Document:

Exhibit 10.1

 

COUNTY OF CARROLL, KENTUCKY

 

AND

 

KENTUCKY UTILITIES COMPANY

 

A Kentucky and Virginia
Corporation

 

*   * 
*  *  *

 

LOAN AGREEMENT IN CONNECTION

WITH ENVIRONMENTAL FACILITIES

 

*   *  
*   *   *

 

Dated as October 1, 2004

 

*   *  
*   *   *

 

NOTICE:        The interest of the County of Carroll,
Kentucky, in and to this Loan Agreement has been assigned to Wachovia Bank of
Delaware, National Association, as Trustee, under the Indenture of Trust dated
as of October 1, 2004

 

 

TABLE OF CONTENTS

 

	
  ARTICLE I DEFINITIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 1.1.

  	
  USE OF DEFINED TERMS

  	
   

  
	
  SECTION 1.2.

  	
  INCORPORATION OF
  CERTAIN TERMS BY REFERENCE

  	
   

  
	
  SECTION 1.3.

  	
  ADDITIONAL DEFINITIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE II
  REPRESENTATIONS, WARRANTIES AND COVENANTS

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 2.1.

  	
  REPRESENTATIONS,
  WARRANTIES AND COVENANTS BY ISSUER

  	
   

  
	
  SECTION 2.2.

  	
  REPRESENTATIONS,
  WARRANTIES AND COVENANTS BY COMPANY

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  III COMPLETION AND OWNERSHIP OF 1993 PROJECT

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 3.1.

  	
  COMPLETION AND
  EQUIPPING OF 1993 PROJECT

  	
   

  
	
  SECTION 3.2.

  	
  AGREEMENT AS TO
  OWNERSHIP OF 1993 PROJECT

  	
   

  
	
  SECTION 3.3.

  	
  USE OF 1993 PROJECT

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV
  ISSUANCE OF 2004 SERIES A BONDS; APPLICATION OF PROCEEDS; COMPANY TO ISSUE
  FIRST MORTGAGE BONDS

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 4.1.

  	
  AGREEMENT TO ISSUE
  2004 SERIES A BONDS; APPLICATION OF 2004 SERIES A BOND PROCEEDS

  	
   

  
	
  SECTION 4.2.

  	
  PAYMENT AND DISCHARGE
  OF REFUNDED 1993 SERIES A BONDS

  	
   

  
	
  SECTION 4.3.

  	
  INVESTMENT OF BOND
  FUND AND REBATE FUND MONEYS

  	
   

  
	
  SECTION 4.4.

  	
  SPECIAL ARBITRAGE
  CERTIFICATIONS

  	
   

  
	
  SECTION 4.5.

  	
  OPINION OF BOND
  COUNSEL

  	
   

  
	
  SECTION 4.6.

  	
  FIRST MORTGAGE BONDS

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE V
  PROVISIONS FOR PAYMENT

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 5.1.

  	
  LOAN PAYMENTS AND
  OTHER AMOUNTS PAYABLE

  	
   

  
	
  SECTION 5.2.

  	
  PAYMENTS ASSIGNED

  	
   

  
	
  SECTION 5.3.

  	
  TAXES AND OTHER
  GOVERNMENTAL CHARGES

  	
   

  
	
  SECTION 5.4.

  	
  OBLIGATIONS OF COMPANY
  UNCONDITIONAL

  	
   

  
	
  SECTION 5.5.

  	
  REBATE FUND

  	
   

  
	
  SECTION 5.6.

  	
  REDEMPTION OF THE 2004
  SERIES A BONDS IN ADVANCE OF SCHEDULED MATURITY

  	
   

  
	
  SECTION
  5.7.

  	
  CANCELLATION
  OF 2004 SERIES A BONDS

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VI MAINTENANCE; DAMAGE, DESTRUCTION AND CONDEMNATION;USE OF NET PROCEEDS;
  INSURANCE

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  6.1.

  	
  MAINTENANCE

  	
   

  
	
  SECTION
  6.2.

  	
  INSURANCE

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VII SPECIAL COVENANTS

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  7.1.

  	
  NO
  WARRANTY OF CONDITION OR SUITABILITY BY ISSUER

  	
   

  
	
  SECTION
  7.2.

  	
  COMPANY
  TO MAINTAIN ITS CORPORATE EXISTENCE;CONDITIONS UNDER WHICH EXCEPTIONS
  PERMITTED

  	
   

  
	
  SECTION
  7.3.

  	
  FINANCIAL
  STATEMENTS

  	
   

  
	
  SECTION
  7.4.

  	
  FURTHER
  ASSURANCES AND CORRECTIVE INSTRUMENTS

  	
   

  
	
  SECTION
  7.5.

  	
  ISSUER
  REPRESENTATIVE

  	
   

  
	
  SECTION
  7.6.

  	
  COMPANY
  REPRESENTATIVE

  	
   

  
	
  SECTION
  7.7.

  	
  FINANCING
  STATEMENTS

  	
   

  
	
  SECTION
  7.8.

  	
  COMPANY’S
  PERFORMANCE UNDER INDENTURE

  	
   

  
	
  SECTION
  7.9.

  	
  NEGATIVE
  PLEDGE

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII ASSIGNMENT; INDEMNIFICATION;
  REDEMPTION

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 8.1.

  	
  ASSIGNMENT

  	
   

  
	
  SECTION 8.2.

  	
  RELEASE
  AND INDEMNIFICATION COVENANTS

  	
   

  
	
  SECTION 8.3.

  	
  ASSIGNMENT
  OF INTEREST IN AGREEMENT BY ISSUER

  	
   

  
	
  SECTION 8.4.

  	
  REDEMPTION
  OF 2004 SERIES A BONDS

  	
   

  
	
  SECTION 8.5.

  	
  REFERENCE
  TO 2004 SERIES A BONDS INEFFECTIVE AFTER 2004 SERIES A BONDS PAID

  	
   

  

 

i

 

	
  ARTICLE
  IX EVENTS OF DEFAULT AND REMEDIES

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  9.1.

  	
  EVENTS
  OF DEFAULT DEFINED

  	
   

  
	
  SECTION
  9.2.

  	
  REMEDIES
  ON DEFAULT

  	
   

  
	
  SECTION
  9.3.

  	
  NO
  REMEDY EXCLUSIVE

  	
   

  
	
  SECTION
  9.4.

  	
  AGREEMENT
  TO PAY REASONABLE ATTORNEYS’ FEES AND EXPENSES

  	
   

  
	
  SECTION
  9.5.

  	
  WAIVER
  OF EVENTS OF DEFAULT

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  X PREPAYMENT OF LOAN

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  10.1.

  	
  OPTIONS
  TO PREPAY LOAN

  	
   

  
	
  SECTION
  10.2.

  	
  ADDITIONAL
  OPTION TO PREPAY LOAN

  	
   

  
	
  SECTION
  10.3.

  	
  OBLIGATIONS
  TO PREPAY LOAN

  	
   

  
	
  SECTION
  10.4.

  	
  NOTICE
  OF PREPAYMENT; REDEMPTION PROCEDURES

  	
   

  
	
  SECTION
  10.5.

  	
  RELATIVE
  POSITION OF THIS ARTICLE AND INDENTURE

  	
   

  
	
  SECTION
  10.6.

  	
  CONCURRENT
  DISCHARGE OF FIRST MORTGAGE BONDS

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  XI MISCELLANEOUS

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  11.1.

  	
  TERM
  OF AGREEMENT

  	
   

  
	
  SECTION
  11.2.

  	
  NOTICES

  	
   

  
	
  SECTION
  11.3.

  	
  BINDING
  EFFECT; BOND COUNSEL OPINIONS

  	
   

  
	
  SECTION
  11.4.

  	
  SEVERABILITY

  	
   

  
	
  SECTION
  11.5.

  	
  AMOUNTS
  REMAINING IN BOND FUND, REBATE FUND AND PRIOR BOND FUND

  	
   

  
	
  SECTION
  11.6.

  	
  AMENDMENTS,
  CHANGES AND MODIFICATIONS

  	
   

  
	
  SECTION
  11.7.

  	
  EXECUTION
  IN COUNTERPARTS

  	
   

  
	
  SECTION
  11.8.

  	
  APPLICABLE
  LAW

  	
   

  
	
  SECTION
  11.9.

  	
  CAPTIONS

  	
   

  
	
  SECTION
  11.10.

  	
  NO
  PECUNIARY LIABILITY OF ISSUER

  	
   

  
	
  SECTION
  11.11.

  	
  PAYMENTS
  DUE ON OTHER THAN BUSINESS DAYS

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  EXHIBIT A - DESCRIPTION OF PROJECT

  	
   

  

 

ii

 

LOAN
AGREEMENT IN CONNECTION 

WITH ENVIRONMENTAL FACILITIES

 

 This LOAN AGREEMENT,
dated as of October 1, 2004, by and between the COUNTY OF CARROLL, KENTUCKY,
a public body corporate and politic duly created and existing as a County and
political subdivision under the Constitution and laws of the Commonwealth of
Kentucky, and KENTUCKY UTILITIES COMPANY, a corporation organized and
existing under the laws of Kentucky and Virginia;

 

W  I  T  N  E  S
S  E  T  H:

 

WHEREAS, the County of Carroll, Kentucky (“Issuer”),
is a public body corporate and politic duly created and existing as a County
and political subdivision under the Constitution and laws of the Commonwealth
of Kentucky, and pursuant to the provisions of Sections 103.200 to 103.285,
inclusive, of the Kentucky Revised Statutes (the “Act”), Issuer has the power
to enter into the transactions contemplated by this Loan Agreement and to carry
out its obligations hereunder; and

 

WHEREAS, Issuer is authorized pursuant to the Act to
issue negotiable bonds and lend the proceeds from the sale of such bonds to a
utility company to finance and refinance the acquisition, construction,
installation and equipping of solid waste disposal facilities, one of the
categories of “pollution control facilities”, as defined by the Act for the
collection, storage, treatment, processing and disposal of solid wastes and to
refund bonds which were previously issued for such purposes; and

 

WHEREAS, Issuer is further authorized pursuant to
the Act to enter into a loan agreement, which may include such provisions as
Issuer shall deem appropriate to effect the securing of a financing or
refinancing undertaken in respect of solid waste disposal facilities, including
the pledge of direct securities of a utility company; and

 

WHEREAS, the Act further provides that title to
solid waste disposal facilities shall not be acquired by Issuer in the case of
a loan transaction; and

 

WHEREAS, Kentucky Utilities Company, a Kentucky and
Virginia corporation (“Company”), has heretofore, by the issuance of the
Refunded 1993 Series A Bonds, hereinafter defined, financed all or a portion of
the costs of construction, acquisition, installation and equipping of certain
solid waste disposal facilities to serve the Ghent Generating Station of
Company, which specified facilities constitute the 1993 Project, as hereinafter
defined in ARTICLE I (the “1993 Project”), which 1993 Project is located within
the corporate boundaries of Issuer and consists of certain solid waste disposal
facilities, and which 1993 Project qualifies for financing within the meaning
of the Act; and

 

WHEREAS, the 1993 Project has been completed and
placed in operation and has contributed and does contribute to the collection,
storage, treatment, processing and final disposal of solid wastes in the
Commonwealth of Kentucky; and

 

1

 

WHEREAS, under date of December 22, 1993, the
Issuer, at the request of the Company, issued its “County of Carroll, Kentucky,
Collateralized Solid Waste Disposal Facilities Revenue Bonds (Kentucky
Utilities Company Project) 1993 Series A”, dated December 1, 1993, of
which $50,000,000 principal amount of such bonds remains outstanding and unpaid
(the “Refunded 1993 Series A Bonds”), such Refunded 1993 Series A Bonds having
been issued to finance a portion of the Cost of Construction of the 1993
Project, hereinafter described; and in connection with the issuance of the
Refunded 1993 Series A Bonds, the right was reserved to Issuer, upon direction
by Company, to redeem the Refunded 1993 Series A Bonds in advance of their
scheduled maturity; and the Refunded 1993 Series A Bonds are by their terms
currently subject to redemption at the option of the Issuer in whole or in part
on any date, at the price of 102% of the principal amount thereof and accrued
interest to the date of redemption, as provided in the hereinafter defined 1993
Series A Indenture; and the immediate redemption and discharge of the Refunded
1993 Series A Bonds will result in benefits to the general public and the
Company and should be carried out forthwith in the public interest by the
issuance by the Issuer of the 2004 Series A Bonds, hereinafter defined, and the
application of the proceeds of the 2004 Series A Bonds, together with funds to
be provided by Company, for the refunding, payment and discharge of the
Refunded 1993 Series A Bonds on or prior to the 90th day after the date of
issuance of the 2004 Series A Bonds; and

 

WHEREAS, in respect of the Refunded 1993 Series A
Bonds, Issuer entered into a certain Indenture of Trust dated as of December 1,
1993 (the “1993 Series A Indenture”), with Bank One, Lexington, N.A. (now known
as J.P. Morgan Trust Company, N.A.), as Trustee, Paying Agent and Bond
Registrar (the “Prior Trustee”), and it is provided in ARTICLE VIII
of the 1993 Series A Indenture that the Refunded 1993 Series A Bonds, or any of
them, shall be deemed to have been paid within the meaning of such 1993 Series
A Indenture when there shall have been irrevocably deposited with the Prior
Trustee, in trust, either cash or Governmental Obligations, as defined in the
1993 Series A Indenture, maturing as to principal and interest in such amounts
and at such times as will insure the availability of sufficient moneys to pay
the principal and the applicable redemption premium, if any, on the Refunded
1993 Series A Bonds plus interest thereon to the date of payment and discharge
thereof (whether at maturity or upon redemption or otherwise), plus sufficient
moneys to pay all necessary and proper fees, compensation and expenses of the
Prior Trustee, authenticating agent, bond registrar and any paying agent;
together with irrevocable instructions to call and redeem the Refunded 1993
Series A Bonds; and

 

WHEREAS, pursuant to and in accordance with the
provisions of the Act and an Ordinance duly adopted by the Fiscal Court of
Issuer on October 12, 2004, and in furtherance of the purposes of the Act,
Issuer proposes to issue, sell and deliver a series of its bonds in fully
registered form which will be designated “County of Carroll, Kentucky,
Environmental Facilities Revenue Bonds, 2004 Series A (Kentucky Utilities
Company Project)” (the “2004 Series A Bonds”), the proceeds of which will be
lent to Company to cause the outstanding principal amount of the Refunded 1993
Series A Bonds to be refunded, paid and discharged in full on or prior to the
90th day after the date of issuance of the 2004 Series A Bonds; and

 

WHEREAS, the 2004 Series A Bonds are to be issued
under and pursuant to and are secured by an Indenture of Trust by and between
Issuer and Wachovia Bank of Delaware National Association, as trustee
thereunder, dated as of October 1, 2004 (the “Indenture”); and

 

2

 

WHEREAS, Issuer proposes to lend to Company and
Company desires to borrow from Issuer the proceeds from the sale of the 2004 Series
A Bonds to cause the outstanding principal amount of the Refunded 1993 Series A
Bonds to be refunded, paid and discharged on or prior to the 90th day after the
date of issuance of the 2004 Series A Bonds;

 

NOW,
THEREFORE FOR AND IN CONSIDERATION OF THE PREMISES AND THE MUTUAL COVENANTS AND
AGREEMENTS HEREINAFTER CONTAINED, THE PARTIES HERETO AGREE EACH WITH THE OTHER,
AS FOLLOWS:

 

ARTICLE I

DEFINITIONS

 

Section 1.1.            Use of
Defined Terms.  In addition to the
words and terms defined elsewhere in this Agreement or in the Indenture or by
reference to another document, the words and terms set forth in Section 1.2and Section 1.3 shall have the meanings set forth therein unless the
context or use clearly indicates another meaning or intent.  Such definitions shall be equally applicable
to both the singular and plural forms of any of the words and terms defined
therein.

