductibles and by such methods as shall be customary and reasonably consistent
with past practice.

 

(c)  The Issuer
shall, and shall cause each of its Subsidiaries to, comply with all statutes,
laws, ordinances or government rules and regulations to which they are subject,
non-compliance with which would materially adversely affect the business,
earnings, properties, assets or financial condition of the Issuer and their
Subsidiaries taken as a whole.

 

SECTION 4.18.                                                                 Payments for Consent.

 

The Issuer shall not, and
shall not cause or permit any of its Subsidiaries to, directly or indirectly,
pay or cause to be paid any consideration, whether by way of interest, fee or
otherwise, to any Holder of any Notes for or as an inducement to any consent,
waiver or amendment of any of the terms or provisions of this Indenture or the
Notes unless such consideration is offered to be paid or agreed to be paid to
all Holders which so consent, waive or agree to amend in the time frame set
forth in solicitation documents relating to such consent, waiver or agreement.

 

SECTION 4.19.                                                                 Legal Existence.

 

Subject to
Article Five, the Issuer shall do or cause to be done all things necessary
to preserve and keep in full force and effect (i) its legal existence, and the
corporate, partnership or other existence of each Restricted Subsidiary, in
accordance with the respective organizational documents (as the same may be
amended from time to time) of each Restricted Subsidiary and the rights
(charter and statutory), licenses and franchises of the Issuer and its
Restricted Subsidiaries; provided that the Issuer shall not be required
to preserve any such right, license or franchise, or the corporate, partnership
or other existence of any of its Restricted Subsidiaries if the Board of
Directors of the Issuer shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Issuer and its Restricted
Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any
material respect to the Holders.

 

SECTION 4.20.                                                                 Change of Control Offer.

 

Upon the occurrence of a
Change of Control, the Issuer shall be obligated to make an Offer to Purchase
(the “Change of Control Offer”), and shall purchase, on a Business Day
(the “Change of Control Payment Date”) not more than 60 nor less than 30
days following the occurrence of the Change of Control, all of the then
outstanding Notes at a purchase

 

65

 

price (the “Change of
Control Purchase Price”) equal to 101% of the principal amount thereof,
plus accrued and unpaid interest, if any, thereon to the Change of Control
Payment Date.  The Change of Control
Offer shall remain open for at least 20 Business Days and until the close of
business on the Change of Control Payment Date.

 

Within 30 days following
the date upon which a Change of Control occurs (the “Change of Control Date”),
the Issuer shall send, by first class mail, a notice to each Holder, with a
copy to the Trustee, which notice shall govern the terms of the Change of
Control Offer.  The notice to the
Holders shall contain all instructions and materials necessary to enable such
Holders to tender Notes pursuant to the Change of Control Offer.

 

Any amounts remaining
after the purchase of Notes pursuant to a Change of Control Offer shall be
returned by the Trustee to the Issuer.

 

The Issuer’s obligation
to make a Change of Control Offer will be satisfied if a third party makes the
Change of Control Offer in the manner and at the times and otherwise in
compliance with the requirements applicable to a Change of Control Offer made
by the Issuer and purchases all Notes properly tendered and not withdrawn under
the Change of Control Offer.

 

The Issuer shall comply
with applicable tender rules, including the requirements of Rule 14e-1
under the Exchange Act and any other applicable laws and regulations in
connection with the purchase of Notes pursuant to a Change of Control
Offer.  To the extent the provisions of
any securities laws or regulations conflict with the provisions under this
Section 4.20, the Issuer shall comply with the applicable securities laws
and regulations and shall not be deemed to have breached its obligations under
this Section 4.20 by virtue thereof.

 

ARTICLE FIVE

 

SUCCESSOR CORPORATION

 

SECTION 5.01.                                                                 Limitations on Mergers, Consolidations,
Etc.

 

The Issuer shall not,
directly or indirectly, in a single transaction or a series of related
transactions, (a) consolidate or merge with or into (other than a merger that
satisfies the requirements of clause (1) below with a Wholly-Owned Restricted
Subsidiary solely for the purpose of changing the Issuer’s jurisdiction of
incorporation to another State of the United States), or sell, lease, transfer,
convey or otherwise dispose of or assign all or substantially all of the assets
of the Issuer or the Issuer and the Restricted Subsidiaries (taken as a whole)
or (b) adopt a Plan of Liquidation unless, in either case:

 

66

 

(1)                                  either:

 

(a)                                  the Issuer will be the surviving or
continuing Person; or

 

(b)                                 the Person formed by or surviving such
consolidation or merger or to which such sale, lease, conveyance or other disposition
shall be made (or, in the case of a Plan of Liquidation, any Person to which
assets are transferred) (collectively, the “Successor”) is a corporation
or limited liability company organized and existing under the laws of any State
of the United States of America or the District of Columbia, and the Successor
expressly assumes, by supplemental indenture in form and substance satisfactory
to the Trustee, all of the obligations of the Issuer under the Notes, this
Indenture and the Registration Rights Agreement; provided that at any time
the Successor is a limited liability company, there shall be a co-issuer of the
Notes that is a corporation;

 

(2)                                  immediately prior to and immediately
after giving effect to such transaction and the assumption of the obligations
as set forth in clause (1)(b) above and the incurrence of any Indebtedness
to be incurred in connection therewith, no Default shall have occurred and be
continuing; and

 

(3)                                  immediately after and giving effect to
such transaction and the assumption of the obligations set forth in clause
(1)(b) above and the incurrence of any Indebtedness to be incurred in
connection therewith, and the use of any net proceeds therefrom on a pro forma
basis, (a) the Consolidated Net Worth of the Issuer or the Successor, as
the case may be, would be at least equal to the Consolidated Net Worth of the
Issuer immediately prior to such transaction and (b) the Issuer or the
Successor, as the case may be, could incur $1.00 of additional Indebtedness
pursuant to the Ratio Exception.

 

For purposes of this
Section 5.01, any Indebtedness of the Successor which was not Indebtedness
of the Issuer immediately prior to the transaction shall be deemed to have been
incurred in connection with such transaction.

 

Except as provided under
Section 10.04 no Guarantor may consolidate with or merge with or into
(whether or not such Guarantor is the surviving Person) another Person, whether
or not affiliated with such Guarantor, unless:

 

(1)                                  either:

 

(a)                                  such Guarantor will be the surviving or
continuing Person; or

 

67

 

(b)                                 the Person formed by or surviving any
such consolidation or merger assumes, by supplemental indenture in form and
substance satisfactory to the Trustee, all of the obligations of such Guarantor
under the Note Guarantee of such Guarantor, this Indenture and the Registration
Rights Agreement; and

 

(2)                                  immediately after giving effect to such
transaction, no Default shall have occurred and be continuing.

 

For purposes of the
foregoing, the transfer (by lease, assignment, sale or otherwise, in a single
transaction or series of transactions) of all or substantially all of the
assets of one or more Restricted Subsidiaries, the Equity Interests of which
constitute all or substantially all of the assets of the Issuer, will be deemed
to be the transfer of all or substantially all of the assets of the Issuer.

 

Upon any consolidation,
combination or merger of the Issuer or a Guarantor, or any transfer of all or
substantially all of the assets of the Issuer in accordance with the foregoing,
in which the Issuer or such Guarantor is not the continuing obligor under the
Notes or its Note Guarantee, the surviving entity formed by such consolidation
or into which the Issuer or such Guarantor is merged or to which the
conveyance, lease or transfer is made will succeed to, and be substituted for,
and may exercise every right and power of, the Issuer or such Guarantor under
this Indenture, the Notes and the Note Guarantees with the same effect as if such
surviving entity had been named therein as the Issuer or such Guarantor and,
except in the case of a conveyance, transfer or lease, the Issuer or such
Guarantor, as the case may be, will be released from the obligation to pay the
principal of and interest on the Notes or in respect of its Note Guarantee, as
the case may be, and all of the Issuer’s or such Guarantor’s other obligations
and covenants under the Notes, this Indenture and its Note Guarantee, if applicable.

 

Notwithstanding the
foregoing, any Restricted Subsidiary may merge into the Issuer or another
Restricted Subsidiary.

 

SECTION 5.02.                                                                 Successor Person Substituted.

 

Upon any consolidation or
merger, or any transfer of all or substantially all of the assets of the Issuer
or any Restricted Subsidiary in accordance with Section 5.01, the successor
corporation formed by such consolidation or into which the Issuer is merged or
to which such transfer is made shall succeed to, and be substituted for, and
may exercise every right and power of, the Issuer or such Restricted Subsidiary
under this Indenture with the same effect as if such successor corporation had
been named as the Issuer or such Restricted Subsidiary herein, and thereafter
the predecessor corporation shall be relieved of all obligations and covenants
under this Indenture and the Notes.

 

68

 

ARTICLE SIX

 

DEFAULTS AND REMEDIES

 

SECTION 6.01.                                                                 Events of Default.

 

Each of the following is
an “Event of Default”:

 

(1)                                  failure by the Issuer to pay interest on
any of the Notes when it becomes due and payable and the continuance of any
such failure for 30 days;

 

(2)                                  failure by the Issuer to pay the
principal on any of the Notes when it becomes due and payable, whether at
stated maturity, upon redemption, upon purchase, upon acceleration or
otherwise;

 

(3)                                  failure by the Issuer to comply with
Section 5.01 or in respect of its obligations to make a Change of Control
Offer;

 

(4)                                  failure by the Issuer to comply with any
other agreement or covenant in this Indenture and continuance of this failure
for 30 days after notice of the failure has been given to the Issuer by the
Trustee or by the Holders of at least 25% of the aggregate principal amount of
the Notes then outstanding;

 

(5)                                  default under any mortgage, indenture or
other instrument or agreement under which there may be issued or by which there
may be secured or evidenced Indebtedness of the Issuer or any Restricted
Subsidiary, whether such Indebtedness now exists or is incurred after the Issue
Date, which default:

 

(a)                        is caused by a failure to pay when due
principal on such Indebtedness within the applicable express grace period,

 

(b)                       results in the acceleration of such
Indebtedness prior to its express final maturity or

 

(c)                        results in the commencement of judicial
proceedings to foreclose upon, or to exercise remedies under applicable law or
applicable security documents to take ownership of, the assets securing such
Indebtedness, and

 

in each case, the
principal amount of such Indebtedness, together with any other Indebtedness
with respect to which an event described in clause (a), (b) or (c) has occurred
and is continuing, aggregates $10.0 million or more;

 

69

 

(6)                                  one or more judgments or orders that exceed
$10.0 million in the aggregate (net of amounts covered by insurance or bonded)
for the payment of money have been entered by a court or courts of competent
jurisdiction against the Issuer or any Restricted Subsidiary and such judgment
or judgments have not been satisfied, stayed, annulled or rescinded within 60
days of being entered;

 

(7)                                  the Issuer or any Significant Subsidiary
pursuant to or within the meaning of any Bankruptcy Law:

 

(a)                        commences a voluntary case,

 

(b)                       consents to the entry of an order for
relief against it in an involuntary case,

 

(c)                        consents to the appointment of a
Custodian of it or for all or substantially all of its assets, or

 

(d)                       makes a general assignment for the
benefit of its creditors;

 

(8)                                  a court of competent jurisdiction enters
an order or decree under any Bankruptcy Law that:

 

(a)                        is for relief against the Issuer or any
Significant Subsidiary as debtor in an involuntary case,

 

(b)                       appoints a Custodian of the Issuer or any
Significant Subsidiary or a Custodian for all or substantially all of the
assets of the Issuer or any Significant Subsidiary, or

 

(c)                        orders the liquidation of the Issuer or
any Significant Subsidiary,

 

and the order or
decree remains unstayed and in effect for 60 days; or

 

(9)                                  any Note Guarantee of any Significant
Subsidiary ceases to be in full force and effect (other than in accordance with
the terms of such Note Guarantee and this Indenture) or is declared null and
void and unenforceable or found to be invalid or any Guarantor denies its
liability under its Note Guarantee (other than by reason of release of a
Guarantor from its Note Guarantee in accordance with the terms of this Indenture
and the Note Guarantee).

 

Subject to Sections 7.01
and 7.02, the Trustee shall not be charged with knowledge of any Default, Event
of Default, Change of Control or Asset Sale or the requirement for 

 

70

 

payment of Liquidated
Damages unless written notice thereof shall have been given to a Responsible
Officer at the Corporate Trust Office of the Trustee by the Issuer or any other
Person.

 

SECTION 6.02.                                                                 Acceleration.