 

Section 1.2.            Incorporation
of Certain Terms by Reference.  When
and if used in this Agreement, the following terms shall have the meaning set
forth in ARTICLE I of the Indenture:

 

“Act”

“Agreement”

“Authorized Denomination”

“Bond Counsel”

“Bond Insurer”

“Bond Fund”

“Bond Year”

“Business Day”

“Code”

“Company”

“Company Bonds”

“Company Representative”

“Cost of Construction”

“Cumulative Excess Earnings”

“Excess Earnings”

“First Mortgage Bonds”

“First Mortgage Indenture”

“First Mortgage Trustee”

“Governmental Obligations”

“Indenture”

“Interest Payment Date”

“Issuer”

“Issuer Representative”

“Loan”

“Net Proceeds”

3

 

“No Auction Rate”

“Paying Agent”

“Permitted Investments”

“Plans and Specifications”

“Pollution Control Facilities”

“Prevailing Rating”

“1993 Project”

“Project Site”

“Purchase Fund”

“Rating Service”

“Rebate Fund”

“Redemption Date”

“Redemption Demand”

“Refunded 1993 Series A Bonds”

“Release Date”

“2004 Series A Bonds”

“1993 Series A Indenture”

“Supplemental Indenture”

“Tender Agent”

“Thirty-Day ‘AA’ Composite Commercial Paper Rate”

“Trustee”

 

Section 1.3.            Additional
Definitions.  In addition to the
terms whose definitions are incorporated by reference herein pursuant to Section
1.2, the following terms shall have the meanings set forth in this Section
unless the use or context clearly indicates otherwise:

 

“Capitalization”
means the total of all the following items appearing on, or included in, the
balance sheet of the Company:

 

(1)           liabilities for
indebtedness, including short-term debt, long-term debt and current maturities
of long-term debt; and

 

(2)           common stock, preferred
stock, capital surplus, premium on capital stock, capital in excess of par
value and retained earnings (however the foregoing may be designated), less to
the extent not otherwise deducted, the cost of shares of capital stock of the
Company held in its treasury.

 

Capitalization shall be
determined in accordance with generally accepted accounting principles and
practices applicable to the type of business in which the Company is engaged
and that are approved by the independent accountants regularly retained by the
Company, and shall be determined as of the date that is the end of the most
recent fiscal quarter prior to the happening of an event for which such
determination is being made.

 

“Debt” shall mean any
outstanding debt for money borrowed.

 

“Determination of
Taxability” shall have the meaning ascribed to such term in Section 10.3
of this Agreement.

 

4

 

“Net Tangible Assets”
means the amount shown as total assets on the balance sheet of the Company,
less the following:

 

(1)           intangible assets
including, but without limitation, such items as goodwill, trademarks, trade
names, patents and unamortized debt discount and expense carried as an asset on
said balance sheet; and

 

(2)           appropriate adjustments,
if any, on account of minority interests.

 

Net Tangible Assets shall be
determined in accordance with generally accepted accounting principles and
practices applicable to the type of business in which the Company is engaged
and that are approved by the independent accountants regularly retained by the
Company, and shall be determined as of the date that is the end of the most
recent fiscal quarter prior to the happening of an event for which such
determination is being made.

 

“Operating Property”
means (i) any interest in real property owned by the Company and (ii) any asset
owned by the Company that is depreciable in accordance with generally accepted
accounting principles.

 

 “Prior Bond Fund” means the “County of
Carroll, Kentucky, Collateralized Solid Waste Disposal Facilities Revenue Bond
Fund (Kentucky Utilities Company Project) 1993 Series A” created by the 1993
Series A Indenture.

 

“Prior Trustee” means
Bank One, Lexington, N.A. (now known as J.P. Morgan Trust Company, N.A.), acting
as trustee in respect of the Refunded 1993 Series A Bonds.

 

In addition to the
definitions herein, terms used in this agreement and not defined herein shall
have the meanings ascribed to such terms in the Indenture.

 

The words “hereof”, “herein”,
“hereto”, “hereby” and “hereunder” refer to this entire Agreement.  Unless otherwise noted, all Section and
Article references are to sections and articles in this Agreement.

 

ARTICLE II

REPRESENTATIONS, WARRANTIES AND COVENANTS

 

Section 2.1.            Representations,
Warranties and Covenants by Issuer.  Issuer represents, warrants and covenants
that:

 

(a)           Issuer is a public body corporate and politic
duly created and existing as a County and political subdivision under the
Constitution and laws of the Commonwealth of Kentucky and, pursuant to the Act,
Issuer has the power and duty to issue the 2004 Series A Bonds, to enter into
this Agreement and the Indenture and the transactions contemplated hereby and
to carry out its obligations hereunder and thereunder.  Issuer is not in default under or in
violation of the Constitution or any of the laws of the Commonwealth of
Kentucky relevant to the issuance of the 2004 Series A Bonds or the
consummation of the transactions contemplated hereby or in connection with such
issuance, and has been duly authorized to issue the 2004 Series A Bonds 

 

5

 

and to execute and deliver this Agreement and the Indenture.  Issuer agrees that it will do or cause to be
done in timely manner all things necessary to preserve and keep in full force
and effect its existence, and to carry out the terms of this Agreement.

 

(b)           Issuer agrees to loan funds derived from the
sale of the 2004 Series A Bonds to Company to provide for the refunding,
payment and discharge of the outstanding principal amount of the Refunded 1993
Series A Bonds, to the end that solid wastes be collected, stored, neutralized
and abated in the Commonwealth.

 

(c)           To accomplish the foregoing, Issuer agrees to
issue $50,000,000 aggregate principal amount of its 2004 Series A Bonds
following the execution of this Agreement on such terms and conditions as are
set forth in the Indenture.  The proceeds
from the sale of the 2004 Series A Bonds shall be applied exclusively and in
whole to refund, pay and discharge the outstanding principal amount of the
Refunded 1993 Series A Bonds on or prior to the 90th day after the date of
issuance of the 2004 Series A Bonds.

 

(d)           Issuer will cooperate with Company and take
all actions necessary for Company to comply with Section 2.2(m), (q) and (t)
hereof and take other actions reasonably requested by Company in furtherance of
this Agreement.

 

Section 2.2.            Representations,
Warranties and Covenants by Company.  Company represents, warrants and covenants
that:

 

(a)           Company (i) is a corporation duly
incorporated, validly existing and in good standing under the laws of the
Commonwealths of Kentucky and Virginia, (ii) is duly qualified, authorized and
licensed to transact business in each jurisdiction wherein failure to qualify
would have a material adverse effect on the conduct of its business and (iii)
is not in violation of any provision of its Articles of Incorporation, its
By-Laws or any laws of the Commonwealths of Kentucky and Virginia relevant to
the transactions contemplated hereby or in connection with the issuance of the 2004
Series A Bonds.

 

(b)           Company has full and complete legal power and
authority to execute and deliver this Agreement, the Supplemental Indenture and
the First Mortgage Bonds to be issued pursuant thereto, and has by proper
corporate action duly authorized the execution and delivery of this Agreement,
the Supplemental Indenture and the First Mortgage Bonds.

 

(c)           The 1993 Project currently refinanced by
application of the proceeds of the Refunded 1993 Series A Bonds was designed
and constructed to collect, store, treat, process and dispose of solid wastes at
the Project Site.  The 1993 Project was
and is necessary for the public health and welfare, and has been designed for
solid waste collection, storage, treatment, processing and final disposal of
solid wastes consisting of contaminated gypsum sludge solid wastes created by
operation of desulphurization facilities at the Project Site.  The 1993 Project constitutes solid waste
disposal facilities and facilities functionally related and subordinate to such
facilities under Section 142(a)(6) of the Code and the Act.  The Company has determined and represents
that at least 65%, measured by weight or volume of all material introduced into
the facilities constituting the 1993 Project has consisted of and will consist
entirely of contaminated gypsum sludge wastes, and will be material that was,
beginning on the date of 

 

6

 

services of the 1993 Project (January 1, 1995) and has been, at all
times subsequent, solid waste which has been and is, useless, unwanted or
discarded solid waste material, which is such state has no market or other
value at the place where it is located, in the sludge disposal ponds and
landfills adjacent to the Ghent Generating Plant.

 

(d)           All of the proceeds of the 2004 Series A
Bonds, exclusive of accrued interest, if any, shall be used on or prior to the
90th day after the date of issuance of the 2004 Series A Bonds exclusively and
only to redeem, pay and discharge the principal of the Refunded 1993 Series A
Bonds, not less than substantially all of the net proceeds of the Refunded 1993
Series A Bonds (i.e., at least 95% of the net proceeds thereof, including
investment income thereon) were used to finance the Cost of Construction of
solid waste disposal facilities, together with facilities functionally related
and subordinate to such facilities, and all of such solid waste disposal
facilities consist either of land or of property of a character subject to the
allowance for depreciation provided in Section 167 of the Code.

 

(e)           The 1993 Project is of the type authorized
and permitted by the Act, and the Cost of Construction of the 1993 Project was
not less than $50,000,000.

 

(f)            No event of default, and no event of the type
described in clauses (a) through (e) of Section 9.1 hereof, has occurred
and is continuing and no condition exists which, with the giving of notice or
the lapse of time, or both, would constitute an event of default or a default
under any agreement or instrument to which the Company is a party or by which
the Company is or may be bound or to which any of the property or assets of the
Company is or may be subject which would impair in any material respect its ability
to carry out its obligations under this Agreement, the Supplemental Indenture,
the First Mortgage Bonds or the transactions contemplated hereby or
thereby.  Neither the execution and
delivery of this Agreement, the Supplemental Indenture, the First Mortgage
Bonds, the consummation of the transactions contemplated hereby or by the
Indenture, nor the fulfillment of or compliance with the terms and conditions
hereof or thereof conflicts with or results in a breach of the terms,
conditions or provisions of any corporate restriction or any agreement or
instrument to which Company is now a party or by which it is bound, or
constitutes a default under any of the foregoing, or results in the creation or
imposition of any prohibited lien, charge or encumbrance whatsoever upon any of
the property or assets of Company under the terms of any instrument or
agreement.

 

(g)           Company intends to continue to operate or
cause the 1993 Project to be operated as solid waste disposal facilities and
facilities functionally related and subordinate to such facilities until all of
the 2004 Series A Bonds are paid and discharged.

 

(h)           No portion of the proceeds of 2004 Series A
Bonds will be invested at a yield in excess of the yield on the 2004 Series A
Bonds except (i) during any permitted temporary period provided by the Code,
(ii) proceeds of a reasonably required reserve or replacement fund and (iii) as
part of a minor portion of the proceeds of the 2004 Series A Bonds, not in
excess of the lesser of 5% of the proceeds of the 2004 Series A Bonds or
$100,000.  As used herein, “yield” shall
have the meaning assigned to it for purposes of Section 148 of the Code and
applicable tax regulations.

 

7

 

(i)            No portion of the proceeds from the sale of
the 2004 Series A Bonds will be deposited to the account of any reasonably
required reserve or replacement fund or used to pay (i) any costs of issuance
of the 2004 Series A Bonds or (ii) any redemption premium or accrued interest
on the Refunded 1993 Series A Bonds, but such proceeds will be applied and used
solely and exclusively to refund, pay and discharge the outstanding principal
amount of the Refunded 1993 Series A Bonds on or prior to the 90th day after
the issuance of the 2004 Series A Bonds.

 

(j)            Company will provide any additional moneys,
including investment proceeds of the 2004 Series A Bonds, required for the
payment and discharge of the Refunded 1993 Series A Bonds, payment of
redemption premium, if any, and accrued interest in respect thereto and payment
of all underwriting discount and costs of issuance of the 2004 Series A
Bonds.  Any investment proceeds of the 2004
Series A Bonds shall be used exclusively to pay interest or redemption premium
due, if any, on the Refunded 1993 Series A Bonds on the Redemption Date.

 

(k)           Company will cause no investment of 2004 Series
A Bond proceeds to be made and will make no other use of or omit to take any
action with respect to the proceeds of the 2004 Series A Bonds or any funds
reasonably expected to be used to pay the 2004 Series A Bonds which will cause
the 2004 Series A Bonds or any of them to be arbitrage bonds within the meaning
of Section 148 of the Code or would otherwise result in the loss or impairment
of the exclusion of the interest on such 2004 Series A Bonds from gross income
for federal income tax purposes.

 

(l)            The average maturity of the 2004 Series A
Bonds does not exceed one hundred twenty percent (120%) of the average
reasonably expected remaining economic life (as of the date of issuance of the 2004
Series A Bonds) of the solid waste disposal facilities refinanced by the
proceeds of the 2004 Series A Bonds.

 

(m)          Company will provide all information
requested by the Issuer necessary to evidence compliance with the requirements
of the Code, including the information in United States Internal Revenue
Service Form 8038 filed by Issuer with respect to the 2004 Series A Bonds and
the solid waste disposal facilities constituting the 1993 Project, and such
information will be true and correct in all material respects.

 

(n)           Within the meaning of Section 149 of the
Code, no portion of the payment of the principal or interest on the 2004 Series
A Bonds or the Refunded 1993 Series A Bonds was or shall be guaranteed directly
or indirectly by the United States or any agency or instrumentality thereof.

 

(o)           All of the proceeds of the Refunded 1993
Series A Bonds have been fully expended and the 1993 Project has been completed
and placed in service.  All of the actual
Cost of Construction of the 1993 Project represents amounts paid or incurred
which were chargeable to the capital account of the 1993 Project or would be so
chargeable either with a proper election by the Company or but for a proper
election by the Company to deduct such amounts. 
Substantially all (i.e. at least 95%) of the net proceeds of the sale of
the Refunded 1993 Series A Bonds (including investment income therefrom), were
used to finance Cost of Construction of the 1993 Project as described above,
pay costs and expenses of issuing the Refunded 1993 Series A Bonds, within then
applicable Code limits, and pay interest and carrying charges on the

 

8

 

Refunded 1993 Series A Bonds
during the period of construction of the 1993 Project and prior to its
in-service date.

 

(p)           All of the depreciable properties which were
taken into account in determining the qualifying costs of the 1993 Project
constitute properties either (i) used for the collection, storage, treatment,
processing or final disposal of solid wastes or (ii) facilities which are
functionally related and subordinate to such facilities constituting the 1993 Project.  All of such functionally related and
subordinate facilities are of a size and character commensurate with the character
and size of the solid waste disposal facilities constituting the 1993 Project.

 

(q)           The Company will cause the Issuer to comply
in all respects with the requirements of Section 148 of the Code in respect of
the rebate of Excess Earnings with respect to the 2004 Series A Bonds to the
United States of America.

 

(r)            None of the proceeds of the 2004 Series A
Bonds will be applied and none of the proceeds of the Refunded 1993 Series A
Bonds were applied to provide any: (i) working capital, (ii) office space
(other than office space located on the premises of the 1993 Project where not
more than a de minimis amount of the functions to be performed are not directly
related to the day-to-day operations of the 1993 Project), (iii) airplane, (iv)
skybox or other private luxury box, (v) health club facility, (vi) facility
primarily used for gambling or (vii) store, the principal business of which is
the sale of alcoholic beverages for consumption off premises.

 

(s)           Less than twenty-five percent (25%) of the
net proceeds of the Refunded 1993 Series A Bonds were used directly or
indirectly to acquire land or any interest therein and no portion of such land,
if acquired, was or is to be used for farming purposes.  No portion of the proceeds of the Refunded 1993
Series A Bonds was used to acquire existing property or any interest therein
with respect to which the Company was not the first user for federal income tax
purposes.

 

(t)            Upon the date of issuance of the 2004 Series
A Bonds, the Company will have caused the Issuer to comply with the public
approval requirements of Section 147 of the Code and at or following the
issuance of the 2004 Series A Bonds the Company will cause the Issuer to comply
with the information reporting requirements of Section 149 of the Code by the
filing of Internal Revenue Service Form 8038 with the United States Internal
Revenue Service.

 

(u)           All of the documents, instruments and written
information furnished by Company on behalf of Company to Issuer or Trustee in
connection with the issuance of the Bonds are true and correct in all material
respects as of the date of delivery thereof and did not, as of the date of
delivery thereof, omit or fail to state any material facts necessary to be
stated therein to make the information provided not misleading.

 

(v)           The Refunded 1993 Series A Bonds were issued
on December 22, 1993.

 

(w)          No construction, reconstruction or
acquisition of the 1993 Project was commenced prior to the taking of official
action by the Issuer with respect thereto except for preparation of plans and
specifications and other preliminary engineering work.

 

9

 

(x)            Acquisition, construction and installation of
the 1993 Project has been accomplished and the 1993 Project is being utilized substantially
in accordance with the purposes of the 1993 Project and in conformity with all
applicable zoning, planning, building, environmental and other applicable
governmental regulations and all permits, variances and orders issued or
granted pursuant thereto, which permits, variances and orders have not been
withdrawn or otherwise suspended, and consistently with the Act.

 

(y)           The Company has used, is currently using and
presently intends to use or operate the 1993 Project in a manner consistent
with the purposes of the 1993 Project and the Act until the date on which the
2004 Series A Bonds have been fully paid and knows of no reason why the 1993
Project will not be so operated

 

(z)            The proceeds derived from the sale of the 2004
Series A Bonds (other than any accrued interest thereon) will be used
exclusively and solely to refund the principal of the Refunded 1993 Series A
Bonds.  The principal amount of the 2004 Series
A Bonds does not exceed the principal amount of the Refunded 1993 Series A
Bonds.  The redemption of the outstanding
principal amount of the Refunded 1993 Series A Bonds with such proceeds of the 2004
Series A Bonds will occur not later than 90 days after the date of issuance of
the 2004 Series A Bonds.  Any earnings
derived from the investment of such proceeds of the 2004 Series A Bonds will be
fully needed and used on such redemption date to pay a portion of the interest
accrued and payable on the Refunded 1993 Series A Bonds on such date.

 

(aa)         It is not anticipated, as of the date hereof,
that there will be created any “replacement proceeds”, within the meaning of
Section 1.148-1(c) of the Treasury Regulations, with respect to the 2004 Series
A Bonds; however, in the event that any such replacement proceeds are deemed to
have been created, such amounts will be invested in compliance with Section 148
of the Code.

 

(bb)         On the date of issuance and delivery of the
Refunded 1993 Series A Bonds, the Company reasonably expected that all of the
proceeds of the Refunded 1993 Series A Bonds would be used to carry out the
governmental purposes of such issue within the 3-year period beginning on the
date such issue was issued and none of the proceeds of such issue, if any, was
invested in nonpurpose investments having a substantially guaranteed yield for
3 years or more.

 

Company need not comply with
the covenants or representations in this Section if and to the extent that
Issuer and Company receive a written opinion of Bond Counsel that such failure
to comply will not affect adversely the exclusion of interest on any of the 2004  Series A Bonds from gross income for federal
income tax purposes under Section 103(a) of the Code.

 

ARTICLE III

COMPLETION AND OWNERSHIP OF 1993 PROJECT

 

Section 3.1.            Completion
and Equipping of 1993 Project. 
Company represents that (a)  it
has previously caused the 1993 Project to be constructed as herein provided on
the Project Site in accordance with the Plans and Specifications and (b) the 1993
Project was completed as 

 

10

 

previously evidenced by the
filing of a completion certificate by the Company with the Prior Trustee in
respect of the Refunded 1993 Series A Bonds.

 

Section 3.2.            Agreement
as to Ownership of  1993 Project.
Issuer and Company agree that title to and ownership of the 1993 Project shall
remain in and be the sole property of Company in which Issuer shall have no
interest.  The 1993 Project is
acknowledged to be subject to the lien of the First Mortgage Indenture.  Notwithstanding any other provision hereof,
the Company shall be permitted to sell or otherwise dispose of all or any
portion of the 1993 Project, provided that the Company first receives the
opinion of Bond Counsel that such sale or disposition shall not adversely
affect the exclusion of the interest on the 2004 Series A Bonds from gross
income for federal income tax purposes and provided further that in the event
of any assignment, in whole or in part, of this Agreement, such assignment
shall be in accordance with Section 8.1 hereof.

 

Section 3.3.            Use of
1993 Project.  Issuer does hereby
covenant and agree that it will not take any action during the term of this
Agreement, other than pursuant to ARTICLE IX of this Agreement or ARTICLE
IX of the Indenture, to interfere with Company’s ownership of the 1993 Project
or to prevent Company from having possession, custody, use and enjoyment of the
1993 Project.

 

ARTICLE IV

ISSUANCE OF 2004 SERIES A BONDS; APPLICATION OF PROCEEDS; 

COMPANY TO ISSUE FIRST MORTGAGE BONDS

 

Section 4.1.            Agreement
to Issue 2004 Series A Bonds; Application of 2004 Series A Bond Proceeds.  In order to provide funds to make the Loan,
Issuer will issue, sell and deliver the 2004 Series A Bonds to the initial
purchasers thereof and deposit the proceeds thereof with Trustee, as follows:

 

(a)           Into the Bond Fund, a sum equal to the
accrued interest, if any, to be paid by the initial purchasers of the 2004 Series
A Bonds.

 

(b)           Into the Prior Bond Fund held by the Prior
Trustee, for the benefit of and payment of the Refunded 1993 Series A Bonds, an
amount not less than all of the balance of all such proceeds, being the
principal amount of the 2004 Series A Bonds.

 

Section 4.2.            Payment
and Discharge of Refunded 1993 Series A Bonds.  Company covenants and agrees with Issuer that
it will, upon the date of issuance of the 2004 Series A Bonds, give irrevocable
instructions to the Prior Trustee to call and redeem the Refunded 1993 Series A
Bonds in accordance with their terms and will simultaneously deposit into the
Prior Bond Fund cash or direct United States obligations (“Governmental
Obligations”) sufficient on the date of issuance of the 2004 Series A Bonds, to
fully defease and discharge the Refunded 1993 Series A Bonds on such date in
accordance with ARTICLE VIII of the 1993 Series A Indenture, without
reference to any interest earnings to be accrued during the period from the
date of issuance of the 2004 Series A Bonds to the redemption date of the
Refunded 1993 Series A Bonds. Such matters shall be confirmed by issuance of an
appropriate written certificate of the 

 

11

 

Prior Trustee confirming
defeasance and full discharge of the Refunded 1993 Series A Bonds upon the date
of issuance of the 2004 Series A Bonds. 
Such irrevocable instructions, deposit of sufficient cash and
Governmental Obligations and issuance by the Prior Trustee of a certificate of
defeasance and discharge is a condition precedent to the issuance of the 2004 Series
A Bonds.

 

Section 4.3.            Investment
of Bond Fund and Rebate Fund Moneys.  Any moneys held as a part of the Bond Fund or
the Rebate Fund, if applicable, shall be invested or reinvested by Trustee, at
the written request of and as specifically directed by Company, in one or more
of the Permitted Investments.  The Trustee
may make any and all such investments through its own investment department.

 

Any such investments shall
be held by or under the control of Trustee. 
All moneys invested shall be deemed at all times a part of the fund for
which such investments were made.  The
interest accruing thereon and any profit realized from such investments shall
be credited pro rata to such fund, and any loss resulting from such investments
shall be charged pro rata to such fund. 
Trustee shall sell and reduce to cash a sufficient amount of applicable
investments whenever the cash balance in the Bond Fund is insufficient to pay
the principal of, premium, if any, and interest on the 2004 Series A Bonds or
any other amount payable from the Bond Fund when due or upon any required disbursement
from the Rebate Fund, respectively.  The
Trustee will not be liable for any investment loss (including any loss upon a
sale of any investment) or any fee, tax or other charge in respect of any
investments, reinvestments or any liquidation of investments made pursuant to
this Agreement or the Indenture.  The
Rebate Fund shall never be commingled with any other fund or account.

 

Section 4.4.            Special
Arbitrage Certifications.

 

(a)           Company covenants and agrees that it, will
not take or authorize or permit any action to be taken and has not taken or
authorized or permitted any action to be taken which results in interest paid
on any of the 2004 Series A Bonds being included in gross income of any owner
thereof for purposes of federal income taxation (other than an owner who is a “substantial
user” of the 1993 Project or a “related person” within the meaning of Section
147(a) of the Code) or adversely affects the validity of the 2004 Series A
Bonds.

 

(b)           Company warrants, represents and certifies to
Issuer that the proceeds of the 2004 Series A Bonds will not be used in any
manner that would cause the 2004 Series A Bonds to be “arbitrage bonds” under
Sections 103(b)(2) and 148 and other applicable sections of the Code.  To the best knowledge and belief of Company,
there are no facts, estimates or circumstances that would materially change the
foregoing conclusion.

 

(c)           Company hereby covenants that it will at all
times comply and cause Issuer to comply with the provisions of Section 148 and
other applicable sections of the Code and will restrict the use of the proceeds
of the 2004 Series A Bonds, in such manner and to such extent, if any, as may
be necessary, and remit Excess Earnings with respect to all of the 2004 Series
A Bonds, if any, to the United States of America pursuant to Section 148(f)(2)
of the Code and carry out such actions so that the 2004 Series A Bonds will not
constitute “arbitrage bonds” under Sections 103(b)(2) and 148 of the Code.  An officer or officers of Issuer having
responsibility with respect to the issuance of the 2004 Series A Bonds is or
are hereby authorized 

 

12

 

and directed to give an appropriate certificate of Issuer, for
inclusion in the transcript of proceedings for the 2004 Series A Bonds, setting
forth the reasonable expectations of Issuer regarding the amount and use of the
proceeds of the 2004 Series A Bonds and the facts, estimates and circumstances
on which they are based and related matters, all as of the date of delivery of
and payment for the 2004 Series A Bonds pursuant to said Section 148 of the
Code.  Company shall provide the Issuer,
and Issuer’s certificate may be expressly based on, a certificate of Company
setting forth the facts, estimates and circumstances and reasonable
expectations of Company on the date of delivery of and payment for the 2004 Series
A Bonds regarding the amount and use of the proceeds of the 2004 Series A Bonds
and related matters.  In the event any
such representation of Company relied upon by the Issuer is untrue or
inaccurate and Issuer thereby suffers costs or damages, Company shall indemnify
Issuer for any such costs or damages.

 

(d)           Consistent with the foregoing, Company
covenants and certifies to the Issuer and to and for the benefit of the
purchasers of the 2004 Series A Bonds, that no use will be made of the proceeds
of the sale of the 2004 Series A Bonds which would cause the 2004 Series A
Bonds to be classified as “arbitrage bonds” within the meaning of Sections
103(b)(2) and 148 of the Code and that Company and Issuer will, after issuance
of the 2004 Series A Bonds, comply with the provisions of the Code at all
times, including after the 2004 Series A Bonds are discharged, to the extent
Excess Earnings with respect to the 2004 Series A Bonds are required to be
rebated to the United States of America pursuant to Section 148(f)(2) of the
Code.  Pursuant to such covenant, Issuer
and Company obligate themselves throughout the term of this Agreement and
thereafter not to violate the requirements of Section 148 of the Code.

 

(e)           Company warrants, represents and certifies to
Issuer that the proceeds of the Refunded 1993 Series A Bonds were applied and
invested in compliance with the current requirements of Section 149(g) of the
Code and that consequently the 2004 Series A Bonds will not be “hedge bonds”
under such Section 149(g) of the Code.

 

(f)            Company hereby covenants and agrees that it
will at all times comply with the provisions of Section 148, including Section
148(f) of the Code and with Section 6.06 of the Indenture.  Specifically, Company shall carry out, do and
perform all acts stipulated to be performed by Company pursuant to such Section
6.06 of the Indenture.  Company shall
further undertake to assure and cause rebate payments to be calculated and made
to the United States of America in accordance with Section 148(f)(2) of the
Code from moneys on deposit in the Rebate Fund from time to time after the end
of each Computation Period, as defined in the Indenture, and following discharge
of the 2004 Series A Bonds.  Company also
covenants to take all necessary acts and steps as required to cause Issuer to
comply with the provisions of Section 7.03 of the Indenture.

 

Section 4.5.            Opinion
of Bond Counsel.  Company need not
comply with the covenants or representations in Section 4.4 if and to
the extent that Issuer, Company and the Bond Insurer (with a copy to Trustee)
receive a written opinion of Bond Counsel that such failure to comply will not
affect adversely the exclusion of interest on any of the 2004 Series A Bonds
from gross income for federal income tax purposes under Section 103(a) of the
Code.

 

13

 

Section 4.6.            First
Mortgage Bonds.  Company covenants
and agrees with Issuer that it will, for the purpose of providing security for
the 2004 Series A Bonds, execute and deliver on the date of issuance of the 2004
Series A Bonds, the First Mortgage Bonds to Trustee in aggregate principal
amount not less than the aggregate principal amount of the 2004 Series A
Bonds.  The First Mortgage Bonds shall
mature as to principal identically as in the case of the 2004 Series A Bonds
and, upon the giving of a Redemption Demand to the First Mortgage Trustee and
completion of other conditions precedent set forth in the Supplemental
Indenture, shall bear interest identically as in the case of the 2004 Series A
Bonds.

 

Prior to the Release Date,
in the event of a default under ARTICLE IX of this Agreement or in the
event of a default in payment of the principal of, premium, if any, or interest
on the 2004 Series A Bonds as and when the same come due, whether at maturity,
by purchase, redemption, acceleration or otherwise, and upon receipt by First
Mortgage Trustee of a Redemption Demand from Trustee, the First Mortgage Bonds
shall bear interest, and principal and interest thereon will be payable in
accordance with the provisions specified in the Supplemental Indenture.

 

Upon payment of the
principal of, premium, if any, and interest on any of the 2004 Series A Bonds,
whether at maturity or prior to maturity by redemption or otherwise, and the
surrender thereof to, and cancellation thereof by, Trustee, or upon provision
for the payment thereof having been made in accordance with the provisions of ARTICLE
VIII of the Indenture, First Mortgage Bonds in an amount equal to the
aggregate principal amount of the 2004 Series A Bonds so surrendered and
cancelled or for the payment of which provision has been made shall be deemed
fully paid and the obligations of Company thereunder terminated and such First
Mortgage Bonds shall be surrendered by Trustee to the First Mortgage Trustee,
and shall be cancelled by the First Mortgage Trustee.  All of the First Mortgage Bonds shall be
registered in the name of Trustee and shall be non-transferable, except to
effect transfers to any successor trustee under the Indenture.

 

Notwithstanding anything in
this Agreement to the contrary, from and after the Release Date, the obligation
of the Company to make payment with respect to the principal of and premium, if
any, and interest on the First Mortgage Bonds shall be deemed satisfied and
discharged as provided in the Supplemental Indenture and the First Mortgage
Bonds shall cease to secure in any manner the 2004 Series A Bonds.  As a result, on the Release Date, the
obligations under this Agreement shall become unsecured general obligations of
the Company, subject, however to Section 7.9.

 

The Company shall notify the
Issuer and the Trustee in writing promptly upon the occurrence of the Release
Date.  Upon receiving written notice of
the Release Date from the Company, the Trustee shall deliver for cancellation
to the First Mortgage Trustee all of the First Mortgage Bonds.

 

14

 

ARTICLE V

PROVISIONS FOR PAYMENT

 

Section 5.1.            Loan
Payments and Other Amounts Payable.

 

(a)           Company hereby covenants and agrees to repay
the Loan, as follows:  on or before any
Interest Payment Date for the 2004 Series A Bonds or any other date that any
payment of interest, premium, if any, purchase price or principal is required
to be made in respect of the 2004 Series A Bonds at the times specified in
accordance with the more specific provisions and requirements of the Indenture,
until the principal of, premium, if any, and interest on the 2004 Series A
Bonds shall have been fully paid or provision for the payment thereof shall
have been made in accordance with the Indenture, it will pay to the Trustee,
for disbursement by the Trustee, as Paying Agent, or for disbursement by any
Paying Agent such sums which will enable the Paying Agent to pay the amounts
payable on such date, in immediately available funds, as principal of (whether
at purchase, maturity or upon redemption or acceleration or otherwise),
premium, if any, and interest on the 2004 Series A Bonds as provided in the
Indenture; provided that such payments by Company to enable the Tender Agent to
pay the purchase price of Bonds shall be made within the times required by Section
3.05 of the Indenture.

 

It is understood and agreed
that all payments payable by Company under this subsection (a) of Section
5.1 are assigned by the Issuer to the Trustee, the Paying Agent and the
Tender Agent, as applicable, for the benefit of the Bondholders.  Company assents to such assignment.  Issuer hereby directs Company and Company
hereby agrees to pay to Trustee and/or Paying Agent or Tender Agent, as
appropriate, at the Principal Office of the Trustee and/or Paying Agent or
Tender Agent, as appropriate, all payments payable by Company pursuant to this
subsection.