 

If an Event of Default
(other than an Event of Default specified in clause (7) or (8) of
Section 6.01 with respect to the Issuer), shall have occurred and be
continuing, the Trustee, by written notice to the Issuer, or the Holders of at
least 25% in aggregate principal amount of the Notes then outstanding by
written notice to the Issuer and the Trustee, may declare all amounts owing
under the Notes to be due and payable immediately.  Upon such declaration of acceleration, the aggregate principal of
and accrued and unpaid interest on the outstanding Notes shall immediately
become due and payable; provided, however, that after such
acceleration, but before a judgment or decree based on acceleration, the
Holders of a majority in aggregate principal amount of such outstanding Notes
may rescind and annul such acceleration if all Events of Default, other than
the nonpayment of accelerated principal and interest, have been cured or waived
as provided in this Indenture.  If an
Event of Default specified in clause (7) or (8) of Section 6.01 with
respect to the Issuer occurs, all outstanding Notes shall become due and
payable without any further action or notice.

 

SECTION 6.03.                                                                 Other Remedies.

 

If an Event of Default
occurs and is continuing, the Trustee may pursue any available remedy by
proceeding at law or in equity to collect the payment of principal of, or
premium, if any, and interest on the Notes or to enforce the performance of any
provision of the Notes or this Indenture and may take any necessary action
requested of it as Trustee to settle, compromise, adjust or otherwise conclude
any proceedings to which it is a party.

 

The Trustee may maintain
a proceeding even if it does not possess any of the Notes or does not produce
any of them in the proceeding.  A delay
or omission by the Trustee or any Holder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or constitute
a waiver of or acquiescence in the Event of Default.  No remedy is exclusive of any other remedy.  All available remedies are cumulative.  Any costs associated with actions taken by
the Trustee under this Section 6.03 shall be reimbursed to the Trustee by
the Issuer.

 

SECTION 6.04.                                                                 Waiver of Past Defaults and Events of
Default.

 

Subject to Sections 6.02,
6.08 and 8.02, the Holders of a majority in aggregate principal amount of the
notes then outstanding have the right to waive any existing Default or compliance
with any provision of this Indenture or the Notes.  Upon any such waiver, such Default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to 

 

71

 

have been cured for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereto.

 

SECTION 6.05.                                                                 Control by Majority.

 

The Holders of a majority
in aggregate principal amount of the Notes then outstanding may direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or exercising any trust or power conferred on the Trustee by this Indenture.  The Trustee, however, may refuse to follow
any direction that conflicts with law or this Indenture or that the Trustee
determines may be unduly prejudicial to the rights of another Holder not taking
part in such direction, and the Trustee shall have the right to decline to follow
any such direction if the Trustee, being advised by counsel, determines that
the action so directed may not lawfully be taken or if the Trustee in good
faith shall, by a Responsible Officer, determine that the proceedings so
directed may involve it in personal liability; provided that the Trustee
may take any other action deemed proper by the Trustee which is not inconsistent
with such direction.

 

SECTION 6.06.                                                                 Limitation on Suits.

 

No Holder will have any
right to institute any proceeding with respect to this Indenture or for any
remedy thereunder, unless the Trustee:

 

(1)                                  has failed to act for a period of 60 days
after receiving written notice of a continuing Event of Default by such Holder
and a request to act by Holders of at least 25% in aggregate principal amount
of Notes outstanding;

 

(2)                                  has been offered indemnity satisfactory
to it in its reasonable judgment; and

 

(3)                                  has not received from the Holders of a
majority in aggregate principal amount of the outstanding Notes a direction
inconsistent with such request.

 

However, such limitations
do not apply to a suit instituted by a Holder of any Note for enforcement of
payment of the principal of or interest on such Note on or after the due date
therefor (after giving effect to the grace period specified in clause (1) of
Section 6.01).

 

SECTION 6.07.                                                                 No Personal Liability of Directors,
Officers, Employees and Stockholders.

 

No director, officer,
employee, incorporator or stockholder of the Issuer will have any liability for
any obligations of the Issuer under the Notes or this Indenture or of any
Guarantor under its Note Guarantee or this Indenture or for any claim based on,
in respect of,

 

72

 

or by reason of, such
obligations or their creation.  Each
Holder by accepting a Note waives and releases all such liability.  The waiver and release are part of the
consideration for issuance of the Notes and the Note Guarantees.

 

SECTION 6.08.                                                                 Rights of Holders To Receive Payment.

 

Notwithstanding any other
provision of this Indenture, the right of any Holder of a Note to receive
payment of principal of, or premium, if any, and interest of the Note (including
Additional Interest) on or after the respective due dates expressed in the
Note, or to bring suit for the enforcement of any such payment on or after such
respective dates, is absolute and unconditional and shall not be impaired or
affected without the consent of the Holder.

 

SECTION 6.09.                                                                 Collection Suit by Trustee.

 

If an Event of Default in
payment of principal, premium or interest specified in Section 6.01(1) or
(2) occurs and is continuing, the Trustee may recover judgment in its own name
and as trustee of an express trust against the Issuer or any Guarantor (or any
other obligor on the Notes) for the whole amount of unpaid principal and
accrued interest remaining unpaid, together with interest on overdue principal
and, to the extent that payment of such interest is lawful, interest on overdue
installments of interest, in each case at the rate set forth in the Notes, and
such further amounts as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.

 

SECTION 6.10.                                                                 Trustee May File Proofs of Claim.

 

The Trustee may file such
proofs of claim and other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee (including any claim for the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, and any other amounts due the Trustee under
Section 7.07) and the Holders allowed in any judicial proceedings relative
to the Issuer or any Guarantor (or any other obligor upon the Notes), its
creditors or its property and shall be entitled and empowered to collect and
receive any monies or other property payable or deliverable on any such claims
and to distribute the same after deduction of its charges and expenses to the extent
that any such charges and expenses are not paid out of the estate in any such
proceedings and any custodian in any such judicial proceeding is hereby
authorized by each Holder to make such payments to the Trustee, and in the
event that the Trustee shall consent to the making of such payments directly to
the Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07.

 

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

 

SECTION 6.11.                                                                 Priorities.

 

If the Trustee collects
any money pursuant to this Article Six, it shall pay out the money in the
following order:

 

FIRST:  to the Trustee for amounts due under
Section 7.07;

 

SECOND:  to Holders for amounts due and unpaid on the
Notes for principal, premium, if any, and interest (including Additional
Interest, if any) as to each, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Notes; and

 

THIRD:  to the Issuer or, to the extent the Trustee
collects any amount from any Guarantor, to such Guarantor.

 

The Trustee may fix a
record date and payment date for any payment to Holders pursuant to this
Section 6.11.

 

SECTION 6.12.                                                                 Undertaking for Costs.

 

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, a court in its
discretion may require the filing by any party litigant in the suit of an
undertaking to pay the costs of the suit, and the court in its discretion may
assess reasonable costs, including reasonable attorneys’ fees, against any
party litigant in the suit, having due regard to the merits and good faith of
the claims or defenses made by the party litigant.  This Section 6.12 does not apply to a suit by the Trustee, a
suit by a Holder pursuant to Section 6.08 or a suit by Holders of more
than 10% in principal amount of the Notes then outstanding.

 

SECTION 6.13.                                                                 Restoration of Rights and Remedies.

 

If the Trustee or any
Holder 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 Holder, then
and in every case, subject to any determination in such proceeding, the Issuer,
the Guarantors, the Trustee and the Holders shall be restored severally and
respectively to their former positions 

 

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hereunder and thereafter
all rights and remedies of the Trustee and the Holders shall continue as though
no such proceeding had been instituted.

 

ARTICLE SEVEN

 

TRUSTEE

 

SECTION 7.01.                                                                 Duties of Trustee.

 

(a)  If an
Event of Default actually known to a Responsible Officer of the Trustee has
occurred and is continuing, the Trustee shall exercise such of 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 same
circumstances in the conduct of his or her own affairs.

 

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

 

(1)                    The Trustee need perform only those duties that are
specifically set forth in this Indenture and no others.

 

(2)                    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 but, in the case
of any such certificates or opinions which by any provision hereof are
specifically required to be furnished to the Trustee, the Trustee shall be
under a duty to examine the same to determine whether or not they conform on
their face to the requirements of this Indenture (but need not confirm or investigate
the accuracy of mathematical calculations or other facts stated therein).

 

(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:

 

(1)                    This paragraph does not limit the effect of paragraph
(b) of this Section 7.01.

 

(2)                    The Trustee shall not be liable for any error of judgment
made in good faith, unless it is proved that the Trustee was negligent in
ascertaining the pertinent facts.

 

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(3)                    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 the terms hereof.

 

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

 

(d)  Whether or
not therein expressly so provided, paragraphs (a), (b), (c) and (e) of this
Section 7.01 shall govern every provision of this Indenture that in any
way relates to the Trustee.

 

(e)  The
Trustee may refuse to perform any duty or exercise any right or power unless it
receives indemnity satisfactory to it in its sole discretion against any loss,
liability, expense or fee.

 

(f)  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 or any Guarantor.  Money held in trust by the Trustee need not
be segregated from other funds except to the extent required by the law.

 

SECTION 7.02.                                                                 Rights of Trustee.

 

Subject to
Section 7.01:

 

(1)                                  The Trustee may rely on any document
reasonably 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.

 

(2)                                  Before the Trustee acts or refrains from
acting, it may require an Officers’ Certificate or an Opinion of Counsel, or both,
which shall conform to the provisions of Section 12.05.  The Trustee shall be protected and shall not
be liable for any action it takes or omits to take in good faith in reliance on
such certificate or opinion.

 

(3)                                  The Trustee may act through its attorneys
and agents and shall not be responsible for the misconduct or negligence of any
agent appointed by it with due care.

 

(4)                                  The Trustee shall not be liable for any
action it takes or omits to take in good faith which it reasonably believes to
be authorized or within its rights or powers;

 

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provided that the Trustee’s conduct does not
constitute gross negligence or wilful misconduct.

 

(5)                                  The Trustee may consult with counsel of
its selection, and the advice or opinion of such counsel as to matters of law
shall be full and complete authorization and protection from liability in
respect of any action taken, omitted or suffered by it hereunder in good faith
and in accordance with the advice or opinion of such counsel.

 

SECTION 7.03.                                                                 Individual Rights of Trustee.

 

The Trustee in its
individual or any other capacity may become the owner or pledgee of Notes and
may make loans to, accept deposits from, perform services for or otherwise deal
with the either of the Issuer or any Guarantor, or any Affiliates thereof, with
the same rights it would have if it were not Trustee.  Any Agent may do the same with like rights.  The Trustee, however, shall be subject to
Sections 7.10 and 7.11.

 

SECTION 7.04.                                                                 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 Notes or any Guarantee, it shall not be accountable for
the Issuer’s or any Guarantor’s use of the proceeds from the sale of Notes or
any money paid to the Issuer or any Guarantor pursuant to the terms of this
Indenture and it shall not be responsible for any statement in the Notes,
Guarantee or this Indenture other than its certificate of authentication.

 

SECTION 7.05.                                                                 Notice of Defaults.

 

The Trustee shall, within
30 days after the occurrence of any Default with respect to the Notes, give the
Holders notice of all uncured Defaults thereunder known to it; provided,
however, that, except in the case of an Event of Default in payment with
respect to the Notes or a Default in complying with Section 5.01, the
Trustee shall be protected in withholding such notice if and so long as a
committee of its Responsible Officers in good faith determines that the
withholding of such notice is in the interest of the Holders.

 

SECTION 7.06.                                                                 Reports by Trustee to Holders.

 

If required by TIA
§ 313(a), within 60 days after January 1 of any year, commencing
January 1, 2000 the Trustee shall mail to each Holder a brief report dated
as of such January 1 that complies with TIA § 313(a).  The Trustee also shall comply with TIA
§ 313(b)(2).  The Trustee shall
also transmit by mail all reports as required by TIA § 313(c) and TIA
§ 313(d).

 

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Reports pursuant to this
Section 7.06 shall be transmitted by mail:

 

(1)                                  to all Holders of Notes, as the names and
addresses of such Holders appear on the Registrar’s books; and

 

(2)                                  to such Holders of Notes as have, within
the two years preceding such transmission, filed their names and addresses with
the Trustee for that purpose.

 

A copy of each report at
the time of its mailing to Holders shall be filed with the SEC and each stock
exchange on which the Notes are listed. 
The Issuer shall promptly notify the Trustee when the Notes are listed
on any stock exchange.

 

SECTION 7.07.                                                                 Compensation and Indemnity.