 

(b)           Company will also pay the reasonable expenses
of the Issuer related to the issuance of the 2004 Series A Bonds and incurred
upon the request of Company.

 

(c)           Company will also pay the agreed upon fees
and expenses of Trustee (including those referred to in Section 10.02 of
the Indenture), the Bond Registrar, the Tender Agent and the Paying Agent under
the Indenture and all other amounts which may be payable to the Trustee, the
Bond Registrar, the Paying Agent, the Market Agent, the Auction Agent and the
Tender Agent, as applicable from time to time, under the Indenture, such
amounts to be paid directly to Trustee, the Bond Registrar, the Paying Agent
and Tender Agent for their respective own accounts as and when such amounts
become due and payable.

 

The Company further agrees
to hold harmless the Trustee, Bond Registrar and Paying Agent against any loss,
liability or expense, including reasonable attorneys’ fees and expenses,
incurred by it without negligence or bad faith on its part in connection with
the issuance of the 2004 Series A Bonds or the acceptance or administration of
the trusts under the Indenture, including the costs of defending itself against
any claim or liability in connection therewith.

 

15

 

(d)           The Company covenants, for the benefit of the
Bondholders, to pay or cause to be paid, to the Tender Agent for deposit in the
Purchase Fund, such amounts as shall be necessary to enable the Tender Agent to
pay the purchase price of 2004 Series A Bonds delivered to it for purchase, all
as more particularly described in Sections 3.03 and 3.05 of the
Indenture, and, in that regard, it will maintain an account with the Tender
Agent and will pay in immediately available funds, a sum which will enable the
Tender Agent to pay the purchase price of 2004 Series A Bonds delivered to it
for purchase, as provided in the Indenture.

 

(e)           In the event Company should fail to make any
of the payments required in this Section 5.1, the item or installment so
in default shall continue as an obligation of Company until the amount in
default shall have been fully paid, and Company agrees to pay the same with
interest thereon, to the extent permitted by law, from the date when such
payment was due to the date of payment.

 

Section 5.2.            Payments
Assigned.  As set forth in Section
5.1 hereof, it is understood and agreed that this Agreement and all
payments made by Company pursuant to this Agreement (except payments pursuant
to Section 5.1(c) and (d) or pursuant to Section 8.2 hereof) are
assigned by Issuer to Trustee.  Company
assents to such assignment and hereby agrees that, as to Trustee, Paying Agent,
Market Agent, Auction Agent and Tender Agent, as applicable from time to time,
its obligation to make such payments shall be absolute, irrevocable and
unconditional and shall not be subject to cancellation, termination or
abatement or to any defense or any right of set-off, counterclaim or recoupment
arising out of any breach by any party, whether hereunder or otherwise, or out
of any indebtedness or liability at any time owing by any party.  Except as provided above, Issuer hereby
directs Company and Company hereby agrees to pay directly to Trustee, Paying
Agent, Market Agent, Auction Agent, Bond Registrar, Tender Agent and Issuer, as
appropriate, all said payments payable by Company pursuant to Section 5.1
of this Agreement.

 

Section 5.3.            Taxes
and Other Governmental Charges. 
Company agrees to pay during the term of this Agreement, as the same respectively
become due, all taxes, assessments and other governmental charges of any kind
whatsoever that may at any time be lawfully assessed, levied or charged against
or with respect to the 1993 Project; provided, that with respect to special
assessments or other governmental charges that may lawfully be paid in
installments over a period of years, Company shall be obligated to pay only
such installments as may have become due and provided further that nothing
herein shall be construed as obligating Company to pay taxes on any interest or
principal on the 2004 Series A Bonds disbursed to Bondholders.

 

Company may, at its expense
and in its own name, in good faith contest any such taxes, assessments and
other governmental charges and, in the event of any such contest, may permit
the taxes, assessments or other governmental charges so contested to remain
unpaid during the period of such contest and any appeal therefrom unless, in
the opinion of its counsel, by nonpayment of any such items the security provided
pursuant to the provisions of the Indenture will be materially endangered, in
which event such taxes, charges for payments in lieu of taxes, assessments or
charges shall be paid forthwith.  Issuer
will cooperate fully with Company in any such contest.  In the event Company shall fail to pay any of
the foregoing items required by this Section to be paid by Company, Issuer or
Trustee may (but shall be under no obligation to) pay the same and any amounts
so advanced therefor by Issuer or Trustee shall become an additional 

 

16

 

obligation of Company to the
one making the advancement, which amounts, together with interest thereon
Company agrees to pay at a rate which shall be one percent above the lowest
minimum lending rate publicly quoted at such time as being charged by any
commercial bank which is a member of the New York Clearing House on ninety-day
commercial loans to its prime commercial borrowers or the maximum rate
permitted by law, whichever is lesser, until paid; provided, however,
that no such advancement shall operate to relieve the Company from any default
hereunder.  Company may at its expense
and in its own name and behalf apply for any tax exemption or exemption from
payments in lieu of taxes allowed by the Commonwealth of Kentucky, or any
political or taxing subdivision thereof under any existing or future provision
of law which grants or may grant any such tax exemption or exemption from
payments in lieu of taxes.

 

Section 5.4.            Obligations
of Company Unconditional.  The
obligation of Company to make the payments pursuant to this Agreement and to
make any payments required in respect of the Rebate Fund as provided in Section
6.06 of the Indenture shall be absolute and unconditional.  Until such time as the principal of, premium,
if any, and interest on the 2004 Series A Bonds shall have been fully paid or
provision for the payment thereof shall have been made in accordance with the
Indenture, Company (i) will not suspend or discontinue any payments pursuant to
this Agreement and (ii) except as provided in ARTICLE X hereof, will not
terminate this Agreement for any cause including, without limiting the
generality of the foregoing, failure of title to the 1993 Project or any part
thereof, any acts or circumstances that may constitute failure of
consideration, destruction of or damage to the 1993 Project, commercial
frustration of purpose, any change in the tax or other laws of the United
States of America or of the Commonwealth of Kentucky or any political
subdivision thereof or any failure of Issuer or Trustee to perform and observe
any agreement, whether express or implied or any duty, liability or obligation
arising out of or connected with this Agreement.  Nothing contained in this Section shall be construed
to release Issuer from the performance of any of the agreements on its part
herein contained; and in the event Issuer should fail to perform any such
agreement on its part, Company may institute such action against Issuer as
Company may deem necessary to compel performance so long as such action shall
be in accordance with the agreements on the part of Company contained in the
preceding sentence.  Company may,
however, at its own cost and expense and in its own name or in the name of
Issuer, prosecute or defend any action or proceeding or take any other action
involving third persons which Company deems reasonably necessary in order to
secure or protect its right of ownership, possession, occupancy and use of the 1993
Project, and in such event Issuer hereby agrees to cooperate fully with
Company.

 

Section 5.5.            Rebate
Fund.  Company agrees to make all
payments to the Trustee and rebate all amounts to the United States of America
as are required of it under Section 6.06 of the Indenture.  The obligation of Company to make such
payments shall remain in effect and be binding upon Company notwithstanding the
release and discharge of the Indenture.

 

Section 5.6.            Redemption
of the 2004 Series A Bonds in Advance of Scheduled Maturity.  Under the terms of the Indenture, the 2004 Series
A Bonds are and will be subject to redemption prior to their scheduled
maturity.  The Issuer agrees that it
shall direct the Trustee to redeem and call 2004 Series A Bonds at the written
direction of the Company.

 

17

 

Section 5.7.            Cancellation of 2004 Series A
Bonds.  The cancellation by the Bond
Registrar of any 2004 Series A Bond or Bonds purchased by the Company and
delivered to the Bond Registrar for cancellation or of any 2004 Series A Bond
or Bonds redeemed or purchased by the Issuer through funds other than funds
received as Loan payments hereunder shall constitute a Loan repayment equal to
the principal amount of the 2004 Series A Bond or Bonds so cancelled.

 

ARTICLE VI

MAINTENANCE; DAMAGE, DESTRUCTION AND 

CONDEMNATION; USE OF NET PROCEEDS; INSURANCE

 

Section 6.1.            Maintenance.  So long as any 2004 Series A Bonds are
Outstanding, as that term is defined in the Indenture, Company will maintain,
preserve and keep the 1993 Project, or cause the 1993 Project to be maintained,
preserved and kept, in good repair, working order and condition and will from
time to time make or cause to be made all proper repairs, replacements and
renewals necessary to continue to constitute the 1993 Project as solid waste disposal
facilities under the Code and the Act; provided, however, that Company will
have no obligation to maintain, preserve, keep, repair, replace or renew any
element or portion of the 1993 Project (a) the maintenance, preservation,
keeping, repair, replacement or renewal of which becomes uneconomical to
Company because of damage or destruction by a cause not within the control of
Company, or condemnation of all or substantially all of the 1993 Project or the
generating facilities to which the element or unit of the 1993 Project is an
adjunct, or obsolescence (including economic obsolescence) or change in
government standards and regulations, or the termination by Company of the
operation of the generating facilities to which the element or unit of the 1993
Project is an adjunct, and (b) with respect to which Company has furnished to
Issuer and Trustee a certificate executed by Company Representative certifying
that the maintenance, preservation, keeping, repair, replacement or renewal of
such element or unit of the 1993 Project is being discontinued for one of the
foregoing reasons, which shall be stated therein, and that the discontinuance
of such element or unit will not adversely affect the exclusion of interest on
any of the 2004 Series A Bonds from gross income for federal income tax
purposes under Section 103(a) of the Code.

 

Company shall have the
privilege at its own expense of remodeling the 1993 Project or making
substitutions, modifications and improvements to the 1993 Project from time to
time as it, in its discretion, may deem to be desirable for its uses and
purposes, which remodeling, substitutions, modifications and improvements shall
be included under the terms of this Agreement as part of the 1993 Project;
provided, however, that Company shall take no actions which will change or
alter the basic nature of the 1993 Project as solid waste disposal facilities
under Section 142(a)(6) of the Code and the Act.

 

If, prior to full payment of
all 2004 Series A Bonds outstanding (or provision for payment thereof having
been made in accordance with the provisions of the Indenture), the 1993 Project
or any portion thereof is destroyed or damaged in whole or in part by fire or
other casualty, or title to, or the temporary use of, the 1993 Project or any
portion thereof shall have been taken by the exercise of the power of eminent
domain, and the Issuer, the Company or the First Mortgage Trustee receives Net
Proceeds from insurance or any condemnation award in connection 

 

18

 

therewith, Company (unless
it shall have exercised its option to prepay the Loan pursuant to provisions of
Section 10.1(b) or (c) hereof) shall either (i) cause such Net Proceeds
to be used to repair, reconstruct, restore or improve the 1993 Project, or (ii)
take any other action, including the redemption of 2004 Series A Bonds, in
whole or in part, on any date which is a Business Day, which, in the opinion of
Bond Counsel, will not adversely affect the exclusion of interest on any of the
2004 Series A Bonds from gross income for federal income tax purposes under
Section 103(a) of the Code; provided that if the 2004 Series A Bonds bear
interest at the Flexible Rate or Semi-Annual Rate, such redemption must occur
on a date on which the 2004 Series A Bonds are otherwise subject to optional
redemption.

 

Section 6.2.            Insurance.  Prior to the Release Date, Company agrees to
insure the 1993 Project at all times in accordance with the provisions of First
Mortgage Indenture.  From and after the
Release Date, the Company agrees to insure, or self-insure, the 1993 Project at
all times reasonably in accordance with investor-owned public utility industry
general practices and standards.

 

ARTICLE VII

SPECIAL COVENANTS

 

Section 7.1.            No Warranty of Condition or Suitability
by Issuer.  Issuer makes no warranty,
either express or implied, as to the 1993 Project or that it will be suitable
for Company’s purposes or needs.

 

Section 7.2.            Company to Maintain its Corporate
Existence; Conditions under Which Exceptions Permitted.  Company agrees that during the term of this
Agreement it will maintain its corporate existence and good standing, will
continue to be a corporation organized under the laws of the Commonwealths of
Kentucky and Virginia or qualified and admitted to do business in the
Commonwealths of Kentucky and Virginia, and will neither dispose of all or
substantially all of its assets nor consolidate with nor merge into another
corporation unless the acquirer of its assets or the corporation with which it
shall consolidate or into which it shall merge, (i) shall be a corporation or
other business organization organized and existing under the laws of the United
States or one of the States of the United States of America or the District of
Columbia, (ii) shall be qualified and admitted to do business in the
Commonwealth of Kentucky, (iii) shall assume in writing all of the obligations and
covenants of Company herein and (iv) shall deliver a copy of such assumption to
the Issuer and Trustee.

 

Section 7.3.            Financial Statements.  Company agrees to furnish Trustee (within 120
days after the close of each fiscal year) with an audited balance sheet and
statements of income, retained earnings and changes in cash flows showing the
financial condition of Company and its consolidated subsidiary or subsidiaries,
if any, at the close of such fiscal year and the results of operations of
Company and its consolidated subsidiary or subsidiaries, if any, for such
fiscal year, accompanied by an opinion of its regular independent certified public
accountants that such statements fairly represent the financial condition of
Company in accordance with generally accepted accounting principles.  The requirements of this Section shall be
satisfied by the submission to Trustee of Company’s annual report on Form
10-K.  The information so provided to
Trustee shall be kept in its files and is not required to be distributed to any
Registered Holder 

 

19

 

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

 

Section 7.4.            Further Assurances and Corrective
Instruments. Issuer and Company agree that they will, from time to time,
execute, acknowledge and deliver, or cause to be executed, acknowledged and
delivered, such supplements hereto and such further instruments as may
reasonably be required for carrying out the intention of or facilitating the
performance of this Agreement.

 

Section 7.5.            Issuer Representative.  Whenever under the provisions of this
Agreement the approval of Issuer is required or Issuer is required to take some
action at the request of Company, such approval shall be made or such action
shall be taken by Issuer Representative and Company or Trustee shall be
authorized to act on any such approval or action, and Issuer shall have no
redress against Company or Trustee as a result of any such action taken.

 

Section 7.6.            Company Representative.  Whenever under the provisions of this
Agreement the approval of Company is required or Company is required to take
some action at the request of Issuer, such approval shall be made or such
action shall be taken by Company Representative and Issuer or Trustee shall be
authorized to act on any such approval or action and Company shall have no
redress against Issuer or Trustee as a result of any such action taken.

 

Section 7.7.            Financing Statements.  Company shall, to the extent required by law,
file and record, refile and rerecord, or cause to be filed and recorded,
refiled and rerecorded, all documents or notices, including financing
statements and continuation statements, required by law in order to perfect, or
maintain the perfection of, the lien of the Indenture and the Supplemental
Indenture.  Issuer shall cooperate fully
with Company in taking any such action. 
Concurrently with the execution and delivery of the 2004 Series A Bonds,
Company shall cause to be delivered to the Trustee an opinion of counsel (a)
stating that in the opinion of such counsel, either (i) such action has been
taken, as set forth therein, with respect to the recording and filing of such
documents, notices and financing statements as is necessary to perfect the lien
of the Indenture under the Uniform Commercial Code of the Commonwealth of
Kentucky, or (ii) no such action is necessary to so perfect such lien, and (b)
stating the requirements for the filing of continuation statements or other
documentation or notices in order to maintain the perfection of the lien of the
Indenture, which filings the Company agrees to undertake.

 

Section 7.8.            Company’s Performance Under
Indenture.  The Company agrees, for
the benefit of Bondholders to do and perform all acts and things contemplated
in the Indenture to be done and performed by it.

 

Section 7.9.            Negative Pledge.