 

The Issuer and the
Guarantors shall pay to the Trustee and Agents from time to time reasonable
compensation for its services hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee of
an express trust).  The Issuer and the
Guarantors shall reimburse the Trustee and Agents upon request for all reasonable
disbursements, expenses and advances incurred or made by it in connection with
its duties under this Indenture, including the reasonable compensation,
disbursements and expenses of the Trustee’s agents and counsel.

 

The Issuer and the
Guarantors shall indemnify each of the Trustee and any predecessor Trustee for,
and hold each of them harmless against, any and all loss, damage, claim,
liability or expense, including without limitation taxes (other than taxes
based on the income of the Trustee or such Agent) and reasonable attorneys’
fees and expenses incurred by each of them in connection with the acceptance or
performance of its duties under this Indenture including the reasonable costs
and expenses of defending itself against any claim or liability in connection
with the exercise or performance of any of its powers or duties hereunder
(including, without limitation, settlement costs).  The Trustee or Agent shall notify the Issuer and the Guarantors
in writing promptly of any claim asserted against the Trustee or Agent for
which it may seek indemnity.  However,
the failure by the Trustee or Agent to so notify the Issuer and the Guarantors
shall not relieve the Issuer and Guarantors of their obligations hereunder
except to the extent the Issuer and the Guarantors are prejudiced thereby.

 

Notwithstanding the foregoing,
the Issuer and the Guarantors need not reimburse the Trustee for any expense or
indemnify it against any loss or liability incurred by the Trustee through its
negligence or bad faith.  To secure the
payment obligations of the Issuer and the Guarantors in this Section 7.07,
the Trustee shall have a lien prior to the Notes on all money or property held
or collected by the Trustee except such money or property held in trust to pay
principal of and interest on particular Notes. 
The obligations of the Issuer and the Guarantors under this
Section 7.07 to compensate and indemnify the Trustee, Agents and each

 

78

 

predecessor Trustee and
to pay or reimburse the Trustee, Agents and each predecessor Trustee for expenses,
disbursements and advances shall be joint and several liabilities of the Issuer
and each of the Guarantors and shall survive the resignation or removal of the
Trustee and the satisfaction, discharge or other termination of this Indenture,
including any termination or rejection hereof under any Bankruptcy Law.

 

When the Trustee incurs
expenses or renders services after an Event of Default specified in
Section 6.01(7) or (8) occurs, the expenses and the compensation for the
services are intended to constitute expenses of administration under any
Bankruptcy Law.

 

For purposes of this
Section 7.07, the term “Trustee” shall include any trustee appointed
pursuant to this Article Seven.

 

SECTION 7.08.                                                                 Replacement of Trustee.

 

The Trustee may resign by
so notifying the Issuer and the Guarantors in writing.  The Holders of a majority in principal
amount of the outstanding Notes may remove the Trustee by notifying the Issuer
and the removed Trustee in writing and may appoint a successor Trustee with the
Issuer’s written consent, which consent shall not be unreasonably withheld.  The Issuer may remove the Trustee at its
election if:

 

(1)                                  the Trustee fails to comply with
Section 7.10;

 

(2)                                  the Trustee is adjudged a bankrupt or an
insolvent;

 

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

 

(4)                                  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
Issuer shall promptly appoint a successor Trustee.

 

If a successor Trustee
does not take office within 60 days after the retiring Trustee resigns or is
removed, the retiring Trustee, the Issuer or the Holders of a majority in
principal amount of the outstanding Notes may petition any court of competent
jurisdiction for the appointment of a successor Trustee.

 

If the Trustee fails to
comply with Section 7.10, any Holder may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.

 

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A successor Trustee shall
deliver a written acceptance of its appointment to the retiring Trustee and to
the Issuer.  Immediately following such
delivery, the retiring Trustee shall, subject to its rights under
Section 7.07, transfer all property held by it as Trustee to the successor
Trustee, 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. 
A successor Trustee shall mail notice of its succession to each
Holder.  Notwithstanding replacement of
the Trustee pursuant to this Section 7.08, the Issuer obligations under
Section 7.07 shall continue for the benefit of the retiring Trustee.

 

SECTION 7.09.                                                                 Successor Trustee by Consolidation,
Merger, etc.

 

If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all of its corporate trust assets to, another entity, subject to
Section 7.10, the successor entity without any further act shall be the
successor Trustee; provided such entity shall be otherwise qualified and
eligible under this Article Seven.

 

SECTION 7.10.                                                                 Eligibility; Disqualification.

 

This Indenture shall
always have a Trustee who satisfies the requirements of TIA § 310(a)(1)
and (2) in every respect.  The Trustee
(together with its corporate parent) shall have a combined capital and surplus
of at least $100,000,000 as set forth in the most recent applicable published
annual report of condition.  The Trustee
shall comply with TIA § 310(b), including the provision in
§ 310(b)(1).

 

SECTION 7.11.                                                                 Preferential Collection of Claims Against
Issuer.

 

The Trustee shall comply
with TIA § 311(a), excluding any creditor relationship listed in TIA
§ 311 (b).  A Trustee who has
resigned or been removed shall be subject to TIA § 311(a) to the extent
indicated therein.

 

SECTION 7.12.                                                                 Paying Agents.

 

The Issuer shall cause
each Paying Agent other than the Trustee to execute and deliver to it and the
Trustee an instrument in which such agent shall agree with the Trustee, subject
to the provisions of this Section 7.12:

 

(A)                              that it will hold all sums held by it as
agent for the payment of principal of, or premium, if any, or interest on, the
Notes (whether such sums have been paid to it by the Issuer or by any obligor
on the Notes) in trust for the benefit of Holders or the Trustee;

 

80

 

(B)                                that it will at any time during the
continuance of any Event of Default, upon written request from the Trustee,
deliver to the Trustee all sums so held in trust by it together with a full
accounting thereof; and

 

(C)                                that it will give the Trustee written
notice within three (3) Business Days of any failure of the Issuer (or by any
obligor on the Notes) in the payment of any installment of the principal of,
premium, if any, or interest on, the Notes when the same shall be due and payable.

 

ARTICLE EIGHT

 

AMENDMENTS, SUPPLEMENTS AND WAIVERS

 

SECTION 8.01.                                                                 Without Consent of Holders.

 

The Issuer and the
Trustee may amend, waive or supplement this Indenture, the Note Guarantees or
the Notes without consent of any Holder:

 

(1)                                  to provide for the assumption of the
Issuer’s obligations to the Holders pursuant to Section 5.01;

 

(2)                                  to provide for uncertificated Notes in
addition to or in place of certificated Notes;

 

(3)                                  to cure any ambiguity, defect or
inconsistency;

 

(4)                                  to release any Guarantor from any of its
obligations under its Notes Guarantee or this Indenture (to the extent
permitted by this Indenture);

 

(5)                                  to maintain the qualification of this
Indenture under the TIA; or

 

(6)                                  to make any other change that does not
materially adversely affect the rights of any Holder hereunder.

 

The Trustee is hereby
authorized to join with the Issuer and the Guarantors in the execution of any
supplemental indenture authorized or permitted by the terms of this Indenture
and to make any further appropriate agreements and stipulations which may be
therein contained, but the Trustee shall not be obligated to enter into any
such supplemental indenture which adversely affects its own rights, duties or
immunities under this Indenture.

 

81

 

SECTION 8.02.                                                                 With Consent of Holders.

 

This Indenture or the
Notes may be amended with the consent (which may include consents obtained in
connection with a tender offer or exchange offer for Notes) of the Holders of
at least a majority in aggregate principal amount of the Notes then outstanding,
and any existing Default under, or compliance with any provision of, this Indenture
may be waived (other than any continuing Default in the payment of the
principal or interest on the Notes) with the consent (which may include
consents obtained in connection with a tender offer or exchange offer for
Notes) of the Holders of a majority in aggregate principal amount of the Notes
then outstanding; provided that:

 

(a)                                  no such amendment may, without the
consent of the Holders of two-thirds in aggregate principal amount of Notes
then outstanding, amend the obligation of the Issuer under Section 4.20 or
the related definitions that could adversely affect the rights of any Holder;
and

 

(b)                                 without the consent of each Holder
affected, the Issuer and the Trustee may not:

 

(1)                                  change the maturity of any Note;

 

(2)                                  reduce the amount, extend the due date or
otherwise affect the terms of any scheduled payment of interest on or principal
of the Notes;

 

(3)                                  reduce any premium payable upon optional
redemption of the Notes, change the date on which any Notes are subject to
redemption or otherwise alter the provisions with respect to the redemption of
the Notes;

 

(4)                                  make any Note payable in money or
currency other than that stated in the Notes;

 

(5)                                  modify or change any provision of this
Indenture or the related definitions to affect the ranking of the Notes or any
Note Guarantee in a manner that adversely affects the Holders;

 

(6)                                  reduce the percentage of Holders
necessary to consent to an amendment or waiver to this Indenture or the Notes;

 

(7)                                  impair the rights of Holders to receive
payments of principal of or interest on the Notes;

 

(8)                                  release any Guarantor from any of its
obligations under its Note Guarantee or this Indenture, except as permitted by
this Indenture; or

 

82

 

(9)                                  make any change in this
Section 8.02.

 

After an amendment,
supplement or waiver under this Section 8.02 becomes effective, the Issuer
shall mail to the Holders a notice briefly describing the amendment, supplement
or waiver.

 

Upon the written request
of the Issuer, accompanied by a Board Resolution authorizing the execution of
any such supplemental indenture, and upon the receipt by the Trustee of
evidence reasonably satisfactory to the Trustee of the consent of the Holders
as aforesaid and upon receipt by the Trustee of the documents described in
Section 8.06, the Trustee shall join with the Issuer and the Guarantors in
the execution of such supplemental indenture unless such supplemental indenture
affects the Trustee’s own rights, duties or immunities under this Indenture, in
which case the Trustee may, but shall not be obligated to, enter into such
supplemental indenture.

 

It shall not be necessary
for the consent of the Holders under this Section to approve the particular
form of any proposed amendment, supplement or waiver, but it shall be
sufficient if such consent approves the substance thereof.

 

SECTION 8.03.                                                                 Compliance with Trust Indenture Act.

 

Every amendment or
supplement to this Indenture or the Notes shall comply with the TIA as then in
effect.

 

SECTION 8.04.                                                                 Revocation and Effect of Consents.

 

Until an amendment,
supplement, waiver or other action becomes effective, a consent to it by a
Holder of a Note is a continuing consent conclusive and binding upon such
Holder and every subsequent Holder of the same Note or portion thereof, and of
any Note issued upon the transfer thereof or in exchange therefor or in place
thereof, even if notation of the consent is not made on any such Note.  Any such Holder or subsequent Holder,
however, may revoke the consent as to his Note or portion of a Note, if the
Trustee receives the written notice of revocation before the date the
amendment, supplement, waiver or other action becomes effective.

 

The Issuer may, but shall
not be obligated to, fix a record date for the purpose of determining the
Holders entitled to consent to any amendment, supplement, or waiver.  If a record date is fixed, then,
notwithstanding the preceding paragraph, those Persons who were Holders at such
record date (or their duly designated proxies), and only such Persons, shall be
entitled to consent to such amendment, supplement, or waiver or to revoke any
consent previously given, whether or not such Persons continue to be Holders
after such record date.  No

 

83

 

such consent shall be
valid or effective for more than 90 days after such record date unless the
consent of the requisite number of Holders has been obtained.

 

After an amendment,
supplement, waiver or other action becomes effective, it shall bind every
Holder, unless it makes a change described in any of clauses (1) through (9) of
Section 8.02.  In that case the
amendment, supplement, waiver or other action shall bind each Holder of a Note
who has consented to it and every subsequent Holder of a Note or portion of a
Note that evidences the same debt as the consenting Holder’s Note.

 

SECTION 8.05.                                                                 Notation on or Exchange of Notes.

 

If an amendment,
supplement, or waiver changes the terms of a Note, the Trustee (in accordance
with the specific written direction of the Issuer) shall request the Holder of
the Note (in accordance with the specific written direction of the Issuer) to deliver
it to the Trustee.  In such case, the
Trustee shall place an appropriate notation on the Note about the changed terms
and return it to the Holder. 
Alternatively, if the Issuer or the Trustee so determines, the Issuer in
exchange for the Note shall issue, the Guarantors shall endorse, and the
Trustee shall authenticate a new Note that reflects the changed terms.  Failure to make the appropriate notation or
issue a new Note shall not affect the validity and effect of such amendment,
supplement or waiver.

 

SECTION 8.06.                                                                 Trustee To Sign Amendments, etc.