 

(a)           The Company agrees that, subsequent to the Release Date
(as defined in the Indenture) and so long as any 2004 Series A Bonds remain
outstanding, the Company will not issue, assume or guarantee any Debt secured
by any mortgage, security interest, pledge or lien 

 

20

 

(herein referred to as a “mortgage”) of or upon any Operating Property
of the Company, whether owned at the date of the Indenture or thereafter
acquired, and will not permit to exist any Debt secured by a mortgage on any
Operating Property created on or prior to the Release Date, without in any such
case effectively securing, on the later to occur of the issuance, assumption or
guaranty of any such Debt or the Release Date, the 2004 Series A Bonds equally
and ratably with such Debt; provided, however, that the foregoing restriction
shall not apply to Debt secured by any of the following:

 

(i)            mortgages on any property existing at the time of acquisition
thereof;

 

(ii)           mortgages on property of a corporation existing at the
time such corporation is merged into or consolidated with the Company, or at
the time of a sale, lease or other disposition of the properties of such
corporation or a division thereof as an entirety or substantially as an
entirety to the Company, provided that such mortgage as a result of such
merger, consolidation, sale, lease or other disposition is not extended to
property owned by the Company immediately prior thereto;

 

(iii)          mortgages on property to secure all or part of the cost of
acquiring, substantially repairing or altering, constructing, developing or
substantially improving such property, or to secure indebtedness incurred to
provide funds for any such purpose or for reimbursement of funds previously
expended for any such purpose, provided such mortgages are created or assumed
contemporaneously with, or within 18 months after, such acquisition or
completion of substantial repair or alteration, construction, development or
substantial improvement or within six months thereafter pursuant to a
commitment for financing arranged with a lender or investor within such 18
month period;

 

(iv)          mortgages in favor of the United States of America or any
State thereof, or any department, agency or instrumentality or political
subdivision of the United States of America or any state thereof, or for the
benefit of holders of securities issued by any such entity, to secure any Debt
incurred for the purpose of financing all or any part of the purchase price or
the cost of substantially repairing or altering, constructing, developing or
substantially improving the property subject to such mortgages; or

 

(v)           any extension, renewal or replacement (or successive
extensions, renewals or replacements), in whole or in part, of any mortgage
referred to in the foregoing clauses (1) to (4), inclusive; provided, however,
that the principal amount of indebtedness secured thereby and not otherwise
authorized by said clauses (1) to (4), inclusive, shall not exceed the
principal amount of indebtedness, plus any premium or fee payable in connection
with any such extension, renewal or replacement, so secured at the time of such
extension, renewal or replacement.

 

(b)           Notwithstanding the provisions of Section 7.9(a)
from and after the Release Date and so long as any 2004 Series A Bonds remain
outstanding, the Company may issue, assume or guarantee Debt, or permit to
exist Debt, secured by mortgages which would otherwise be subject to the
restrictions of this Section up to an aggregate principal amount that, together
with the principal amount of all other Debt of the Company secured by mortgages
(other than mortgages 

 

21

 

permitted by Section 7.9(a) that would otherwise be subject to
the foregoing restrictions) does not at the time exceed the greater of 10% of
Net Tangible Assets or 10% of Capitalization.

 

(c)           If at any time the Company shall issue, assume or
guarantee any Debt secured by any mortgage and if Section 7.9(a) requires
that the 2004 Series A Bonds be secured equally and ratably with such Debt, the
Company will promptly execute, at its expense, any instruments necessary to so
equally and ratably secure such 2004 Series A Bonds.

 

ARTICLE VIII

ASSIGNMENT; INDEMNIFICATION; REDEMPTION

 

Section 8.1.            Assignment.  This Agreement may be assigned by Company
without the necessity of obtaining the consent of either Issuer or Trustee,
subject, however, to each of the following conditions:

 

(a)           No assignment (other than pursuant to Section 7.2 hereof)
shall relieve Company from primary liability for any of its obligations
hereunder, and in the event of any such assignment Company shall remain
primarily liable for payments of the amounts specified in Section 5.1 hereof
and for performance and observance of the other covenants or agreements on its
part herein provided to be performed and observed to the same extent as though
no assignment had been made;

 

(b)           The assignee shall assume the obligations of Company
hereunder to the extent of the interest assigned;

 

(c)           Company shall, within thirty days after the delivery
thereof, furnish or cause to be furnished to Issuer and to Trustee a true and
complete copy of each such assignment and assumption of obligation; and

 

(d)           prior to such assignment, the Company shall have obtained
an opinion of Bond Counsel to the effect that such assignment will not
adversely affect the exclusion of interest on the 2004 Series A Bonds from
gross income for Federal income tax purposes under Section 103(a) of the Code.

 

Section 8.2.            Release and Indemnification
Covenants.  Company releases Issuer
from and covenants and agrees that Issuer shall not be liable for, and agrees
to indemnify and hold Issuer harmless against, any expense or liability incurred
by Issuer, including attorneys’ fees, resulting from any loss or damage to
property or any injury to or death of any person occurring on or about or
resulting from any defect in the 1993 Project or from any action commenced in
connection with the financing thereof. 
If any such claim is asserted, Issuer agrees to give prompt notice to
the Company and Company will assume the defense thereof, with full power to
litigate, compromise or to settle the same in its sole discretion, it being
understood that Issuer will not settle or consent to the settlement of the same
without the consent of Company.

 

Section 8.3.            Assignment of Interest in
Agreement by Issuer.  Any assignment
by Issuer to Trustee pursuant to the Indenture or this Agreement of any moneys
receivable under this Agreement shall be subject and subordinate to this
Agreement.

 

22

 

Section 8.4.            Redemption of 2004 Series A Bonds.  Upon the agreement of Company to deposit
moneys in the Bond Fund in an amount sufficient to redeem 2004 Series A Bonds
subject to redemption, Issuer, at the request of Company, shall forthwith take
all steps (other than the payment of the money required for such redemption)
necessary under the applicable redemption provisions of the Indenture to effect
redemption of all or part of the 2004 Series A Bonds outstanding, as may be
specified by Company, on the redemption date specified by the Company.

 

Section 8.5.            Reference to 2004 Series A Bonds
Ineffective after 2004 Series A Bonds Paid. 
Upon payment in full of the 2004 Series A Bonds (or provision for
payment thereof having been made in accordance with the provisions of the
Indenture) and payment of all amounts required to be paid to the United States
of America pursuant to Section 4.4 hereof and payment of all fees and
charges of the Trustee (including reasonable attorney’s fees and expenses), the
Bond Registrar, the Authenticating Agent and any Paying Agent, all references
in this Agreement to the 2004 Series A Bonds, the First Mortgage Bonds and the
Trustee shall be ineffective and neither the Trustee nor the holders of any of
the 2004 Series A Bonds shall thereafter have any rights hereunder except as
set forth in Section 11.1.

 

ARTICLE IX

EVENTS OF DEFAULT AND REMEDIES

 

Section 9.1.            Events of Default Defined.  The following shall be “events of default”
under this Agreement and the term “events of default” shall mean, whenever they
are used in this Agreement, any one or more of the following events:

 

(a)           Failure by the Company to pay any amount required to be
paid under subsections (a) and (d) of Section 5.1 hereof which results
in failure to pay principal of, premium or interest on or the purchase price of
the 2004 Series A Bonds, and such failure shall cause an event of default under
the Indenture.

 

(b)           Failure by Company to observe and perform any covenant,
condition or agreement on its part to be observed or performed, other than as
referred to in subsection (a) of this Section, for a period of thirty days
after written notice, specifying such failure and requesting that it be
remedied, is given to Company by Issuer or Trustee, unless Issuer and Trustee
shall agree in writing to an extension of such time prior to its expiration;
provided, however, if the failure stated in the notice cannot be corrected
within the applicable period, Issuer and Trustee will not unreasonably withhold
their consent to an extension of such time if such failure is capable of being
cured and corrective action is instituted by Company within the applicable period
and is being diligently pursued.

 

(c)           All bonds outstanding under the First Mortgage Indenture
shall, if not already due, have become immediately due and payable whether by
declaration of the First Mortgage Trustee or otherwise, and such acceleration
shall not have been rescinded or annulled by the First Mortgage Trustee.

 

23

 

(d)           An involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent jurisdiction seeking
(i) relief in respect of Company, or of a substantial part of the property or
assets of Company, under Title 11 of the United States Code, as now constituted
or hereafter amended, or any other federal or state bankruptcy, insolvency,
receivership or similar law, (ii) the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for Company or for a
substantial part of the property or assets of Company or (iii) the winding-up
or liquidation of Company; and such proceeding or petition shall continue
undismissed or unstayed for 90 days or an order or decree approving or ordering
any of the foregoing shall be entered.

 

(e)           Company shall (i) voluntarily commence any proceeding or
file any petition seeking relief under Title 11 of the United States Code, as
now constituted or hereafter amended, or any other federal or state bankruptcy,
insolvency, receivership or similar law, (ii) consent to the institution of, or
fail to contest in a timely and appropriate manner, any proceeding or the
filing of any petition described in (d) above, (iii) apply for or consent to
the appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for Company or for a substantial part of the property or
assets of Company, (iv) file an answer admitting the material allegations of a
petition filed against it in any such proceeding, (v) make a general assignment
for the benefit of creditors, (vi) become unable, admit in writing its
inability or fail generally to pay its debts as they become due or (vii) take
any action for the purpose of effecting any of the foregoing.

 

The provisions of Section
9.1(b) are subject to the following limitations:  If by reason of force majeure Company is
unable in whole or in part to carry out its agreements on its part herein
contained, other than the obligations on the part of Company contained in Section
2.2(j) and (k), Section 4.2, Section 4.4, Section 4.6 or Section 7.2 or ARTICLE
V hereof and the general covenant and obligation of Company to take all
necessary actions for the continued exclusion of interest on the 2004 Series A
Bonds from gross income for federal and Kentucky income taxes, Company shall
not be deemed in default during the continuance of such inability.  The term “force majeure” as used herein shall
mean any cause or event not reasonably within the control of Company, including
without limitation the following:  acts
of God; strikes; wars or national police actions, lockouts or other industrial
disturbances; acts of public enemies; orders of any kind of the government of
the United States or of the Commonwealth of Kentucky or any of their
departments, agencies or officials, or any civil or military authority;
evacuations and quarantines; insurrections; riots; epidemics; plague; famine;
landslides; lightning; earthquakes; fire; hurricanes; tornadoes; storms;
typhoons; cyclones; volcanic eruptions; floods; washouts; droughts; arrests;
restraints of government and people; civil disturbances; explosions; breakage
or accident to machinery and transmission lines or pipes; or partial or entire
failure of utility services.  Company
agrees, however, to remedy with all reasonable dispatch the cause or causes
preventing the Company from carrying out its agreements; provided, that the
settlement of strikes, lockouts and other industrial disturbances shall be
entirely within the discretion of Company, and Company shall not be required to
make settlement of strikes, lockouts and other industrial disturbances by
acceding to the demands of the opposing party or parties when such course is in
the judgment of Company unfavorable to Company.

 

24

 

Section 9.2.            Remedies on Default.  Whenever any event of default referred to in Section
9.1 hereof shall have happened and be continuing, Issuer may take any one
or more of the following remedial steps:

 

(a)           By written notice to Company, Issuer may declare an amount
equal to the principal and accrued interest on the 2004 Series A Bonds then
Outstanding, as defined in the Indenture, to be immediately due and payable
under this Agreement, whereupon the same shall become immediately due and
payable.

 

(b)           Issuer and Bond Insurer may have access to and inspect,
examine and make copies of the books and records and any and all accounts, data
and income tax and other tax returns of Company.

 

(c)           Issuer may take whatever action at law or in equity may
appear necessary or desirable to collect the amounts then due and thereafter to
become due, or to enforce performance and observance of any obligation,
agreement or covenant of Company under this Agreement, including, until the
Release Date, any remedies available in respect of the First Mortgage Bonds.

 

In case there shall be
pending a proceeding of the nature described in Section 9.1(d) or (e)
above, Trustee shall be entitled and empowered, by intervention in such
proceeding or otherwise, to file and prove a claim or claims for the whole
amount owing and unpaid pursuant to this Agreement and, in case of any judicial
proceedings, to file such proofs of claim and other papers or documents as may
be necessary or advisable in order to have the claims of Trustee allowed in
such judicial proceedings relative to Company, its creditors or its property,
and to collect and receive any moneys or other property payable or deliverable
on any such claims, and to distribute the same after the deduction of its
charges and expenses; and any custodian (including, without limitation a
receiver, trustee or liquidator) of Company appointed in connection with such
proceedings is hereby authorized to make such payments to Trustee, and to pay
to Trustee any amount due it for compensation and expenses, including
reasonable counsel fees and expenses incurred by it up to the date of such
distribution.

 

Any amounts collected
pursuant to action taken under this Section (other than the compensation and
expenses referred to in the immediately prior sentence) shall be paid into the
Bond Fund and applied in accordance with the provisions of the Indenture or, if
the 2004 Series A Bonds have been fully paid (or provision for payment thereof
has been made in accordance with the provisions of the Indenture) and all
reasonable and necessary fees and expenses of Trustee and any paying agents
accrued and to accrue through final payment of the 2004 Series A Bonds, and all
other liabilities of Company accrued and to accrue hereunder or under the
Indenture through final payment of the 2004 Series A Bonds have been paid, such
amounts so collected shall be paid to Company.

 

Section 9.3.            No Remedy Exclusive.  No remedy herein conferred upon or reserved
to Issuer is intended to be exclusive of any other available remedy or
remedies, but each and every such remedy shall be cumulative and shall be in
addition to every other remedy given under this Agreement or now or hereafter
existing at law or in equity or by statute. 
No delay or omission to exercise any right or power accruing upon
default shall impair any such right or power or shall 

 

25

 

be construed to be a waiver
thereof, but any such right or power may be exercised from time to time and as
often as may be deemed expedient.  In
order to entitle Issuer to exercise any remedy reserved to it in this Article,
it shall not be necessary to give any notice other than such notice as may be
herein expressly required.  Such rights
and remedies as are given Issuer hereunder shall also extend to Trustee, and
Trustee and the holders of the 2004 Series A Bonds, subject to the provisions
of the Indenture, shall be entitled to the benefit of all covenants and
agreements herein contained.

 

Section 9.4.            Agreement to Pay Reasonable Attorneys’
Fees and Expenses.  In the event
Company should default under any of the provisions of this Agreement and Issuer,
Trustee and/or Bond Insurer should employ attorneys or incur other expenses for
the collection of amounts payable hereunder or the enforcement of performance
or observance of any obligation or agreement on the part of Company herein
contained, Company agrees that it will on demand therefor pay to Issuer,
Trustee and/or Bond Insurer the reasonable fees and expenses of such attorneys
and such other reasonable expenses so incurred by Issuer and/or Trustee.

 

Section 9.5.            Waiver of Events of Default.  If, after the acceleration of the maturity of
the outstanding 2004 Series A Bonds by Trustee pursuant to the Indenture, and
before any judgment or decree for the appointment of a receiver or for the
payment of the moneys due shall have been obtained or entered, Company shall
cause to be deposited with Trustee a sum sufficient to pay all matured
installments of interest upon all 2004 Series A Bonds and the principal of, and
premium, if any, on any and all 2004 Series A Bonds which shall have become due
otherwise than by reason of such declaration (with interest upon such principal
and premium, if any, and overdue installments of interest, at the rate per
annum which is one percent above the highest rate borne by any 2004 Series A
Bond, until paid), and such amounts as shall be sufficient to cover all
expenses of Trustee in connection with such default, and all defaults under the
Indenture and this Agreement, other than nonpayment of principal of 2004 Series
A Bonds which shall have become due by said declaration, shall have been
remedied, and such event of default under the Indenture shall be deemed waived
by Trustee in accordance with Section 9.12 of the Indenture with the
consequence that under the Indenture such acceleration is rescinded, then
Company’s default hereunder shall be deemed to have been waived by Issuer and
no further action or consent by Trustee or Issuer shall be required.  In the event any agreement or covenant
contained in this Agreement should be breached by either party and thereafter waived
by the other party, such waiver shall be limited to the particular breach so
waived and shall not be deemed to waive any other breach hereunder.

 

ARTICLE X

PREPAYMENT OF LOAN

 

Section 10.1.          Options to Prepay Loan.  Company shall have, and is hereby granted,
options to prepay the Loan in whole and to cancel or terminate this Agreement
on any Business Day at any time Company so elects, if certain events shall have
occurred within the 180 days preceding the giving of written notice by Company
to Trustee of such election, as follows:

 

26

 

(a)           If in the judgment of Company, unreasonable burdens or
excessive liabilities shall have been imposed after the issuance of the 2004 Series
A Bonds upon Company with respect to the 1993 Project or the operation thereof,
including without limitation federal, state or other ad valorem, property,
income or other taxes not imposed on the date of this Agreement other than ad
valorem taxes presently levied upon privately owned property used for the same
general purpose as the 1993 Project;

 

(b)           If the 1993 Project or a portion thereof or other property
of Company in connection with which the 1993 Project is used shall have been
damaged or destroyed to such an extent so as, in the judgment of the Company,
to render the 1993 Project or other property of Company in connection with
which the 1993 Project is used unsatisfactory to Company for its intended use
and such condition shall continue for a period of six months;

 

(c)           There shall have occurred condemnation of all or
substantially all of the 1993 Project or the taking by eminent domain of such
use or control of the 1993 Project or other property of Company in connection
with which the 1993 Project is used so as, in the judgment of the Company, to
render the 1993 Project or other property of Company in connection with which
the 1993 Project is used unsatisfactory to Company for its intended use;

 

(d)           In the event changes, which the Company cannot reasonably
control, in the economic availability of materials, supplies, labor, equipment,
or other properties or things necessary for the efficient operation of the
Ghent Generating Station of the Company shall have occurred which, in the
judgment of the Company, render the continued operation of the Ghent Generating
Station or any generating unit at such station uneconomical; or changes in
circumstances, after the issuance of the 2004 Series A Bonds including but not
limited to changes in solid waste abatement, control and disposal requirements,
shall have occurred such that the Company shall determine that use of the 1993 Project
is no longer required or desirable;

 

(e)           In the event this Agreement shall become void or
unenforceable or impossible of performance by reason of any changes in the
Constitution of the Commonwealth of Kentucky or the Constitution of the United
States of America or by reason of legislative or administrative action, whether
state or federal, or any final decree, judgment or order of any court or
administrative body, whether state or federal; or

 

(f)            A final order or decree of any court or administrative
body after the issuance of the 2004 Series A Bonds shall require the Company to
cease a substantial part of its operations at the Ghent Generating Station to
such extent that the Company will be prevented from carrying on its normal
operations at such location for a period of six months.

 

In the case of prepayment
pursuant to this Section (or if any 2004 Series A Bonds be redeemed in whole or
in part pursuant to Section 6.1 hereof), the Loan prepayment price shall
be a sum sufficient, together with other funds deposited with Trustee and
available for such purpose, to redeem all 2004 Series A Bonds then outstanding
(or, in the case any 2004 Series A Bonds are redeemed in part pursuant to Section
6.1 hereof, such portion of the 2004 Series A Bonds then outstanding) under
the Indenture at a price equal to 100% of the principal amount thereof plus
interest accrued and to accrue to the date of redemption of the 2004 Series A Bonds
and to pay all reasonable and necessary fees and expenses of Trustee and any
Paying Agents and

 

27

 

all other liabilities of
Company accrued and to accrue hereunder to the date of redemption of the 2004 Series
A Bonds.  In order to exercise any option
to prepay the Loan and to cancel or terminate this Agreement by reason of the
occurrence of any of the events mentioned in (a) through (f) above, Company is
required to give written notice to Trustee of its election to prepay the Loan
within 180 days of the occurrence of any of the events mentioned in (a) through
(f) above.

 

Section 10.2.          Additional Option to Prepay Loan.  Company shall have, and is hereby granted,
further options, to the extent that the 2004 Series A Bonds are, from time to
time, subject to optional redemption, during any period of optional redemption,
to prepay all, or any portion, of the relevant and applicable Loan payments due
or to become due hereunder by depositing with Trustee moneys sufficient to pay,
together with other funds deposited with Trustee and available for such
purpose, the principal of and applicable premium, if any, and accrued interest,
through the date of redemption (which must be a Business Day), on all or any
portion of the 2004 Series A Bonds then outstanding under the Indenture and,
upon depositing with Trustee moneys sufficient to pay the principal, applicable
premium, if any, and accrued interest, through the date of redemption, on all 2004
Series A Bonds then outstanding under the Indenture, as well as all reasonable
and necessary expenses of Trustee and any Paying Agents and all other
liabilities of Company accrued and to accrue hereunder, to cancel or terminate
the term of this Agreement.

 

Section 10.3.          Obligations to Prepay Loan.  Company shall be obligated to prepay the
entire Loan or any part thereof, as provided below, prior to the required full
payment of the 2004 Series A Bonds (or prior to making provision for payment
thereof in accordance with the Indenture) on the 180th day (or such earlier
date as may be designated by Company), which, in every case, must be a Business
Day, upon the occurrence of a Determination of Taxability.  The Issuer and Company shall take all actions
required to mandatorily redeem the 2004 Series A Bonds at the cost of the
Company upon the terms specified in this Agreement and in ARTICLE IV of
the Indenture following the occurrence of a Determination of Taxability,
including, but not limited to, prepaying appropriate amounts due on the 2004 Series
A Bonds in order to effect such redemption. 
The 2004 Series A Bonds shall be redeemed by the Issuer, in whole, or in
such part as described below, at a redemption price equal to 100% of the
principal amount thereof, without redemption premium, plus accrued interest, if
any, to the redemption date, within 180 days following a Determination of
Taxability.  For purposes of this Section,
a “Determination of Taxability” shall mean the receipt by the Trustee of
written notice from a current or former registered owner of a 2004 Series A
Bond or from the Company or the Issuer of (i) the issuance of a published
or private ruling or a technical advice memorandum by the Internal Revenue
Service in which the Company participated or has been given the opportunity to
participate, and which ruling or memorandum the Company, in its discretion,
does not contest or from which no further right of administrative or judicial
review or appeal exists, or (ii) a final determination from which no further
right of appeal exists of any court of competent jurisdiction in the United
States in a proceeding in which the Company has participated or has been a
party, or has been given the opportunity to participate or be a party, in each
case, to the effect that as a result of a failure by the Company to perform or
observe any covenant or agreement or the inaccuracy of any representation
contained in this Agreement or any other agreement or certificate delivered in
connection with the 2004 Series A Bonds, the interest on the 2004 Series A
Bonds is included in the gross income of the owners thereof for federal income
tax purposes, other than with respect

 

28

 

to a person who is a “substantial
user” or a “related person” of a substantial user within the meaning of the
Section 147 of Internal Revenue Code of 1986, as amended (the “Code”);
provided, however, that no such Determination of Taxability shall be considered
to exist as a result of the Trustee receiving notice from a current or former
registered owner of a 2004 Series A Bond or from the Issuer unless (i) the
Issuer or the registered owner or former registered owner of the 2004 Series
A Bond involved in such proceeding or action (A) gives the Company and the
Trustee prompt notice of the commencement thereof, and (B) (if the Company
agrees to pay all expenses in connection therewith) offers the Company the
opportunity to control unconditionally the defense thereof, and (ii) either (A)
the Company does not agree within 30 days of receipt of such offer to pay such
expenses and liabilities and to control such defense, or (B) the Company shall
exhaust or choose not to exhaust all available proceedings for the contest,
review, appeal or rehearing of such decree, judgment or action which the
Company determines to be appropriate.  No
Determination of Taxability described above will result from the inclusion of
interest on any 2004 Series A Bond in the computation of minimum or indirect
taxes.  All of the 2004 Series A Bonds
shall be redeemed upon a Determination of Taxability as described above unless,
in the opinion of Bond Counsel, redemption of a portion of the 2004 Series A
Bonds of one or more series or one or more maturities would have the result
that interest payable on the remaining 2004 Series A Bonds outstanding after
the redemption would not be so included in any such gross income.

 

In the event any of the
Issuer, the Company or the Trustee has been put on notice or becomes aware of
the existence or pendency of any inquiry, audit or other proceedings relating
to the 2004 Series A Bonds being conducted by the Internal Revenue Service, the
party so put on notice shall give immediate written notice to the other parties
of such matters.

 

Promptly upon learning of
the occurrence of a Determination of Taxability (whether or not the same is
being contested), or any of the events described in this Section, the Company
shall give notice thereof to the Trustee and the Issuer.

 

In the case of the mandatory
obligation of Company to prepay the Loan or any part thereof after the
occurrence of a Determination of Taxability, Company shall be obligated to
prepay such Loan or such part thereof not later than 180 days after any such
final determination as specified in this Section hereof and to provide to
Trustee for deposit in the Bond Fund an amount sufficient, together with other
funds deposited with the Trustee and available for such purpose, to redeem such
2004 Series A Bonds at the price of 100% of the principal amount thereof in
accordance with Section 5.1 hereof plus interest accrued and to accrue
to the date of redemption of the 2004 Series A Bonds and to pay all reasonable
and necessary fees and expenses of Trustee and any paying agents and all other
liabilities of Company accrued and to accrue hereunder to the date of
redemption of the 2004 Series A Bonds.

 

Section 10.4.          Notice of Prepayment; Redemption
Procedures.  It is understood and
agreed by the parties hereto that in order to exercise an option granted in, or
to consummate a mandatory prepayment required by, this Article, Company shall
give written notice to Issuer and Trustee which notice shall (i) contain the
agreement of Company to deposit moneys in the Bond Fund on or before the
redemption date in an amount sufficient to redeem a principal amount of the 2004
Series A Bonds equal to the amount of the prepayment, including, in the case of
a prepayment under Section 10.2 hereof, any applicable redemption
premium in respect of such 

 

29

 

2004 Series A Bonds, and any
other amounts required under this Agreement and (ii) specify the prepayment
date (which must be a Business Day and which shall also be the redemption
date), which date shall not be less than 30 days (45 days if the 2004 Series A
Bonds are bearing interest at the Semi-annual, Annual or Long Term Rate or in
all cases such shorter period as may be acceptable to the Trustee) nor more
than 90 days from the date the notice is mailed by Company to Issuer and
Trustee.

 

Section 10.5.          Relative Position of this Article
and Indenture.  The rights and
options granted to Company in this Article, except the option granted to
Company pursuant to Section 10.2 to prepay less than all of the Loan
payments, shall be and remain prior and superior to the Indenture and may be
exercised whether or not Company is otherwise in default hereunder; provided
that such default will not result in nonfulfillment of any condition to the
exercise of any such right or option.

 

Section 10.6.          Concurrent Discharge of First Mortgage
Bonds.  Prior to the Release Date, in
the event any of the 2004 Series A Bonds shall be paid and discharged pursuant
to any provisions of this Agreement, so that same are not thereafter
Outstanding, as the term “Outstanding” is defined in the Indenture, a like
principal amount of First Mortgage Bonds shall be deemed fully paid and the
obligations of Company thereunder terminated. 
Thereupon, Trustee shall deliver to First Mortgage Trustee such like
principal amount of First Mortgage Bonds for cancellation pursuant to Section
2.13 of the Indenture.

 

ARTICLE XI

 

MISCELLANEOUS

 

Section 11.1.          Term of Agreement.  This Agreement shall remain in full force and
effect from the date hereof to and including the later of October 1, 2034, or
until such earlier or later time as all of the 2004 Series A Bonds shall have
been fully paid (or provision made for such payment pursuant to the Indenture),
whichever shall be later; provided, however, that this Agreement may be
cancelled and terminated prior to said date if Company shall prepay all of the
Loan pursuant to ARTICLE X hereof; and provided further, however, that
all obligations of Company under ARTICLE V and Section 8.1 hereof
(a) to pay the agreed fees and expenses of Trustee, the Bond Insurer, the
Tender Agent, the Bond Registrar and any Paying Agent and (b) to pay any
amount required by Section 5.5 hereof shall continue in effect even
though 2004 Series A Bonds may no longer be outstanding and this Agreement may
otherwise be terminated.  All
representations and certifications by Company as to all matters affecting the
tax-exempt status of interest on the 2004 Series A Bonds shall be for the equal
and ratable benefit, protection and security of the holders of any and all of
the 2004 Series A Bonds and shall survive the termination of this Agreement and
all obligations of Company contained herein relating to indemnification of
Issuer, Trustee, Bond Registrar, Authenticating Agent, Tender Agent and any
Paying Agent shall survive the termination of this Agreement.

 

Section 11.2.          Notices. All notices,
certificates or other communications hereunder shall be sufficiently given and
shall be deemed given when delivered or mailed by registered or certified mail,
postage prepaid, addressed as follows:

 

30

 

If to Issuer, at 440 Main
Street, Carrollton, Kentucky 41008, Attention: County Judge/ Executive;

 

If to Company, at its
corporate headquarters, One Quality Street, Lexington, Kentucky 40507,
Attention:  Treasurer, with a copy to
Louisville Gas and Electric Company, 220 West Main Street, Louisville, Kentucky
40202, Attention: Treasurer, and

 

If to Trustee, at 9300
Shelbyville Road, Suite 507, Louisville, Kentucky 40222, Attn: Corporate
Trust Department.

 

If to Bond Insurer, at 125
Park Avenue, New York, New York 10017, Attn: 
Risk Management.

 

If to Paying Agent,
Remarketing Agents, Auction Agent, Market Agent or Tender Agent, at such
addresses for notices as are set forth in the Indenture.

 

A duplicate copy of each
notice, certificate or other communication given hereunder by either Issuer or
Company to the other shall also be given to Trustee.  Issuer, Company and Trustee may by notice
given hereunder designate any further or different addresses to which
subsequent notices, certificates or other communications shall be sent.

 

Section 11.3.          Binding Effect; Bond Counsel
Opinions.  This Agreement shall inure
to the benefit of and shall be binding upon Issuer, Company and their
respective successors and assigns, subject, however, to the limitations
contained in Section 7.2, Section 8.1 and Section 8.3 hereof.  The Bond Insurer shall be a third-party
beneficiary of this Agreement.  Any
opinion of Bond Counsel issued pursuant to this Agreement shall be addressed to
the Bond Insurer, in addition to being addressed to any other required parties.

 

Section 11.4.          Severability.  In the event any provision of this Agreement
shall be held invalid or unenforceable by any court of competent jurisdiction,
such holding shall not invalidate or render unenforceable any other provision
hereof.

 

Section 11.5.          Amounts Remaining in Bond Fund,
Rebate Fund and Prior Bond Fund.  It
is agreed by the parties hereto that any amounts remaining in the Bond Fund
upon expiration or sooner termination of the term of this Agreement, as
provided in this Agreement, after payment in full of the 2004 Series A Bonds
(or provision for payment thereof having been made in accordance with the
provisions of the Indenture) and the reasonable and necessary fees and expenses
of Trustee (including reasonable attorneys fees and expenses) and any Paying
Agent in accordance with the Indenture and the payment in full of all other
amounts required to be paid under this Agreement or the Indenture, shall belong
to and be paid to Company by Trustee. 
Any amounts remaining in the Rebate Fund at such time shall be held,
applied and disbursed strictly and only in accordance with the provisions of Section
6.06 of the Indenture.  Following the
payment and discharge of the Refunded 1993 Series A Bonds on their redemption
date and the making of provision for payment of the Refunded 1993 Series A
Bonds not presented for payment, any remaining moneys in the Prior Bond Fund
shall belong to and be paid to Company by the Prior Trustee.

 

31

 

Section 11.6.          Amendments, Changes and
Modifications.  Subsequent to the
issuance of the 2004 Series A Bonds and prior to payment in full of all 2004 Series
A Bonds (or provision for the payment thereof having been made in accordance
with the provisions of the Indenture), except as otherwise provided in this
Agreement or in the Indenture, this Agreement may not be effectively amended,
changed, modified, altered or terminated, and no provision hereof waived,
without the written consent of Trustee, given in accordance with the Indenture.

 

Section 11.7.          Execution in Counterparts.  This Agreement may be simultaneously executed
in several counterparts, each of which shall be an original and all of which
shall constitute but one and the same instrument.

 

Section 11.8.          Applicable Law.  This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Kentucky.

 

Section 11.9.          Captions.  The captions or headings in this Agreement
are for convenience only and in no way define, limit, or describe the scope or
intent of any provisions or sections of this Agreement.

 

Section 11.10.        No Pecuniary Liability of Issuer.  No provision, covenant or agreement contained
in this Agreement or breach thereof shall constitute or give rise to a
pecuniary liability of Issuer or a charge upon its general credit or taxing
powers.  In making such covenants,
agreements or provisions, Issuer has not obligated itself, except with respect
to the 1993 Project and the application of the revenues of this Agreement, as
hereinabove provided.