 

The Trustee shall sign
any amendment, supplement or waiver authorized pursuant to this
Article Eight if the amendment, supplement or waiver does not adversely
affect the rights, duties, liabilities or immunities of the Trustee.  If it does, the Trustee may, but need not,
sign it.  In signing or refusing to sign
such amendment, supplement or waiver the Trustee shall be entitled to receive
and, subject to Section 7.01, shall be fully protected in relying upon an
Officers’ Certificate and an Opinion of Counsel stating, in addition to the
matters required by Section 12.04, that such amendment, supplement or
waiver is authorized or permitted by this Indenture and is a legal, valid and
binding obligation of the Issuer and Guarantors, enforceable against the Issuer
and Guarantors in accordance with its terms (subject to customary exceptions).

 

84

 

ARTICLE NINE

DISCHARGE OF INDENTURE; DEFEASANCE

 

SECTION 9.01.                      Discharge of Indenture.

 

The Issuer may terminate its obligations and the
obligations of the Guarantors under the Notes, the Guarantees and this
Indenture, except the obligations referred to in the last paragraph of this
Section 9.01, if

 

(1)           all the Notes that have been authenticated and
delivered (except lost, stolen or destroyed Notes which have been replaced or
paid and Notes for whose payment money has been deposited in trust or segregated
and held in trust by the Issuer and thereafter repaid to the Issuer or
discharged from this trust) have been delivered to the Trustee for
cancellation, or

 

(2)           (a)           all Notes not delivered to the Trustee
for cancellation otherwise have become due and payable or have been called for
redemption pursuant to paragraph 6 of the Notes, and the Issuer has
irrevocably deposited or caused to be deposited with the Trustee trust funds in
trust in an amount of money sufficient to pay and discharge the entire
Indebtedness (including all principal and accrued interest) on the Notes not
theretofore delivered to the Trustee for cancellation,

 

(b)           the Issuer has paid all sums payable by
it under this Indenture,

 

(c)           the Issuer has delivered irrevocable
instructions to the Trustee to apply the deposited money toward the payment of
the Notes at maturity or on the date of redemption, as the case may be, and

 

(d)           the Trustee, for the benefit of the
Holders, has a valid, perfected, exclusive security interest in this trust.

 

In addition, the Issuer must deliver an Officers’
Certificate and an Opinion of Counsel (as to legal matters) stating that all
conditions precedent to satisfaction and discharge have been complied with.

 

After such delivery, the Trustee shall acknowledge in
writing the discharge of the Issuer’s and the Guarantors’ obligations under the
Notes, the Guarantees and this Indenture except for those surviving obligations
specified below.

 

Notwithstanding the satisfaction and discharge of this
Indenture, the obligations of the Issuer in Sections 7.07, 9.05 and 9.06 shall
survive.

 

85

 

SECTION 9.02.                      Legal Defeasance.

 

The Issuer may at its option, by Board Resolution of
the Board of Directors of the Issuer, be discharged from its obligations with
respect to the Notes and the Guarantors discharged from their obligations under
the Guarantees on the date the conditions set forth in Section 9.04 are
satisfied (hereinafter, “Legal Defeasance”).  For this purpose, such Legal Defeasance means that the Issuer
shall be deemed to have paid and discharged the entire indebtedness represented
by the Notes and to have satisfied all its other obligations under such Notes
and this Indenture insofar as such Notes are concerned (and the Trustee, at the
expense of the Issuer, shall, subject to Section 9.06, execute instruments in
form and substance reasonably satisfactory to the Trustee and Issuer
acknowledging the same), except for the following which shall survive until
otherwise terminated or discharged hereunder: 
(A) the rights of Holders of outstanding Notes to receive solely
from the trust funds described in Section 9.04 and as more fully set forth in
such Section, payments in respect of the principal of, premium, if any, and
interest on such Notes when such payments are due, (B) the Issuer’s
obligations with respect to such Notes under Sections 2.03, 2.04, 2.05,
2.06, 2.07, 2.08, 2.11 and 4.19, (C) the rights, powers, trusts, duties,
and immunities of the Trustee hereunder (including claims of, or payments to,
the Trustee under or pursuant to Section 7.07) and (D) this Article
Nine.  Subject to compliance with this
Article Nine, the Issuer may exercise its option under this Section 9.02
with respect to the Notes notwithstanding the prior exercise of its option under
Section 9.03 with respect to the Notes.

 

SECTION 9.03.                      Covenant Defeasance.

 

At the option of the Issuer, pursuant to a Board
Resolution of the Board of Directors of the Issuer, (x) the Issuer and the
Guarantors shall be released from their respective obligations under
Sections 4.02 (except for obligations mandated by the TIA), 4.05 through
4.17, inclusive, and 4.20 and clause (3) of the first paragraph of
Section 5.01 and (y) Section 6.01 (5) and (6) shall no longer apply
with respect to the outstanding Notes on and after the date the conditions set
forth in Section 9.04 are satisfied (hereinafter, “Covenant Defeasance”).  For this purpose, such Covenant Defeasance
means that the Issuer and the Guarantors may omit to comply with and shall have
no liability in respect of any term, condition or limitation set forth in any
such specified Section or portion thereof, whether directly or indirectly by
reason of any reference elsewhere herein to any such specified Section or
portion thereof or by reason of any reference in any such specified Section or
portion thereof to any other provision herein or in any other document, but the
remainder of this Indenture and the Notes shall be unaffected thereby.

 

SECTION 9.04.                      Conditions to Defeasance or Covenant
Defeasance.

 

The following shall be the conditions to application
of Section 9.02 or Section 9.03 to the outstanding Notes:

 

86

 

(1)           the
Issuer must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders, U.S. legal tender, U.S. Government Obligations or a combination
thereof, in such amounts as will be sufficient (without reinvestment) in the
opinion of a nationally recognized firm of independent public accountants selected
by the Issuer, to pay the principal of and interest on the Notes on the stated
date for payment or on the redemption date of the principal or installment of
principal of or interest on the Notes, and the Trustee must have a valid,
perfected, exclusive security interest in such trust,

 

(2)           in
the case of Legal Defeasance, the Issuer shall have delivered to the Trustee an
Opinion of Counsel in the United States reasonably acceptable to the Trustee
confirming that:

 

(a)           the Issuer has received from, or there has been
published by the Internal Revenue Service, a ruling, or

 

(b)           since the date hereof, there has been a change in the
applicable U.S. federal income tax law,

 

in either case to the
effect that, and based thereon this Opinion of Counsel shall confirm that, the
Holders will not recognize income, gain or loss for U.S. federal income tax
purposes as a result of the Legal Defeasance and will be subject to U.S.
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,

 

(3)           in the case of Covenant Defeasance, the
Issuer shall have delivered to the Trustee an Opinion of Counsel in the United
States reasonably acceptable to the Trustee confirming that the Holders will
not recognize income, gain or loss for U.S. federal income tax purposes as a
result of such Covenant Defeasance and will be subject to U.S. federal income
tax on the same amounts, in the same manner and at the same times as would have
been the case if the Covenant Defeasance had not occurred,

 

(4)           no Default shall have occurred and be
continuing on the date of such deposit (other than a Default resulting from the
borrowing of funds to be applied to such deposit and the grant of any Lien
securing such borrowing),

 

(5)           the Legal Defeasance or Covenant
Defeasance shall not result in a breach or violation of, or constitute a
default under this Indenture or any other material agreement or instrument to
which the Issuer or any of its Subsidiaries is a party or by which the Issuer
or any of its Subsidiaries is bound,

 

87

 

(6)           the Issuer shall have delivered to the
Trustee an Officers’ Certificate stating that the deposit was not made by it
with the intent of preferring the Holders over any other of its creditors or
with the intent of defeating, hindering, delaying or defrauding any other of
its creditors or others, and

 

(7)           the Issuer shall have delivered to the
Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that
the conditions provided for in, in the case of the Officers’ Certificate,
clauses (1) through (6) and, in the case of the Opinion of Counsel, clauses (1)
(with respect to the validity and perfection of the security interest), (2)
and/or (3) and (5) of this paragraph have been complied with.

 

If the funds deposited with the Trustee to effect
Covenant Defeasance are insufficient to pay the principal of and interest on
the Notes when due, then the Issuer’s obligations and the obligations of
Guarantors under this Indenture will be revived and no such defeasance will be
deemed to have occurred.

 

SECTION 9.05.                      Deposited Money and U.S. Government
Obligations

To Be Held in Trust; Other Miscellaneous Provisions.

 

All money and U.S. Government Obligations (including
the proceeds thereof) deposited with the Trustee pursuant to Section 9.04 in
respect of the outstanding Notes shall be held in trust and applied by the
Trustee, in accordance with the provisions of such Notes and this Indenture, to
the payment, either directly or through any Paying Agent, to the Holders of
such Notes, of all sums due and to become due thereon in respect of principal,
premium, if any, and accrued interest, but such money need not be segregated
from other funds except to the extent required by law.

 

The Issuer and the Guarantors shall (on a joint and
several basis) pay and indemnify the Trustee against any tax, fee or other
charge imposed on or assessed against the U.S. Government Obligations deposited
pursuant to Section 9.04 or the principal, premium, if any, and interest
received in respect thereof other than any such tax, fee or other charge which
by law is for the account of the Holders of the outstanding Notes.

 

Anything in this Article Nine to the contrary
notwithstanding, the Trustee shall deliver or pay to the Issuer from time to
time any money or U.S. Government Obligations held by it as provided in Section
9.04 which, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered to
the Trustee, are in excess of the amount thereof which would then be required
to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.

 

88

 

SECTION 9.06.                      Reinstatement.

 

If the Trustee or Paying Agent is unable to apply any
money or U.S. Government Obligations in accordance with Section 9.01, 9.02 or
9.03 by reason of any legal proceeding or by reason of any order or judgment of
any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, the Issuer’s and each Guarantor’s obligations
under this Indenture, the Notes and the Guarantees shall be revived and
reinstated as though no deposit had occurred pursuant to this Article Nine
until such time as the Trustee or Paying Agent is permitted to apply all such
money or U.S. Government Obligations in accordance with Section 9.01; provided
that if the Issuer or the Guarantors have made any payment of principal of,
premium, if any, or accrued interest on any Notes because of the reinstatement
of their obligations, the Issuer or the Guarantors, as the case may be, shall
be subrogated to the rights of the Holders of such Notes to receive such
payment from the money or U.S. Government Obligations held by the Trustee or
Paying Agent.

 

SECTION 9.07.                      Moneys Held by Paying Agent.

 

In connection with the satisfaction and discharge of
this Indenture, all moneys then held by any Paying Agent under the provisions
of this Indenture shall, upon written demand of the Issuer, be paid to the
Trustee, or if sufficient moneys have been deposited pursuant to Section 9.04,
to the Issuer (or, if such moneys had been deposited by the Guarantors, to such
Guarantors), and thereupon such Paying Agent shall be released from all further
liability with respect to such moneys.

 

SECTION 9.08.                      Moneys Held by Trustee.

 

Subject to applicable law, any moneys deposited with
the Trustee or any Paying Agent or then held by the Issuer or the Guarantors in
trust for the payment of the principal of, or premium, if any, or interest on
any Note that are not applied but remain unclaimed by the Holder of such Note
for two years after the date upon which the principal of, or premium, if any,
or interest on such Note shall have respectively become due and payable shall
be repaid to the Issuer (or, if appropriate, the Guarantors), or if such moneys
are then held by the Issuer or the Guarantors in trust, such moneys shall be
released from such trust; and the Holder of such Note entitled to receive such
payment shall thereafter, as an unsecured general creditor, look only to the
Issuer and the Guarantors for the payment thereof, and all liability of the
Trustee or such Paying Agent with respect to such trust money shall thereupon
cease; provided, that the Trustee or any such Paying Agent, before being
required to make any such repayment, may, at the expense of the Issuer and the
Guarantors, either mail to each Holder affected, at the address shown in the
register of the Notes maintained by the Registrar pursuant to
Section 2.03, or cause to be published once a week for two successive
weeks, in a newspaper published in the English language, customarily published
each Business Day and of general circulation in the City of New York, New York,
a notice that such money remains unclaimed

 

89

 

and that, after a
date specified therein, which shall not be less than 30 days from the date of
such mailing or publication, any unclaimed balance of such moneys then
remaining will be repaid to the Issuer. 
After payment to the Issuer or the Guarantors or the release of any
money held in trust by the Issuer or any Guarantors, as the case may be, Holders
entitled to the money must look only to the Issuer and the Guarantors for
payment as general creditors unless applicable abandoned property law
designates another Person.

 

ARTICLE TEN

GUARANTEE OF NOTES

 

SECTION 10.01.                    Guarantee.

 

Subject to the provisions of this Article Ten,
each Guarantor, by execution of this Indenture, jointly and severally,
unconditionally guarantees to each Holder (i) the due and punctual payment
of the principal of and interest on each Note, when and as the same shall
become due and payable, whether at maturity, by acceleration or otherwise, the
due and punctual payment of interest on the overdue principal of and interest
on the Notes, to the extent lawful, and the due and punctual payment of all
other Obligations and due and punctual performance of all obligations of the
Issuer to the Holders or the Trustee all in accordance with the terms of such
Note, this Indenture and the Registration Rights Agreement, and (ii) in
the case of any extension of time of payment or renewal of any Notes or any of
such other Obligations, that the same will be promptly paid in full when due or
performed in accordance with the terms of the extension or renewal, at stated
maturity, by acceleration or otherwise. 
Each Guarantor, by execution of this Indenture, agrees that its
obligations hereunder shall be absolute and unconditional, irrespective of, and
shall be unaffected by, any invalidity, irregularity or unenforceability of any
such Note or this Indenture, any failure to enforce the provisions of any such
Note, this Indenture or the Registration Rights Agreement, any waiver,
modification or indulgence granted to the Issuer with respect thereto by the
Holder of such Note, or any other circumstances which may otherwise constitute
a legal or equitable discharge of a surety or such Guarantor.

 

Each Guarantor hereby waives diligence, presentment,
demand for payment, filing of claims with a court in the event of merger or
bankruptcy of the Issuer, any right to require a proceeding first against the
Issuer, protest or notice with respect to any such Note or the Indebtedness
evidenced thereby and all demands whatsoever, and covenants that this Guarantee
will not be discharged as to any such Note except by payment in full of the
principal thereof and interest thereon. 
Each Guarantor hereby agrees that, as between such Guarantor, on the one
hand, and the Holders and the Trustee, on the other hand, (i) the maturity
of the Obligations guaranteed hereby may be accelerated as provided in
Article Six for the purposes

 

90

 

of this Guarantee,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the Obligations guaranteed hereby, and (ii) in the
event of any declaration of acceleration of such Obligations as provided in
Article Six, such Obligations (whether or not due and payable) shall
forthwith become due and payable by each Guarantor for the purpose of this
Guarantee.

 

SECTION 10.02.                    Execution and Delivery of Guarantee.

 

To further evidence the Guarantee set forth in Section
10.01, each Guarantor hereby agrees that a notation of such Guarantee,
substantially in the form included in Exhibit G hereto, shall be
endorsed on each Note authenticated and delivered by the Trustee and such
Guarantee shall be executed by either manual or facsimile signature of an
Officer or an Officer of a general partner, as the case may be, of each
Guarantor.  The validity and enforceability
of any Guarantee shall not be affected by the fact that it is not affixed to
any particular Note.

 

Each of the Guarantors hereby agrees that its
Guarantee set forth in Section 10.01 shall remain in full force and effect
notwithstanding any failure to endorse on each Note a notation of such
Guarantee.

 

If an officer of a Guarantor whose signature is on
this Indenture or a Guarantee no longer holds that office at the time the
Trustee authenticates the Note on which such Guarantee is endorsed or at any
time thereafter, such Guarantor’s Guarantee of such Note shall be valid
nevertheless.

 

The delivery of any Note by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of any
Guarantee set forth in this Indenture on behalf of the Guarantor.

 

SECTION 10.03.                    Limitation of Guarantee.

 

The obligations of each Guarantor are limited to the
maximum amount as will, after giving effect to all other contingent and fixed
liabilities of such Guarantor and after giving effect to any collections from
or payments made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under its Guarantee or pursuant to its
contribution obligations under this Indenture, result in the obligations of
such Guarantor under its Guarantee not constituting a fraudulent conveyance or
fraudulent transfer under federal or state law.  Each Guarantor that makes a payment or distribution under a
Guarantee shall be entitled to a contribution from each other Guarantor in a
pro rata amount based on the Adjusted Net Assets of each Guarantor.

 

91

 

SECTION 10.04.                    Release of Guarantor.

 

A Guarantor shall be released from all of its
obligations under its Guarantee if:

 

(i)            all of the assets of such Guarantor have
been sold or otherwise disposed of in a transaction in compliance with the terms
of this Indenture (including Sections 4.09, 4.20 and 5.01);

 

(ii)           all of the Equity Interests held by the
Issuer and the Restricted Subsidiaries of such Guarantor have been sold or
otherwise disposed of in a transaction in compliance with the terms of this
Indenture (including Sections 4.20 and 5.01);

 

(iii)          the
Guarantor is designated an Unrestricted Subsidiary in compliance with the terms
of this Indenture (including Section 4.15);

 

and in each such case, the Issuer has delivered to the
Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that
all conditions precedent herein provided for relating to such transactions have
been complied with and that such release is authorized and permitted hereunder.

 

The Trustee shall execute any documents reasonably
requested by the Issuer or a Guarantor in order to evidence the release of such
Guarantor from its obligations under its Guarantee endorsed on the Notes and
under this Article Ten.

 

SECTION 10.05.                    Waiver of Subrogation.

 

Each Guarantor hereby irrevocably waives any claim or
other rights which it may now or hereafter acquire against the Issuer that
arise from the existence, payment, performance or enforcement of such
Guarantor’s obligations under its Guarantee and this Indenture, including,
without limitation, any right of subrogation, reimbursement, exoneration, indemnification,
and any right to participate in any claim or remedy of any Holder of Notes
against the Issuer, whether or not such claim, remedy or right arises in
equity, or under contract, statute or common law, including, without
limitation, the right to take or receive from the Issuer, directly or
indirectly, in cash or other property or by set-off or in any other manner,
payment or Note on account of such claim or other rights.  If any amount shall be paid to any Guarantor
in violation of the preceding sentence and the Notes shall not have been paid
in full, such amount shall have been deemed to have been paid to such Guarantor
for the benefit of, and held in trust for the benefit of, the Holders, and
shall forthwith be paid to the Trustee for the benefit of such Holders to be
credited and applied upon the Notes, whether matured or unmatured, in
accordance with the terms of this Indenture. 
Each Guarantor acknowledges that it will receive direct and indirect
benefits from the financing arrangements contemplated by

 

92

 

this Indenture and
that the waiver set forth in this Section 10.05 is knowingly made in contemplation
of such benefits.

 

ARTICLE ELEVEN

[INTENTIONALLY OMITTED]

 

ARTICLE TWELVE

MISCELLANEOUS

 

SECTION 12.01.                    Trust Indenture Act Controls.

 

If any provision of this Indenture limits, qualifies
or conflicts with another provision which is required to be included in this Indenture
by the TIA, the required provision shall control.  If any provision of this Indenture modifies any TIA provision
that may be so modified, such TIA provision shall be deemed to apply to this
Indenture as so modified.  If any
provision of this Indenture excludes any TIA provision that may be so excluded,
such TIA provision shall be excluded from this Indenture.

 

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

 

SECTION 12.02.                    Notices.

 

Except for notice or communications to Holders, any
notice or communication shall be given in writing and delivered in person, sent
by facsimile, delivered by commercial courier service or mailed by first-class
mail, postage prepaid, addressed as follows:

 

93

 

If to the Issuer or any Guarantor:

 

MERITAGE CORPORATION

8501 E. Princess Drive

Suite 290 

Scottsdale, AZ  85255

Attention:  Chief Financial Officer

Fax Number:  (480) 998-9178

 

with, in the case of any
notice furnished pursuant to Article Six, a copy to:

 

SNELL & WILMER L.L.P.

One Arizona Center

400 E. Van Buren St.

Phoenix, AZ  85004

Attention:  Steven D. Pidgeon, Esq.

Fax Number:  (602) 382-6070

 

If to the Trustee:

 

WELLS FARGO BANK,
NATIONAL ASSOCIATION

707 Wilshire Blvd.

17th Floor

Los Angeles, CA  90017

Attention:  Corporate Trust Department

Fax Number:  (213) 614-3355

 

Such notices or communications shall be effective when
received and shall be sufficiently given if so given within the time prescribed
in this Indenture.

 

The Issuer, the Guarantors or the Trustee by written
notice to the others may designate additional or different addresses for
subsequent notices or communications.

 

Any notice or communication mailed to a Holder shall
be mailed to him by first-class mail, postage prepaid, at his address shown on
the register kept by the Registrar.

 

94

 

Failure to mail a notice or communication to a Holder
or any defect in it shall not affect its sufficiency with respect to other
Holders.  If a notice or communication
to a Holder is mailed in the manner provided above, it shall be deemed duly
given, whether or not the addressee receives it.

 

In case by reason of the suspension of regular mail
service, or by reason of any other cause, it shall be impossible to mail any
notice as required by this Indenture, then such method of notification as shall
be made with the approval of the Trustee shall constitute a sufficient mailing
of such notice.

 

SECTION 12.03.                    Communications by Holders with Other Holders.

 

Holders may communicate pursuant to TIA § 312(b)
with other Holders with respect to their rights under this Indenture or the
Notes.  The Issuer, the Guarantors, the
Trustee, the Registrar and anyone else shall have the protection of TIA
§ 312(c).

 

SECTION 12.04.                    Certificate and Opinion as to Conditions Precedent.

 

Upon any request or application by the Issuer or any
Guarantor to the Trustee to take any action under this Indenture, the Issuer or
such Guarantor shall furnish to the Trustee:

 

(1)           an Officers’ Certificate (which shall include the
statements set forth in Section 12.05) stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and

 

(2)           an Opinion of Counsel (which shall include the
statements set forth in Section 12.05) stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.

 

SECTION 12.05.                    Statements Required in Certificate and Opinion.

 

Each certificate and opinion with respect to
compliance by or on behalf of the Issuer or any Guarantor with a condition or
covenant provided for in this Indenture shall include:

 

(1)           a statement that the Person making such certificate or
opinion has read such covenant or condition;

 

(2)           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;

 

95

 

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

 

(4)           a statement as to whether or not, in the opinion of
such Person, such covenant or condition has been complied with.

 

SECTION 12.06.                    Rules by Trustee and Agents.

 

The Trustee may make reasonable rules for action by or
meetings of Holders.  The Registrar and
Paying Agent may make reasonable rules for their functions.

 

SECTION 12.07.                    Business Days; Legal Holidays.

 

A “Business Day” is a day that is not a Legal
Holiday.  A “Legal Holiday” is a
Saturday, a Sunday or other day on which (i) commercial banks in the City
of New York are authorized or required by law to close or (ii) the New
York Stock Exchange is not open for trading. 
If a payment date is a Legal Holiday at a place of payment, payment may
be made at that place on the next succeeding day that is not a Legal Holiday,
and no interest shall accrue for the intervening period.

 

SECTION 12.08.                    Governing Law.

 

This
Indenture and the Notes shall be governed by and construed in accordance with
the laws of the State of New York, as applied to contracts made and performed
within the State of New York.

 

SECTION 12.09.                    No Adverse Interpretation of Other Agreements.

 

This Indenture may not be used to interpret another
indenture, loan, security or debt agreement of the Issuer or any Subsidiary
thereof.  No such indenture, loan, security
or debt agreement may be used to interpret this Indenture.

 

SECTION 12.10.                    No Recourse Against Others.

 

No recourse for the payment of the principal of or
premium, if any, or interest, including Additional Interest, on any of the
Notes, or for any claim based thereon or otherwise in respect thereof, and no
recourse under or upon any obligation, covenant or agreement of the Issuer or
any Guarantor in this Indenture or in any supplemental indenture, or in any of
the Notes, or because of the creation of any Indebtedness represented thereby,
shall be had against any stockholder, officer, director or employee, as such,
past, present or future, of the Issuer or of any successor corporation or
against the property or assets of any such stockholder, officer, employee or
director, either directly or through the Issuer or any Guarantor, or any
successor

 

96

 

corporation
thereof, whether by virtue of any constitution, statute or rule of law, or by
the enforcement of any assessment or penalty or otherwise; it being expressly
understood that this Indenture and the Notes are solely obligations of the
Issuer and the Guarantors, and that no such personal liability whatever shall
attach to, or is or shall be incurred by, any stockholder, officer, employee or
director of the Issuer or any Guarantor, or any successor corporation thereof,
because of the creation of the indebtedness hereby authorized, or under or by
reason of the obligations, covenants or agreements contained in this Indenture
or the Notes or implied therefrom, and that any and all such personal liability
of, and any and all claims against every stockholder, officer, employee and
director, are hereby expressly waived and released as a condition of, and as a
consideration for, the execution of this Indenture and the issuance of the
Notes.  It is understood that this
limitation on recourse is made expressly for the benefit of any such shareholder,
employee, officer or director and may be enforced by any of them.