 

Section 11.11.        Payments Due on Other Than Business
Days.  If the date for making any
payment or the last date for performance of any act or the exercise of any
right, as provided in this Agreement, shall not be on a Business Day, such
payment may be made or act performed or right exercised on the next succeeding
Business Day with the same force and effect as if done on the date provided in
this Agreement, and if done on such succeeding Business Day no interest with
respect to such payment shall accrue for the period after such nominal date.

 

(remainder of page left blank intentionally)

 

32

 

IN
WITNESS WHEREOF,
Issuer and Company have caused this Agreement to be executed in their
respective corporate names and their respective corporate seals to be hereunto
affixed and attested by their duly authorized officers, all as of the date
first written.

 

	
   

  	
  COUNTY OF CARROLL, KENTUCKY

  
	
   

  	
   

  
	
  (SEAL)

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Harold Tomlinson

  	
   

  
	
   

  	
   

  	
  HAROLD TOMLINSON

  	
   

  
	
   

  	
   

  	
  County Judge/Executive

  	
   

  
	
   

  	
   

  
	
  ATTEST:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Traci
  Courtney

  	
   

  	
   

  
	
  Fiscal Court Clerk

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  KENTUCKY UTILITIES COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
  (SEAL)

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Daniel K. Arbough

  	
   

  
	
   

  	
   

  	
  DANIEL K. ARBOUGH

  	
   

  
	
   

  	
   

  	
  Treasurer

  	
   

  
	
   

  	
   

  
	
  ATTEST:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ John R. McCall

  	
   

  	
   

  
	
  JOHN R. MCCALL

  	
   

  	
   

  
	
  Secretary

  	
   

  	
   

  

 

 

	
  COMMONWEALTH OF KENTUCKY

  	
  )

  
	
   

  	
  )  SS

  
	
  COUNTY OF CARROLL

  	
  )

  

 

I, the undersigned Notary
Public in and for the State and County aforesaid, do hereby certify that on the
      day of October, 2004, the foregoing instrument
was produced to me in said County by Harold Tomlinson and Debra K. Clayton,
personally known to me and personally known by me to be the County
Judge/Executive and Fiscal Court Clerk, respectively, of the COUNTY OF CARROLL,
KENTUCKY, and acknowledged before me by them and each of them to be their free
act and deed as County Judge/Executive and Fiscal Court Clerk of such County,
and the act and deed of said County as authorized by an Ordinance of the Fiscal
Court of such County.

 

Witness my hand and seal
this         day of October, 2004.  My commission expires                   .

 

(SEAL)

 

 

	
   

  	
  /s/ Debra K. Clayton

  
	
   

  	
  Notary Public

  
	
   

  	
  State at Large, Kentucky

  

 

	
  COMMONWEALTH OF KENTUCKY

  	
  )

  
	
   

  	
  )  SS

  
	
  COUNTY OF
  JEFFERSON

  	
  )

  

 

I, the undersigned Notary
Public in and for the State and County aforesaid, do hereby certify that on the
         day of October, 2004, the
foregoing instrument was produced to me in said County by Daniel K. Arbough and
John R. McCall, personally known to me and personally known by me to be the
Treasurer and the Secretary, respectively, of KENTUCKY UTILITIES COMPANY, a
corporation incorporated under the laws of the Commonwealth of Kentucky, who
being by me duly sworn, did say that the seal affixed to said instrument is the
corporate seal of said corporation, and that said instrument was signed and
sealed in behalf of said corporation by authority of its Board of Directors,
and said respective persons acknowledged before me said instrument to be the
free act and deed of said corporation and to be their free act and deed as such
officers of such corporation.

 

Witness my hand and seal
this        day of October, 2004.  My commission expires                 .

 

(SEAL)

 

	
   

  	
  /s/ Kathy L. Wilson

  
	
   

  	
  Notary Public

  
	
   

  	
  State at Large, Kentucky

  

 

 

	
  This
  Instrument Prepared by the

  
	
  Undersigned,
  Attorney at Law of

  
	
  Harper,
  Ferguson & Davis

  
	
  (Division
  of Ogden Newell & Welch PLLC)

  
	
  1700
  PNC Plaza

  
	
  500
  West Jefferson Street

  
	
  Louisville,
  Kentucky 40202

  
	
   

  
	
   

  	
  /s/
  Spencer E. Harper, Jr.

  	
   

  
	
  SPENCER
  E. HARPER, JR.Exhibit 10.1

 

MANAGEMENT COMPENSATION AGREEMENT

 

THIS MANAGEMENT
COMPENSATION AGREEMENT (“Agreement”) is effective October 1, 2004, (“Effective
Date”) by and between MAIR Holdings, Inc.,
a Minnesota corporation, (“the Company”),
and Paul F. Foley, 19 Tall Pines
Drive, Weston, CT 06883, (“Executive”).

 

ARTICLE 1

 

EMPLOYMENT

 

1.01                           Employment.  The Company hereby agrees to continue to
employ Executive as its President and Chief Executive Officer and Executive
hereby accepts and agrees to such employment from and after the Effective Date
of this Agreement based upon the terms and conditions stated herein.  During the Term of Executive’s employment, he
shall be eligible to receive the compensation and benefits as set forth in Article 3
of this Agreement.

 

1.02                           Duties.  Executive shall generally have the authority,
responsibilities, and perform such duties as are customarily held and performed
by the President and Chief Executive Officer in comparable companies,
including, among other things, developing and implementing the Company’s
strategic and operational plans, recruiting and developing strong senior
management, allocating resources to achieve the Company’s strategic and
financial objectives, establishing effective financial controls and management,
managing external and internal communications and relationships, and ensuring a
strong relationship with the Company’s Board of Directors (“Board”).  Executive shall also render such additional
services and duties as may reasonably be requested of Executive from time to
time by the Board.

 

1.03                           Best
Efforts.  Executive agrees that he
will devote his full time and attention to, and at all times faithfully,
industriously, loyally, and to the best of his ability, experience, and talents
perform, all of the duties that may be required of and from him pursuant to the
express and implicit terms of this Agreement, to the reasonable satisfaction of
the Company.

 

1.04                           Reporting.  Executive shall report to the Board, and any
committee thereof as the Board shall direct, and shall generally be subject to
the direction, orders and advice of the Board.

 

ARTICLE 2

 

TERM OF EMPLOYMENT AND AGREEMENT

 

2.01                           Term.  The Term of this Agreement and Executive’s
employment with the Company hereunder shall be four (4) years from the
Effective Date through September 30, 2008, subject to the provisions set
forth in Articles 4, 5, and 6 of this Agreement.

 

 

ARTICLE 3

 

COMPENSATION AND BENEFITS

 

3.01                           Base
Salary.  Executive will be paid an
annualized base salary of Three Hundred Fifty Thousand and no/100 Dollars
($350,000.00).  Executive’s base salary
shall be payable in equal semi-monthly installments pursuant to the Company’s
normal payroll procedures and dates and subject to applicable withholdings.

 

3.02                           Incentive
Bonus.  Executive shall be eligible
to receive annual discretionary incentive bonus compensation in an amount up to
100% of Executive’s annualized base salary, based upon achievement of personal
and overall Company goals as are determined and approved by the Board’s
Compensation Committee (“Compensation Committee”).  The payment schedule of any such bonus
and the target goals may be changed within the Compensation Committee’s
discretion.  Any dispute between
Executive and the Company as to the amount of, or entitlement to, any bonus
shall be promptly addressed by the Compensation Committee.

 

3.03                           Special
One-Time Bonus.  Upon execution of
this Agreement, and conditioned on Executive remaining employed by the Company
throughout the four-year Term of this Agreement, Executive will be paid a
Special One-Time Bonus of Five Hundred Thousand and no/100 Dollars
($500,000.00), less applicable withholdings. 
Subject to the provisions of Articles 5 and 6 of this Agreement,
Executive agrees that if his employment terminates during the Term pursuant to Section 4.01
or Section 4.05 hereof, he will be obligated to repay to the Company a
portion of the Special One-Time Bonus according to the following schedule:

 

	
  Period In Which 

  Termination Occurs

  	
   

  	
  Amount of 

  Repayment

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  From the Effective Date through the first
  anniversary of the Effective Date

  	
   

  	
  $

  	
  200,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  From the first day following the first anniversary
  of the Effective Date through the second anniversary of the Effective Date

  	
   

  	
  $

  	
  150,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  From the first day following the second anniversary
  of the Effective Date through the third anniversary of the Effective Date

  	
   

  	
  $

  	
  100,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  From the first day following the third anniversary
  of the Effective Date through the fourth anniversary of the Effective Date

  	
   

  	
  $

  	
  50,000.00

  	
   

  

 

Executive shall
repay such amount to the Company within one (1) month after termination of his
employment.  Executive agrees that,
subject to applicable law, the Company may offset any amounts owing by
Executive under this Section 3.03 against any amount owed by the Company
to Executive at the time of separation.

 

2

 

3.04                           Vesting
Retention Bonus.  Conditioned upon
Executive remaining employed by the Company during the four-year Term of this
Agreement, Executive will be paid a Vesting Retention Bonus of Four Hundred
Thousand and no/100 Dollars ($400,000.00), subject to applicable
withholdings.  If Executive remains then
employed by the Company, this Vesting Retention Bonus shall vest and be paid in
three installments as follows: $100,000.00 upon the second anniversary of the
Effective Date of this Agreement; $100,000.00 upon the third anniversary of the
Effective Date of this Agreement; and $200,000.00 upon the fourth anniversary
of the Effective Date of this Agreement. 
Subject to the provisions of Articles 5 and 6 of this Agreement, if
Executive’s employment terminates prior to conclusion of the Term of this
Agreement, any unvested portion of this Vesting Retention Bonus shall be
unearned and unpaid.

 

3.05                           Fringe
Benefits.  Executive shall be
eligible to receive such fringe benefits as are, and may be, made available to
other senior executive employees of the Company from time to time in the
exclusive discretion of the Compensation Committee.  Such benefits may include, but are not
limited to, a medical and dental plan, short term disability plan, long term
disability plan, supplemental disability insurance, life insurance plan,
supplemental executive life insurance plan, and qualified and nonqualified
401(k) plans.  The Company may, without
any prior notice, discontinue or modify any benefit already provided or as may
be provided in the future, within the exclusive discretion of the Compensation
Committee, only if such benefits are uniformly discontinued or modified for all
senior executives of the Company.

 

3.06                           Vacation,
Holidays and Other Leaves of Absence. 
Executive shall be eligible for vacation, holidays, sick leave and all
other leaves of absence in accordance with the Company’s stated standard
personnel policies.

 

3.07                           Business
Expenses.  The Company shall
reimburse Executive, in accordance with its policies and procedures in effect
from time to time, for all reasonable out-of-pocket business expenses which are
incurred by Executive in connection with the performance by him of his duties
hereunder.

 

3.08                           Living
Expense Allowance.  The Company shall
provide Executive with an annual living expense allowance in the amount of
$75,000.00 (Seventy-Five Thousand and No/100 Dollars), so long as Executive
maintains his legal residence in Westin, Connecticut or another location
similarly beyond a reasonable commuting distance from the Company’s
headquarters.

 

3.09                           Flight
Benefits.  Executive shall be
eligible to receive flight passes for business or personal use entitling
Executive, his spouse and dependents under age 21 to travel without charge on
Mesaba and Northwest Airlines at the highest level of priority then available
to senior executives of the Company. 
Executive acknowledges that the Company cannot provide him any assurance
that Northwest Airlines will continue to provide flight benefits to the Company’s
senior executives.

 

3.10                           Stock
Based Awards.  Pursuant to the terms
and conditions of the Company’s 2000 Stock Incentive Plan or such successor
plan as may then be in effect, Executive shall be eligible to receive, and the
Compensation Committee in its sole discretion may from time to time 

 

3

 

grant,
options to purchase shares of the Company’s common stock, awards of restricted
stock, stock appreciation rights or other stock based awards.

 

ARTICLE 4

 

TERMINATION

 

4.01                           By The Executive. 
Executive may resign his position and terminate his employment and this
Agreement by giving the Board one (1) month written notice of his intention to
resign.  If requested by the Board,
Executive agrees to cooperate in training his successor until his actual
separation date.  In the event of such
resignation, and subject to the provisions of Article 6 of this Agreement,
the only compensation payable to Executive shall be his base salary earned, and
any installment of his Vesting Retention Bonus vested under Section 3.04,
as of the effective date of his resignation. 
Executive shall not be entitled to or paid any pro-rated or other
portion of any bonus under Section 3.02.

 

4.02                           By The Company Upon Executive’s Inability to Perform.  The Company may, subject to applicable law,
terminate this Agreement and Executive’s employment by giving Executive one (1)
month written notice if Executive, due to sickness or injury, is prevented from
carrying out his essential job functions for a period of six (6) months or
longer.  In the event of such
termination, the only compensation payable to Executive shall be his base
salary earned, and any installment of his Vesting Retention Bonus vested under Section 3.04,
as of the effective date of his termination; provided, however, that Executive
may, as the Compensation Committee may in its discretion determine, receive a
pro-rated or other portion of any bonus to which Executive was otherwise
eligible under Section 3.02.

 

4.03                           Upon
Executive’s Death.  Executive’s
employment and this Agreement will be deemed terminated upon the death of the
Executive.  In the event of such
termination, the only compensation payable to Executive shall be his base
salary earned, and any installment of his Vesting Retention Bonus vested under Section 3.04,
as of the effective date of his termination; provided, however, that Executive’s
estate may, as the Compensation Committee may in its discretion determine,
receive a pro-rated or other portion of any bonus to which Executive was
otherwise eligible under Section 3.02.

 

4.04                           By The Company Without Cause.  The Company may, subject to the provisions of
Article 5 of this Agreement, terminate this Agreement and Executive’s
employment by giving Executive one (1) month written notice.

 

4.05                           By The Company For Cause. 
Any other provision of this Agreement notwithstanding, the Company may
terminate Executive’s employment and this Agreement without notice if the
termination is based on any of the following events, which shall constitute
Cause:

 

(a)                                  Executive
embezzles funds or otherwise misappropriates the assets of the Company, is
convicted in a court of law of or pleads guilty or no contest to a felony or
any criminal activity involving dishonesty, fraud, breach of trust or involving
money or property of 

 

4

 

the
Company, or engages in any public conduct that has a material detrimental effect
on the Company; or

 

(b)                                 Executive
materially (i) breaches any of the provisions of this Agreement or (ii) fails
to perform Executive’s duties and responsibilities consistent with the lawful
directions of the Board; provided, however, that the Company shall first have
given Executive written notice of his breach of the terms of this Agreement or
failure to perform and Executive shall have failed to remedy such violation
within 30 calendar days of the receipt of such notice.

 

In the event of such
termination, and notwithstanding any contrary provision otherwise stated, the
only compensation payable to Executive shall be Executive’s base salary earned
through the date of termination.

 

4.06                           Resignation
of Officer and Director Status.  Upon
termination of employment hereunder for any reason, Executive shall be deemed
to have resigned from all employment, officer and director positions he then
holds with the Company or with any affiliated entity.

 

4.07                           Non-disparagement.  Upon termination of employment hereunder for
any reason, Executive agrees that he shall not disparage or defame the Company,
its directors, officers, employees, services or products.  The provisions of this Section 4.07
shall survive termination of this Agreement indefinitely.

 

4.08                           Cooperation.  Upon termination of employment hereunder for
any reason, Executive agrees to be reasonably available for consultation with
and provide assistance to Company representatives with respect to matters and
issues within Executive’s job responsibilities or knowledge during Executive’s
employment.  This reasonable cooperation
will include without limitation transfer and identification of all business
files and status reports on matters under Executive’s responsibility.  Executive also agrees that he shall reasonably
assist the Company with any litigation brought by or against the Company
involving matters occurring during the period of his employment hereunder.  Similarly, Executive agrees that he will not
voluntarily assist any third party regarding claims or litigation involving the
Company.  The provisions of this Section 4.08
shall survive termination of this Agreement indefinitely.