 

SECTION 12.11.                    Successors.

 

All agreements of the Issuer and the Guarantors in
this Indenture and the Notes shall bind their respective successors.  All agreements of the Trustee, any
additional trustee and any Paying Agents in this Indenture shall bind its successor.

 

SECTION 12.12.                    Multiple Counterparts.

 

The parties may sign multiple counterparts of this
Indenture.  Each signed counterpart
shall be deemed an original, but all of them together represent one and the
same agreement.

 

SECTION 12.13.                    Table of Contents, Headings, etc.

 

The table of contents, cross-reference sheet and
headings of the Articles and Sections of this Indenture have been inserted for
convenience of reference only, are not to be considered a part hereof, and
shall in no way modify or restrict any of the terms or provisions hereof.

 

SECTION 12.14.                    Separability.

 

Each provision of this Indenture shall be considered
separable and if for any reason any provision which is not essential to the
effectuation of the basic purpose of this Indenture or the Notes 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.

 

97

 

IN WITNESS WHEREOF, the parties have caused this
Indenture to be duly executed all as of the date and year first written above.

 

 

	
   

  	
  MERITAGE
  CORPORATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Larry W. Seay

  
	
   

  	
   

  	
  Name:  Larry W. Seay

  
	
   

  	
   

  	
  Title:  Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
  MONTEREY
  HOMES ARIZONA, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Larry W. Seay

  
	
   

  	
   

  	
  Name:

  	
  Larry W.
  Seay

  
	
   

  	
   

  	
  Title:

  	
  Vice President-Secretary

  
	
   

  	
   

  
	
   

  	
  MERITAGE
  PASEO CROSSING, LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Meritage
  Homes of Arizona, Inc., its Sole

  Member

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Larry W. Seay

  
	
   

  	
   

  	
  Name:

  	
  Larry W.
  Seay

  
	
   

  	
   

  	
  Title:

  	
  Vice
  President-Secretary

  
	
   

  	
   

  
	
   

  	
  MONTEREY
  HOMES CONSTRUCTION, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Larry W. Seay

  
	
   

  	
   

  	
  Name:

  	
  Larry W.
  Seay

  
	
   

  	
   

  	
  Title:

  	
  Vice
  President-Secretary

  
	
   

  	
   

  
	
   

  	
  MERITAGE
  PASEO CONSTRUCTION, LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Meritage
  Homes Construction, Inc.,

  its Sole Member

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Larry W. Seay

  
	
   

  	
   

  	
  Name:

  	
  Larry W.
  Seay

  
	
   

  	
   

  	
  Title:

  	
  Vice
  President-Secretary

  

 

S-1

 

	
   

  	
  MERITAGE
  HOMES OF ARIZONA, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Larry W. Seay

  
	
   

  	
   

  	
  Name:

  	
  Larry W.
  Seay

  
	
   

  	
   

  	
  Title:

  	
  Vice
  President-Secretary

  
	
   

  	
   

  
	
   

  	
  MERITAGE
  HOMES CONSTRUCTION, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Larry W. Seay

  
	
   

  	
   

  	
  Name:

  	
  Larry W.
  Seay

  
	
   

  	
   

  	
  Title:

  	
  Vice President-Secretary

  
	
   

  	
   

  
	
   

  	
  MTH-TEXAS
  GP, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Larry W. Seay

  
	
   

  	
   

  	
  Name:

  	
  Larry W.
  Seay

  
	
   

  	
   

  	
  Title:

  	
  Vice President-Secretary

  
	
   

  	
   

  
	
   

  	
  MTH-TEXAS
  LP, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Larry W. Seay

  
	
   

  	
   

  	
  Name: Larry
  W. Seay

  
	
   

  	
   

  	
  Title: Vice
  President-Secretary

  
	
   

  	
   

  
	
   

  	
  LEGACY/MONTEREY
  HOMES L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  MTH-Texas
  GP, Inc., its General Partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Larry W. Seay

  
	
   

  	
   

  	
  Name: Larry
  W. Seay

  
	
   

  	
   

  	
  Title: Vice
  President-Secretary

  

 

S-2

 

	
   

  	
  MERITAGE
  HOMES OF CALIFORNIA, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Larry W. Seay

  
	
   

  	
   

  	
  Name:

  	
  Larry W.
  Seay

  
	
   

  	
   

  	
  Title:

  	
  Vice President-Secretary

  
	
   

  	
   

  
	
   

  	
  HANCOCK-MTH
  BUILDERS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Larry W. Seay

  
	
   

  	
   

  	
  Name: Larry
  W. Seay

  
	
   

  	
   

  	
  Title: Vice
  President-Secretary

  
	
   

  	
   

  
	
   

  	
  HANCOCK-MTH
  COMMUNITIES, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Larry W. Seay

  
	
   

  	
   

  	
  Name:

  	
  Larry W.
  Seay

  
	
   

  	
   

  	
  Title:

  	
  Vice
  President-Secretary

  
	
   

  	
   

  
	
   

  	
  LEGACY OPERATING
  COMPANY, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Meritage
  Holdings, L.L.C., its General

  Partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Legacy/Monterey
  Homes L.P., its Sole

  Member

  
	
   

  	
   

  
	
   

  	
  By:

  	
  MTH-Texas
  GP, Inc., its General Partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Larry W. Seay

  
	
   

  	
   

  	
  Name: Larry
  W. Seay

  
	
   

  	
   

  	
  Title: Vice
  President-Secretary

  
	
   

  	
   

  
	
   

  	
  HULEN PARK
  VENTURE, LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Legacy/Monterey
  Homes L.P., its Sole Member

  
	
   

  	
   

  
	
   

  	
  By:

  	
  MTH-Texas
  GP, Inc., its General Partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Larry W. Seay

  
	
   

  	
   

  	
  Name:

  	
  Larry W.
  Seay

  
	
   

  	
   

  	
  Title:

  	
  Vice President-Secretary

  

 

S-3

 

	
   

  	
  MERITAGE
  HOLDINGS, L.L.C.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Legacy/Monterey
  Homes L.P., its Sole Mem-

  ber

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  MTH-Texas
  GP, Inc., its General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Larry W. Seay

  
	
   

  	
   

  	
  Name:  Larry W. Seay

  
	
   

  	
   

  	
  Title:  Vice President-Secretary

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  MTH-TEXAS GP
  II, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Larry W. Seay

  
	
   

  	
   

  	
  Name:  Larry W. Seay

  
	
   

  	
   

  	
  Title:  Vice President-Secretary

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  MTH
  HOMES-TEXAS, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  MTH-Texas GP
  II, Inc., its General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Larry W. Seay

  
	
   

  	
   

  	
  Name:  Larry W. Seay

  
	
   

  	
   

  	
  Title:  Vice President-Secretary

  

 

S-4

 

	
   

  	
  MTH-TEXAS LP
  II, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Larry W. Seay

  
	
   

  	
   

  	
  Name:  Larry W. Seay

  
	
   

  	
   

  	
  Title:  Vice President-Secretary

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  MTH-HOMES
  NEVADA, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Larry W. Seay

  
	
   

  	
   

  	
  Name:  Larry W. Seay

  
	
   

  	
   

  	
  Title:  Vice President-Secretary

  

 

S-5

 

	
   

  	
  MTH-CAVALIER,
  LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Monterey
  Homes Construction, Inc., its Sole

  Member

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Larry W. Seay

  
	
   

  	
   

  	
  Name:  Larry W. Seay

  
	
   

  	
   

  	
  Title:  Vice President-Secretary

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  MTH GOLF,
  LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Hancock-MTH
  Builders. Inc., its Sole Member

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Larry W. Seay

  
	
   

  	
   

  	
  Name:  Larry W. Seay

  
	
   

  	
   

  	
  Title:  Vice President-Secretary

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  LEGACY-HAMMONDS
  MATERIALS, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Meritage
  Holdings, L.L.C., its General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Legacy/Monterey
  Homes L.P., its Sole Member

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  MTH-Texas
  GP, Inc., its General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Larry W. Seay

  
	
   

  	
   

  	
  Name:  Larry W. Seay

  
	
   

  	
   

  	
  Title:  Vice President-Secretary

  

 

S-6

 

	
   

  	
  WELLS FARGO BANK, NATIONAL

  ASSOCIATION, as Trustee

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jeanie Mar

  
	
   

  	
   

  	
  Name:

  	
  Jeanie Mar

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dania Samai

  
	
   

  	
   

  	
  Name:

  	
  Dania Samai

  
	
   

  	
   

  	
  Title:

  	
  Trust
  Officer

  

 

S-7

 

EXHIBIT A

 

	
   

  	
  CUSIP

  

 

MERITAGE CORPORATION

 

	
  No.

  	
  $                             

  

 

7% SENIOR NOTE DUE 2014

 

MERITAGE CORPORATION, a Maryland corporation  (the “Company”), for value received,
promises to pay to CEDE & CO. or registered assigns the principal sum of
$            
dollars on May 1, 2014.

 

Interest Payment Dates:  May 1 and November 1.

 

Record Dates: 
April 15 and October 15.

 

Reference is made to the further provisions of this
Note contained herein, which will for all purposes have the same effect as if
set forth at this place.

 

A-1

 

IN WITNESS WHEREOF, the Company has caused this Note
to be signed manually or by facsimile by its duly authorized officers.

 

	
   

  	
  MERITAGE CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

Dated:

 

Certificate of Authentication

 

This is one of the 7% Senior Notes due 2014 referred
to in the within-mentioned Indenture.

 

 

	
   

  	
  WELLS FARGO BANK, NATIONAL ASSOCIA-

  TION, as Trustee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Dated:

  	
   

  

 

A-2

 

[FORM OF REVERSE OF NOTE]

 

MERITAGE CORPORATION

 

7% SENIOR NOTE DUE 2014

 

1.             Interest.  MERITAGE
CORPORATION, a Maryland corporation (the “Company”), promises to pay, until the
principal hereof is paid or made available for payment, interest on the
principal amount set forth on the face hereof at a rate of 7% per annum.  Interest hereon will accrue from and
including the most recent date to which interest has been paid or, if no
interest has been paid, from and including [insert applicable issue date] to but
excluding the date on which interest is paid. 
Interest shall be payable in arrears on each May 1 and November 1.  Interest will be computed on the basis of a
360-day year of twelve 30-day months. 
The Company shall pay interest on overdue principal and on overdue
interest (to the full extent permitted by law) at a rate of 7% per annum.

 

2.             Method of Payment. 
The Company will pay interest hereon (except defaulted interest) to the
Persons who are registered Holders at the close of business on April 15 or
October 15 next preceding the interest payment date (whether or not a Business
Day).  Holders must surrender Notes to a
Paying Agent to collect principal payments. 
The Company will pay principal and interest in money of the United
States of America that at the time of payment is legal tender for payment of
public and private debts.  Interest may
be paid by check mailed to the Holder entitled thereto at the address indicated
on the register maintained by the Registrar for the Notes.

 

3.             Paying Agent and Registrar. 
Initially, Wells Fargo Bank, National Association (the “Trustee”) will
act as a Paying Agent and Registrar. 
The Company may change any Paying Agent or Registrar without
notice.  Neither the Company nor any of
its Affiliates may act as Paying Agent or Registrar.

 

4.             Indenture.  The Company
issued the Notes under an Indenture dated as of April 21, 2004 (the
“Indenture”) among the Company, the Guarantors (as defined in the Indenture)
and the Trustee.  This is one of an
issue of Notes of the Company issued, or to be issued, under the
Indenture.  The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939 (15 U.S. Code §§ 77aaa-77bbbb), as
amended from time to time.  The Notes
are subject to all such terms, and Holders are referred to the Indenture and
such Act for a statement of them. 
Capitalized and certain other terms used herein and not otherwise defined
have the meanings set forth in the Indenture.

 

5.             [Intentionally Omitted]

 

A-3

 

6.             Optional Redemption. (a) 
The Company, at its option, may redeem the Notes, in whole or in part,
at any time on or after May 1, 2009 upon not less than 30 nor more than 60
days’ notice, at the redemption prices (expressed as percentages of principal
amount), set forth below, together, in each case, with accrued and unpaid
interest thereon, if any, to the Redemption Date, if redeemed during the twelve
month period beginning on May 1 of each year listed below:

 

	
  Year

  	
   

  	
  Redemption
  Price

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2009

  	
   

  	
  103.500

  	
  %

  
	
  2010

  	
   

  	
  102.333

  	
  %

  
	
  2011

  	
   

  	
  101.167

  	
  %

  
	
  2012 and thereafter

  	
   

  	
  100.000

  	
  %

  

 

(b)  Notwithstanding the foregoing, at any time
prior to May 1, 2007, the Issuer may redeem up to 35% of the aggregate
principal amount of the Notes with the net cash proceeds of one or more
Qualified Equity Offerings at a redemption price equal to 107% of the principal
amount of the Notes to be redeemed, plus accrued and unpaid interest thereon,
if any, to the Redemption Date; provided that (1) at least 65% of
the aggregate principal amount of Notes issued under the Indenture remains
outstanding immediately after the occurrence of such redemption and
(2) the redemption occurs within 90 days of the date of the closing of any
such Qualified Equity Offering.

 

(c)  In the event of a redemption of fewer than
all of the Notes, the Trustee shall select the Notes to be redeemed in
compliance with the requirements of the principal national securities exchange,
if any, while such Notes are listed, or if such Notes are not then listed on a national
securities exchange, on a pro  rata basis, by lot or in such other
manner as the Trustee shall deem fair and equitable.  The Notes will be redeemable in whole or in part upon not less
than 30 nor more than 60 days’ prior written notice, mailed by first class mail
to a Holder’s last address as it shall appear on the register maintained by the
Registrar of the Notes.  On and after
any redemption date, interest will cease to accrue on the Notes or portions
thereof called for redemption unless the Company shall fail to redeem any such
Note.

 

7.             Notice of Redemption. 
Notice of redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each Holder of Notes to be redeemed at
his registered address.  On and after
the Redemption Date, unless the Company defaults in making the redemption
payment, interest ceases to accrue on Notes or portions thereof called for redemption.

 

8.             Offers To Purchase. 
The Indenture provides that upon the occurrence of a Change of Control
or an Asset Sale and subject to further limitations contained therein, the
Company shall make an offer to purchase outstanding Notes in accordance with
the procedures set forth in the Indenture.

 

A-4

 

9.             Registration Rights. 
Pursuant to a Registration Rights Agreement among the Company, the
Guarantors and the Initial Purchaser, the Company will be obligated to
consummate an exchange offer pursuant to which the Holder of this Note shall
have the right to exchange this Note for notes of a separate series issued
under the Indenture (or a trust indenture substantially identical to the
Indenture in accordance with the terms of the Registration Rights Agreement)
which have been registered under the Securities Act, in like principal amount
and having substantially identical terms as the Notes.  The Holders shall be entitled to receive
certain additional interest payments in the event such exchange offer is not
consummated and upon certain other conditions, all pursuant to and in
accordance with the terms of the Registration Rights Agreement.

 

10.           Denominations, Transfer, Exchange. 
The Notes are in registered form without coupons in denominations of
$1,000 and integral multiples of $1,000. 
A Holder may transfer or exchange Notes in accordance with the
Indenture.  The Registrar may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and to pay to it any taxes and fees required by law or permitted by
the Indenture.  The Registrar need not
register the transfer of or exchange any Notes or portion of a Note selected
for redemption, or register the transfer of or exchange any Notes for a period
of 15 days before a mailing of notice of redemption.

 

11.           Persons Deemed Owners. 
The registered Holder of this Note may be treated as the owner of this
Note for all purposes.

 

12.           Unclaimed Money. 
If money for the payment of principal or interest remains unclaimed for
two years, the Trustee will pay the money back to the Company at its written
request.  After that, Holders entitled
to the money must look to the Company for payment as general creditors unless
an “abandoned property” law designates another Person.

 

13.           Amendment, Supplement, Waiver, Etc. 
The Company, the Guarantors and the Trustee (if a party thereto) may,
without the consent of the Holders of any outstanding Notes, amend, waive or
supplement the Indenture or the Notes for certain specified purposes,
including, among other things, curing ambiguities, defects or inconsistencies,
maintaining the qualification of the Indenture under the Trust Indenture Act of
1939, as amended, and making any change that does not materially and adversely
affect the rights of any Holder.  Other
amendments and modifications of the Indenture or the Notes may be made by the
Company, the Guarantors and the Trustee with the consent of the Holders of not
less than a majority of the aggregate principal amount of the outstanding
Notes, subject to certain exceptions requiring the consent of the Holders of the
particular Notes to be affected.

 

14.           Successor Corporation. 
When a successor corporation assumes all the obligations of its
predecessor under the Notes and the Indenture and the transaction complies with
the terms of Article Five of the Indenture, the predecessor corporation will,
except as provided in Article Five, be released from those obligations.

 

A-5

 

15.           Defaults and Remedies. 
Events of Default are set forth in the Indenture.  Subject to certain limitations in the
Indenture, if an Event of Default (other than an Event of Default specified in
Section 6.01(7) or (8) with respect to the Company) occurs and is continuing,
the Trustee or the Holders of not less than 25% in aggregate principal amount
of the outstanding Notes may, by written notice to the Trustee and the Company,
and the Trustee upon the request of the Holders of not less than 25% in
aggregate principal amount of the outstanding Notes shall, declare all
principal of and accrued interest on all Notes to be immediately due and
payable and such amounts shall become immediately due and payable.  If an Event of Default specified in Section
6.01(7) or (8) occurs with respect to the Company, the principal amount of and
interest on, all Notes shall ipso  facto become and be immediately
due and payable without any declaration or other act on the part of the Trustee
or any Holder.  Holders may not enforce
the Indenture or the Notes except as provided in the Indenture.  The Trustee may require indemnity satisfactory
to it before it enforces the Indenture or the Notes.  Subject to certain limitations, Holders of a majority in
principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power.  The
Trustee may withhold from Holders notice of any continuing default (except a
default in payment of principal, premium, if any, or interest on the Notes or a
default in the observance or performance of any of the obligations of the
Company under Article Five of the Indenture) if it determines that withholding
notice is in their best interests.

 

16.           Trustee Dealings with Company. 
The Trustee, in its individual or any other capacity, may make loans to,
accept deposits from, and perform services for the Company or its Affiliates,
and may otherwise deal with the Company or its Affiliates, as if it were not
Trustee.

 

17.           Discharge.  The
Company’s obligations pursuant to the Indenture will be discharged, except for
obligations pursuant to certain sections thereof, subject to the terms of the
Indenture, upon the payment of all the Notes or upon the irrevocable deposit
with the Trustee of United States dollars or U.S. Government Obligations
sufficient to pay when due principal of and interest on the Notes to maturity
or redemption, as the case may be.

 

18.           Guarantees.  The Note
will be entitled to the benefits of certain Guarantees made for the benefit of
the Holders.  Reference is hereby made
to the Indenture for a statement of the respective rights, limitations of
rights, duties and obligations thereunder of the Guarantors, the Trustee and
the Holders.

 

19.           Authentication. 
This Note shall not be valid until the Trustee signs the certificate of
authentication on the other side of this Note.

 

20.           Governing Law. 
This Note shall be governed by and construed in accordance with the laws
of the State of New York, as applied to contracts made and performed within the
State of New York.  The Trustee, the
Company, the Guarantor and the Holders

 

A-6

 

agree to submit to
the jurisdiction of the courts of the State of New York in any action or proceeding
arising out of or relating to the Indenture or the Notes.

 

21.           Abbreviations. 
Customary abbreviations may be used in the name of a Holder or an assignee,
such as:  TEN COM (=  tenants in common), TENANT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors
Act).

 

The Company will furnish to any Holder upon written
request and without charge a copy of the Indenture.  Requests may be made to:

 

MERITAGE CORPORATION

8501 E. Princess Drive

Suite 290

Scottsdale, AZ  85255

Attention:  Chief Financial Officer

 

A-7

 

ASSIGNMENT

 

I or we assign and transfer
this Note to:

 

(Insert assignee’s social security or tax I.D. number)

 

	
   

  
	
   

  
	
   

  
	
  (Print or type name, address and zip code of assignee)

  
	
   

  
	
  and
  irrevocably appoint:

  
	
   

  
	
   

  
	
   

  
	
   

  
	
  Agent to
  transfer this Note on the books of the Company.  The Agent may substitute another to act for him.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Date:

  	
   

  	
   

  	
   

  	
  Your Signature:

  	
   

  
	
   

  	
   

  	
   

  	
  (Sign
  exactly as your name

  
	
   

  	
   

  	
   

  	
  appears on
  the other side of

  
	
   

  	
   

  	
   

  	
  this Note)

  
	
   

  	
   

  	
   

  
	
   

  	
  Signature
  Guarantee:

  	
   

  	
   

  	
   

  
											

 

SIGNATURE GUARANTEE

 

Signatures must be guaranteed
by an “eligible guarantor institution” meeting the requirements of the
Registrar, which requirements include membership or participation in the Security
Transfer Agent Medallion Program (“STAMP”) or such other “signature guarantee
program” as may be determined by the Registrar in addition to, or in
substitution for, STAMP, all in accordance with the Securities Exchange Act of
1934, as amended.

 

A-8

 

OPTION OF HOLDER TO ELECT PURCHASE

 

If you want to elect to have all or any part of this
Note purchased by the Company pursuant to Section 4.09, Section 4.16 or Section
4.20 of the Indenture, check the appropriate box:

 

	
  o

  	
   

  	
  Section 4.09

  	
   

  	
  o

  	
   

  	
  Section 4.16

  	
   

  	
  o

  	
   

  	
  Section 4.20

  

 

If you want to have only part of the Note purchased by
the Company pursuant to Section 4.09, Section 4.16 or
Section 4.20 of the Indenture, state the amount you elect to have purchased:

 

	
  $

  	
   

  	
   

  
	
  (multiple of
  $1,000)

  
	
   

  
	
  Date:

  	
   

  	
   

  
	
   

  
	
   

  
	
   

  	
  Your
  Signature:

  	
   

  	
   

  
	
   

  	
   

  	
  (Sign
  exactly as your name appears on the face of this Note)

  
	
   

  
	
   

  
	
   

  	
   

  
	
  Signature
  Guaranteed

  
										

 

SIGNATURE GUARANTEE

 

Signatures must be guaranteed
by an “eligible guarantor institution” meeting the requirements of the
Registrar, which requirements include membership or participation in the Security
Transfer Agent Medallion Program (“STAMP”) or such other “signature guarantee
program” as may be determined by the Registrar in addition to, or in
substitution for, STAMP, all in accordance with the Securities Exchange Act of
1934, as amended.

 

A-9

 

EXHIBIT B

 

[FORM OF LEGEND FOR 144A NOTES AND OTHER NOTES THAT

ARE RESTRICTED NOTES]

 

The Note (or its predecessor)
evidenced hereby was originally issued in a transaction exempt from
registration under Section 5 of the United States Securities Act of 1933,
and the Note evidenced hereby may not be offered, sold or otherwise transferred
in the absence of such registration or an applicable exemption therefrom.  Each purchaser of the Note evidenced hereby
is hereby notified that the seller may be relying on the exemption from the
provisions of Section 5 of the Securities Act provided by Rule 144A
thereunder or another exemption under the Securities Act.  The holder of the Note evidenced hereby
agrees for the benefit of Meritage Corporation that (a) such Note may be
resold, pledged or otherwise transferred only (1)(a) to a person who the seller
reasonably believes is a qualified institutional buyer (as defined in
Rule 144A under the Securities Act), purchasing for its own account in a
transaction meeting the requirements of Rule 144A under the Securities
Act, (b) in a transaction meeting the requirements of Rule 144 of the
Securities Act, (c) outside the United States to a foreign person in a
transaction meeting the requirements of Rule 904 of Regulation S
under the Securities Act, (d) to an “accredited investor” within the
meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act (an
“Institutional Accredited Investor”) that is purchasing at least $100,000 of
Notes for its own account or for the account of an institutional accredited
investor (and based upon an opinion of counsel if Meritage Corporation so
requests) or (e) in accordance with another exemption from the
registration requirements of the Securities Act provided that in the case of a
transfer under clause (e) such transfer is subject to the receipt by the
Trustee (and Meritage Corporation, if it so requests) of a certification of the
Transferor and an opinion of counsel to the effect that such transfer is in
compliance with the Securities Act, (2) to Meritage Corporation or any of
its subsidiaries or (3) under an effective registration statement under
the Securities Act and, in each case, in accordance with any applicable
securities laws of any state of the United States or any other applicable
jurisdiction and the indenture governing the Notes and (b) the holder
will, and each subsequent holder is required to, notify any purchaser from it
of the Note evidenced hereby of the resale restrictions set forth in (a)
above.  If any resale or other transfer
of any Note is proposed to be made under clause (a)(1)(d) above while
these transfer restrictions are in force then the transferor shall deliver a letter
from the transferee to Meritage and the Trustee which shall provide, among
other things, that the transferee is an institutional accredited investor and
that it is acquiring the Securities for investment purposes and not for
distribution in violation of the Securities Act.

 

B-1

 

[FORM OF ASSIGNMENT FOR 144A NOTES AND OTHER NOTES THAT ARE 

RESTRICTED NOTES]

 

I or we assign and transfer
this Note to:

 

(Insert assignee’s social security or tax I.D. number)

 

	
   

  
	
   

  
	
   

  
	
  (Print or type name, address and zip code of assignee)

  
	
   

  
	
  and
  irrevocably appoint:

  
	
   

  
	
   

  
	
   

  
	
   

  
	
  Agent to
  transfer this Note on the books of the Company.  The Agent may substitute another to act for him.

  

 

[Check One]

 

o  (a)                     this
Note is being transferred in compliance with the exemption from registration
under the Securities Act provided by Rule 144A thereunder.

 

or

 

o  (b)                     this
Note is being transferred other than in accordance with (a) above and documents
are being furnished which comply with the conditions of transfer set forth in
this Note and the Indenture.

 

If none of the foregoing boxes
is checked, the Trustee or Registrar shall not be obligated to register this
Note in the name of any person other than the Holder hereof unless and until
the conditions to any such transfer of registration set forth herein and in
Sections 2.16 and 2.17 of the Indenture shall have been satisfied.

 

	
  Date:

  	
   

  	
   

  	
  Your Signature:

  	
   

  
	
   

  	
  (Sign
  exactly as your name

  
	
   

  	
  appears on
  the face of this Note)

  
	
   

  	
   

  
	
  Signature
  Guarantee:

  	
   

  
						

 

B-2

 

SIGNATURE GUARANTEE

 

Signatures must be guaranteed
by an “eligible guarantor institution” meeting the requirements of the
Registrar, which requirements include membership or participation in the Security
Transfer Agent Medallion Program (“STAMP”) or such other “signature guarantee
program” as may be determined by the Registrar in addition to, or in
substitution for, STAMP, all in accordance with the Securities Exchange Act of
1934, as amended.

 

B-3

 

TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED

 

The undersigned represents and warrants that it is
purchasing this Note for its own account or an account with respect to which it
exercises sole investment discretion and that it and any such account is a
“qualified institutional buyer” within the meaning of Rule 144A under the
Securities Act and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has
determined not to request such information and that it is aware that the
transferor is relying upon the undersigned’s foregoing representations in order
to claim the exemption from registration provided by Rule 144A.

 

	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  NOTICE: To be executed by

  an executive officer

  

 

B-4

 

EXHIBIT C

 

[FORM OF LEGEND FOR REGULATION S NOTE]

 

This Note has not been
registered under the U.S. Securities Act of 1933, as amended (the “Act”), and,
unless so registered, may not be offered or sold within the United States or
to, or for the account or benefit of, U.S. Persons unless registered under the
Act or except pursuant to an exemption from, or in a transaction not subject to,
the registration requirements of the Act.

 

C-1

 

[FORM OF ASSIGNMENT FOR REGULATION S NOTE]

 

I or we assign and transfer
this Note to:

 

	
  (Insert assignee’s social security or tax I.D. number)

  
	
   

  
	
   

  
	
   

  
	
   

  
	
  (Print or type name, address and zip code of assignee)

  
	
   

  
	
  and
  irrevocably appoint:

  
	
   

  
	
   

  
	
   

  
	
   

  
	
  Agent to
  transfer this Note on the books of the Company.  The Agent may substitute another to act for him.

  

 

[Check One]

 

o  (a)                     this
Note is being transferred in compliance with the exemption from registration
under the Securities Act provided by Rule 144A thereunder.

 

or

 

o  (b)                     this
Note is being transferred other than in accordance with (a) above and documents
are being furnished which comply with the conditions of transfer set forth in
this Note and the Indenture.

 

If none of the foregoing boxes
is checked, the Trustee or Registrar shall not be obligated to register this
Note in the name of any person other than the Holder hereof unless and until
the conditions to any such transfer of registration set forth herein and in
Sections 2.16 and 2.17 of the Indenture shall have been satisfied.

 

	
  Date:

  	
   

  	
   

  	
  Your Signature:

  	
   

  
	
   

  	
  (Sign
  exactly as your name

  
	
   

  	
  appears on
  the face of this Note)

  
	
   

  	
   

  
	
  Signature
  Guarantee:

  	
   

  
						

 

C-2

 

SIGNATURE GUARANTEE

 

Signatures must be guaranteed
by an “eligible guarantor institution” meeting the requirements of the
Registrar, which requirements include membership or participation in the Security
Transfer Agent Medallion Program (“STAMP”) or such other “signature guarantee
program” as may be determined by the Registrar in addition to, or in
substitution for, STAMP, all in accordance with the Securities Exchange Act of
1934, as amended.

 

C-3

 

TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED

 

The undersigned represents and warrants that it is
purchasing this Note for its own account or an account with respect to which it
exercises sole investment discretion and that it and any such account is a
“qualified institutional buyer” within the meaning of Rule 144A under the
Securities Act and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has
determined not to request such information and that it is aware that the
transferor is relying upon the undersigned’s foregoing representations in order
to claim the exemption from registration provided by Rule 144A.

 

	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  NOTICE:  To be executed by

  an executive officer

  

 

C-4

 

EXHIBIT D

 

[FORM OF LEGEND FOR GLOBAL NOTE]

 

Any Global Note authenticated and delivered hereunder
shall bear a legend (which would be in addition to any other legends required
in the case of a Restricted Note) in substantially the following form:

 

This Note is a Global Note within the meaning of the
indenture hereinafter referred to and is registered in the name of a depository
or a nominee of a depository.  This Note
is not exchangeable for Notes registered in the name of a person other than the
depository or its nominee except in the limited circumstances described in the
indenture, and no transfer of this Note (other than a transfer of this Note as
a whole by the depository to a nominee of the depository or by a nominee of the
depository to the depository or another nominee of the depository) may be
registered except in the limited circumstances described in the Indenture.

 

Unless this certificate 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 certificate issued is registered in the name of CEDE & CO. or in
such other name as it requested by an authorized representative of DTC (and any
payment is made to CEDE & CO. or 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.

 

D-1

 

EXHIBIT E

 

Form of Certificate To Be

Delivered in Connection with

Transfers to Non-QIB Accredited Investors

 

Wells Fargo Bank, National Association

Meritage Corporation

c/o Wells Fargo Bank, National Association

707 Wilshire Boulevard, 17th Floor

Los Angeles, CA  90017

 

Attention:  Corporate Trust Department

 

Ladies and Gentlemen:

 

In connection with our proposed purchase of 7% Senior
Notes due 2014 (the “Notes”) of Meritage Corporation, a Maryland Corporation
(the “Company”), we confirm that:

 

1.             We understand that any subsequent transfer of the
Notes is subject to certain restrictions and conditions set forth in the
Indenture dated as of April 21, 2004 relating to the Notes and we agree to be
bound by, and not to resell, pledge or otherwise transfer the Notes except in
compliance with, such restrictions and conditions and the Securities Act of
1933, as amended (the “Securities Act”).

 

2.             We understand that the Notes have not been registered
under the Securities Act or any other applicable securities laws, have not been
and will not be qualified for sale under the securities laws of any non-U.S.
jurisdiction and that the Notes may not be offered, sold, pledged or otherwise
transferred except as permitted in the following sentence.  We agree, on our own behalf and on behalf of
any accounts for which we are acting as hereinafter stated, that if we should
sell any Notes, we will do so only (i) to the Company or any subsidiary
thereof, (ii) in accordance with Rule 144A under the Securities Act to a
“qualified institutional buyer” (as defined in Rule 144A), (iii) to an
institutional “accredited investor” (as defined below) that, prior to such
transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to
you a signed letter containing certain representations and agreements relating to
the restrictions on transfer of the Notes, (iv) outside the United States
to persons other than U.S. persons in offshore transactions meeting the
requirements of Rule 904 of Regulation S under the Securities Act, (v) pursuant
to the exemption form registration provided by Rule 144 under the Securities
Act (if applicable) or (vi) pursuant to an effective registration
statement, and we further agree to provide to any person purchasing any of the

 

E-1

 

Notes from us a notice
advising such purchaser that resales of the Notes are restricted as stated
herein.

 

3.             We understand that, on any proposed resale of any
Notes, we will be required to furnish to you and the Company such
certifications, legal opinions and other information as you and the Company may
reasonably require to confirm that the proposed sale complies with the
foregoing restrictions.  We further
understand that the Notes purchased by us will bear a legend to the foregoing effect.

 

4.             We are an institutional “accredited investor” (as
defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) and have
such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the Notes, and
we and any accounts for which we are acting each are able to bear the economic
risk of our or their investment, as the case may be.

 

5.             We are acquiring the Notes purchased by us for our
account or for one or more accounts (each of which is an institutional
“accredited investor”) as to each of which we exercise sole investment
discretion.

 

6.             We are not acquiring the Notes with a view toward the
distribution thereof in a transaction that would violate the Securities Act or
the securities laws of any state of the United States or any other applicable
jurisdiction.

 

You are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceeding or official inquiry
with respect to the matters covered hereby.

 

	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  [Name of Transferee]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
  Date:

  	
   

  	
   

  	
   

  
					

 

E-2

 

EXHIBIT F

 

Form of Certificate To Be Delivered

in Connection with Transfers

Pursuant to Regulation S

 

Wells Fargo Bank, National Association

Meritage Corporation

c/o Wells Fargo Bank, National Association

707 Wilshire Boulevard, 17th Floor

Los Angeles, CA  90017

 

Attention:  Corporate Trust Department

 

Re:          Meritage
Corporation, a Maryland corporation (the “Company”)

7% Senior Notes due 2014 (the “Notes”)

 

Dear Sirs:

 

In connection with our proposed sale of
$                  
aggregate principal amount of the Notes, we confirm that such sale has been
effected pursuant to and in accordance with Regulation S under the U.S.
Securities Act of 1933, as amended (the “Securities Act”), and, accordingly, we
represent that:

 

(1)           the offer of the Notes was not made to a
U.S. person or to a person in the United States;

 

(2)           either (a) at the time the buy offer was
originated, the transferee was outside the United States or we and any person
acting on our behalf reasonably believed that the transferee was outside the
United States, or (b) the transaction was executed in, on or through the
facilities of a designated off-shore securities market and neither we nor any
person acting on our behalf knows that the transaction has been pre-arranged
with a buyer in the United States;

 

(3)           no directed selling efforts have been
made in the United States in contravention of the requirements of Rule 904(a)
of Regulation S;

 

(4)           the transaction is not part of a plan or
scheme to evade the registration requirements of the Securities Act; and

 

(5)           we have advised the transferee of the
transfer restrictions applicable to the Notes.

 

F-1

 

You are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. 
Terms used in this certificate have the meanings set forth in Regulation
S.

 

	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  [Name of Transferee]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  

 

F-2

 

EXHIBIT G

 

NOTATION OF GUARANTEE

 

Each of the undersigned (the “Guarantors”) hereby
jointly and severally unconditionally guarantees, to the extent set forth in
the Indenture dated as of April 21, 2004 by and among Meritage Corporation, as
issuer, the Guarantors, as guarantors, and Wells Fargo Bank, National
Association, as Trustee (as amended, restated or supplemented from time to
time, the “Indenture”), and subject to the provisions of the Indenture,
(a) the due and punctual payment of the principal of, and premium, if any,
and interest on the Notes, when and as the same shall become due and payable,
whether at maturity, by acceleration or otherwise, the due and punctual payment
of interest on overdue principal of, and premium and, to the extent permitted
by law, interest, and the due and punctual performance of all other obligations
of the Company to the Holders or the Trustee, all in accordance with the terms
set forth in Article Ten of the Indenture, and (b) in case of any
extension of time of payment or renewal of any Notes or any of such other
obligations, that the same will be promptly paid in full when due or performed
in accordance with the terms of the extension or renewal, whether at stated
maturity, by acceleration or otherwise.

 

The obligations of the Guarantors to the Holders and
to the Trustee pursuant to this Guarantee and the Indenture are expressly set
forth in Article Ten of the Indenture, and reference is hereby made to the
Indenture for the precise terms and limitations of this Guarantee.  Each Holder of the Note to which this
Guarantee is endorsed, by accepting such Note, agrees to and shall be bound by
such provisions.

 

[Signatures on Following Pages]

 

G-1

 

IN WITNESS WHEREOF, each of the Guarantors has caused
this Guarantee to be signed by a duly authorized officer.

 

	
   

  	
  [GUARANTORS]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

G-2

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