 

ARTICLE 5

 

SEVERANCE

 

5.01                           Termination
Prior to Completion of the Term.  If
the Company terminates Executive’s employment without Cause prior to completion
of the Term pursuant to Section 4.04 above,  the
Company shall:

 

(a)                                  pay
Executive (i) his base salary earned through the effective date of termination
and (ii) a pro-rated or other portion of any bonus to which Executive was
otherwise eligible under Section 3.02;

 

(b)                                 pay Executive as severance pay, each month for twelve (12)
consecutive months following Executive’s termination, two (2) times Executive’s
monthly base salary in 

 

5

 

effect
at the time of separation, less applicable withholdings, beginning one (1)
month after termination;

 

(c)                                  if
Executive timely elects to continue Executive’s group health and dental
insurance coverage pursuant to applicable COBRA/continuation law and the terms
of the respective benefit plans, continue to pay on Executive’s behalf the
Company’s customary share of premiums for such coverage for the lesser of
eighteen (18) months or such time as Executive’s COBRA/continuation rights
expire;

 

(d)                                 waive its right to the repayment provision set forth in Section 3.03
regarding Executive’s Special One-Time Bonus;

 

(e)                                  pay Executive the remainder of his Vesting Retention Bonus
set forth in Section 3.04 as though fully vested;

 

(f)                                    cause
all unvested stock options held by Executive to immediately vest and be
exercisable for a period to be determined by the Compensation Committee; and

 

(g)                                 continue Executive’s flight benefits under Section 3.09
for the twelve (12) month period immediately following the termination of
Executive’s employment.

 

5.02                           Termination
On or After Completion of the Term. 
If Executive (i) is terminated without Cause upon completion of the Term
or (ii) remains employed by the Company upon completion of the Term and
thereafter is terminated without Cause,  the Company
shall:

 

(a)                                  pay
Executive (i) his base salary earned through the effective date of termination
and (ii) a pro-rated or other portion of any bonus to which Executive was
otherwise eligible under Section 3.02; and

 

(b)                                 pay
Executive as severance pay, each month for twelve (12) consecutive months
following Executive’s termination, two (2) times Executive’s monthly base
salary in effect at the time of separation, less applicable withholdings,
beginning one (1) month after termination;

 

(c)                                  if
Executive timely elects to continue Executive’s group health and dental
insurance coverage pursuant to applicable COBRA/continuation law and the terms
of the respective benefit plans, continue to pay on Executive’s behalf the
Company’s customary share of premiums for such coverage for the lesser of
eighteen (18) months or such time as Executive’s COBRA/continuation rights
expire;

 

(d)                                 cause
all unvested stock options held by Executive to immediately vest and be
exercisable for a period to be determined by the Compensation Committee; and

 

(e)                                  continue Executive’s flight benefits under Section 3.09
for the twelve (12) month period immediately following the termination of
Executive’s employment.

 

6

 

5.03                           No
Other Payments.  Executive agrees
that the payment of severance under this Article 5 shall be in lieu of any
other compensation to which he might claim entitlement as a result of the
termination of his employment.

 

5.04                           Executive
Must Sign Release.  Executive
understands and agrees that, notwithstanding any other provision of this
Agreement, the Company’s obligation to make payment under this Article 5
is expressly conditioned upon Executive signing and delivering to the Company a
release of claims in the form attached hereto as Appendix A, as may be modified
in conformance with applicable law.  No
payments shall be made until Executive has signed the release and any
rescission periods stated therein have expired without any such rescission by
Executive.

 

5.05                           Survival.  The payment obligations of this Article 5
resulting from Executive’s termination under Section 5.02 shall survive
termination of this Agreement.

 

ARTICLE 6

 

CHANGE IN CONTROL

 

6.01                           Change
In Control Severance Compensation.  If within one (1) year after a Change in
Control, Executive resigns his employment pursuant to Section 4.01, then
the Company, its successors or assigns, shall, in lieu of any severance pay
under Article 5 of this Agreement:

 

(a)                                  pay
Executive (i) his base salary earned through the effective date of termination
and (ii) a pro-rated or other portion of any bonus to which Executive was
otherwise eligible under Section 3.02;

 

(b)                                 pay
Executive as severance pay, each month for twelve (12) consecutive months
following his termination, two (2) times Executive’s monthly base salary in
effect at the time of separation, less applicable withholdings, beginning one
(1) month after termination;

 

(c)                                  if
Executive timely elects to continue Executive’s group health and dental
insurance coverage pursuant to applicable COBRA/continuation law and the terms
of the respective benefit plans, continue to pay on Executive’s behalf the
Company’s customary share of premiums for such coverage for the lesser of
eighteen (18) months or such time as Executive’s COBRA/continuation rights
expire;

 

(d)                                 waive its right to the repayment provision set forth in Section 3.03
regarding Executive’s Special One-Time Bonus;

 

(e)                                  pay Executive the remainder of his Vesting Retention Bonus
set forth in Section 3.04 as though fully vested;

 

(f)                                    cause
all unvested stock options held by Executive to immediately vest and be
exercisable for a period to be determined by the Compensation Committee; and

 

7

 

(g)                                 continue Executive’s flight benefits under Section 3.09
for the twelve (12) month period immediately following the termination of
Executive’s employment.

 

6.02                           Change In Control Defined.  For the purposes of this Agreement, “Change
in Control” shall mean any one or more of the following that occurs during the
Term of this Agreement:

 

(a)                                  The
shareholders of the Company approve any consolidation, merger, or
reorganization of the Company in which the Company is not the continuing or
surviving corporation or pursuant to which the outstanding voting securities or
other capital interests of the Company would be converted into cash,
securities, or other property, other  than a consolidation,
merger, or reorganization in which 75% or more of the outstanding voting and
equity securities or other capital interests of the surviving, resulting, or
acquiring corporation or other legal entity are owned immediately after such
event, by the holders of the Company’s voting securities in substantially
proportionate amounts to their respective ownership of voting securities of the
Company immediately prior to such event;

 

(b)                                 The
Company sells, leases, exchanges, or transfers (in one transaction or a series
of transactions) all or substantially all of its business or assets to any
other corporation or other legal entity of which less than 75% of the
outstanding voting and equity securities or other capital interests of such
corporation or other legal entity in the aggregate is owned directly or
indirectly, immediately after such sale, by holders of the Company’s voting
securities, in substantially proportionate amounts to their respective
ownership of voting securities of the Company immediately prior to such sale;

 

(c)                                  The
shareholders of the Company approve any plan or proposal for the liquidation or
dissolution of the Company;

 

(d)                                 Any
person other than (i) the Company, (ii) a subsidiary of the Company, (iii) any
employee benefit plan sponsored by the Company, or (iv) Northwest Airlines
Corporation or any “affiliate” or “associate” of Northwest Airlines Corporation
as such terms are defined under the Securities Exchange Act of 1934 (the “Exchange
Act”), has become the beneficial owner (as defined under Rule 13d-3 or any
successor rule) of 25% or more of the combined voting power of the Company’s then
outstanding voting securities ordinarily having the right to vote in the
election or directors, as a result of a tender or exchange offer, open market
purchases, privately negotiated purchases, whether or not directly from the
Company, or otherwise;

 

(e)                                  Northwest
Airlines Corporation, or any “affiliate” or “associate” (as such terms are
defined under the Exchange Act) of Northwest Airlines Corporation, has become
the beneficial owner (as defined under Rule 13d-3 or any successor rule) of 51%
or more of the combined voting power of the Company’s then outstanding voting
securities ordinarily having the right to vote in the election of directors as
a result of a tender or exchange offer, open market purchases, privately
negotiated purchases, whether or not directly from the Company, or otherwise;
or

 

8

 

(f)                                    At
any time during any period of 24 consecutive months, individuals who at the
beginning of any such 24-month period constitute the directors of the Company
cease for any reason to constitute at least a majority of the directors of the
Company, unless the election or the nomination for election by the Company’s
shareholders of each new director of the Company was approved by (i) a
nominating committee of the Board that is independent within the meaning of the
Qualitative Listing Requirements for Nasdaq National Market Issuers or (ii) a
vote of at least three-fourths of the directors of the corporation then still
in office who were directors of the Company at the beginning of any such
24-month period.

 

6.03                           Successors
Or Assigns Defined.  For purposes of
this Article 6, “successors or assigns” shall mean a corporation or other
entity or person acquiring all or substantially all the stock, assets, and/or
business of the Company whether by agreement, operation of law, or otherwise.

 

6.04                           No
Other Payments.  Executive agrees
that the payment of Change in Control severance benefits under this Article 6
shall be in lieu of any other compensation to which he might claim entitlement
as a result of the termination of his employment prior to completion of the
Term.

 

6.05                           Executive
Must Sign Release.  Executive
understands and agrees that, notwithstanding any other provision of this
Agreement, the Company’s obligation to make payment under this Article 6
is expressly conditioned upon Executive signing and delivering to the Company a
release of claims in the form attached hereto as Appendix A, as may be modified
in conformance with applicable law.  No
payments shall be made until Executive has signed the release and any
rescission periods stated therein have expired without any such rescission by
Executive.

 

6.06                           Section 280G
Parachute Payments.  If the Change in
Control severance compensation under this Article 6, either alone or
together with other payments to Executive from the Company or its subsidiaries,
would constitute a “parachute payment” as defined in Internal Revenue Code (“Code”)
Section 280G, such severance compensation shall be reduced to the largest
amount as will result in no portion of the severance compensation payments
under this Article 6 being subject to the excise tax imposed by the
provisions of Code Section 4999 or being disallowed as deductions to the
Company under Code Section 280G. 
The determination of any reduction in the severance compensation
payments under this Article 6 pursuant to the foregoing provision shall be
made by the Company’s independent public accountants in good faith after
consultation with the Company and Executive, and such determination shall be
conclusive and binding.  The Company
shall cooperate in good faith with the independent public accountants and
Executive in making such determination and in providing the necessary
information for this purpose.

 

6.07                           Survival.  The payment obligations of this Article 6
resulting from Executive’s resignation following a Change in Control shall
survive termination of this Agreement.

 

9

 

ARTICLE 7

 

NONDISCLOSURE

 

7.01                           Disclosure
Prohibited.  Except as permitted or
directed by the Company or as may be required in the proper discharge of
Executive’s employment hereunder, Executive shall not, during the Term or at
any time thereafter, divulge, furnish or make accessible to anyone or use in
any way any confidential, trade secret, privileged or proprietary information
of the Company or its subsidiaries, including without limitation, whether or
not reduced to writing, customer lists, customer files or information, planning
and financial information, contracts, sales and marketing information, business
strategy or opportunities for new or developing business, which Executive has
prepared, acquired or become acquainted with during his employment by the
Company.  Executive acknowledges that the
above-described knowledge or information is the property of the Company or its
subsidiaries that constitutes a unique and valuable asset and represents a
substantial investment by the Company or its subsidiaries, and that any
disclosure or other use of such knowledge or information, other than for the
sole benefit of the Company, would be wrongful and would cause irreparable harm
to the Company.  Executive agrees to at
all times maintain the confidentiality of such knowledge or information, to
refrain from any acts or omissions that would reduce its value to the Company
or its subsidiaries, and to take and comply with reasonable security measures
to prevent any accidental or intentional disclosure or misappropriation.  Upon termination of Executive’s employment
for any reason, Executive shall promptly return to the Company all such
confidential, trade secret, privileged or proprietary information, including
all copies thereof, then in Executive’s possession, control or influence,
whether prepared by Executive or others.

 

7.02                           Public
Information.  The foregoing
obligations of confidentiality shall not apply to any knowledge or information
the entirety of which is published or becomes generally publicly known, other
than as a direct or indirect result of the breach of this Agreement by
Executive or a breach of a confidentiality obligation owed to the Company by
any third party.

 

7.03                           Remedies
For Breach. 
In the event of a breach or threatened breach by Executive of the
provisions of this Article 7, the Company shall be entitled to an
injunction restraining Executive from directly or indirectly disclosing,
disseminating, lecturing upon, publishing or using such confidential, trade
secret, privileged or proprietary information (whether in whole or in part) and
restraining Executive from rendering any services or participating with any
person, firm, corporation, association or other entity to whom such knowledge
or information (whether in whole or in part) has been disclosed, without the
posting of a bond or other security. 
Nothing herein shall be construed as prohibiting the Company from
pursuing any other equitable or legal remedies available to it for such breach
or threatened breach, including the recovery of damages from Executive and
suspension or termination of the severance payments being made to the Executive
under Articles 5 or 6.  Executive and the
Company agree that in the event of a disputed proceeding regarding Executive’s
compliance with the provisions of this Article 7, the prevailing party
shall be entitled to recover his or its costs of litigation and reasonable
attorney fees incurred as a result.

 

10

 

7.04                           Disciplinary
Action.  The Executive understands
and agrees that any violation of this Article 7 while employed by the
Company may result in immediate disciplinary action by the Company, including
termination of employment pursuant to Section 4.05 hereof.

 

7.05                           Survival.  The provisions of this Article 7 shall
survive termination of this Agreement indefinitely.

 

ARTICLE 8

 

NONCOMPETITION AND
NON-RECRUITMENT

 

8.01                           Bases
For Restriction. 
The Company and Executive recognize and agree that: (i) Executive’s
services are of special, unique and extraordinary value to the Company, (ii)
Executive has received, and will in the future receive, substantial amounts of
highly confidential and proprietary information concerning the Company, its
business, customers and employees; and (iii) provision for non-competition and
non-recruitment obligations by Executive is critical to the Company’s continued
economic well-being and protection of the Company’s confidential and
proprietary business information.  In
light of these considerations, this Article 8 sets forth the terms and
conditions of Executive’s obligations of non-competition and non-recruitment
during the Term of, and subsequent to, the termination of this Agreement and/or
Executive’s employment for any reason.

 

8.02                           Noncompetition
Agreement.  Unless the obligation is
waived or limited by the Company as set forth herein, Executive agrees that
during the Term of Executive’s employment pursuant to this Agreement and for a
period of twenty-four (24) months thereafter, Executive will not directly or
indirectly engage in or be interested in any competitive business which offers,
markets or sells its services or products within the territory in which the
Company and its subsidiaries engage, or actively propose to engage, in business
at the time of Executive’s termination. 
Executive shall be deemed to be engaged in or interested in a business
if Executive acts as a stockholder, director, officer, employee, salesman,
sales representative, agent, partner, individual proprietor, consultant or
otherwise, but not if such interest is limited solely to the ownership of 2% or
less of the equity or debt securities of any class of a corporation whose
shares are listed for trading on a national securities exchange or traded in
the over-the-counter market.  Among all
other competitive actions that are likewise restricted, Executive shall not
cause or attempt to cause any existing or prospective customer, vendor or
account who then has a relationship with the Company for current or prospective
business to divert, terminate, limit or in any adverse manner modify, or fail
to enter into any actual or potential business with the Company.

 

8.03                           Company
Waiver.  At its sole option, the
Company may, by express written notice to Executive, waive or limit the time
and/or geographic area in which Executive cannot engage in competitive activity
or the scope of such competitive activity.

 

8.04                           Non-recruitment
Agreement.  For a period of
twenty-four (24) months following termination of Executive’s employment for any
reason, Executive will not initiate or actively participate in any other
employer’s recruitment, solicitation, or hiring of any of the Company’s
employees.

 

11

 

8.05                           Remedies
For Breach. 
Executive agrees that breach by him of the provisions of this Article 8
will cause the Company irreparable harm that is not fully remedied by monetary
damages.  In the event of a breach or
threatened breach by Executive of the provisions of this Article 8, the
Company shall be entitled to an injunction restraining Executive from directly
or indirectly competing or recruiting as prohibited herein, without posting a
bond or other security.  Nothing herein
shall be construed as prohibiting the Company from pursuing any other equitable
or legal remedies available to it for such breach or threatened breach,
including the recovery of damages from Executive and suspension or termination
of the severance payments being made to the Executive under Articles 5 or
6.  Executive and the Company agree that
in event of a disputed proceeding regarding Executive’s compliance with the
provisions of this Article 8, the prevailing party shall be entitled to
recover his or its costs of litigation and reasonable attorney fees incurred as
a result.  To the extent that the
Executive is in violation of any of the provisions contained in this Article 8,
the applicable period shall be tolled during such period of non-compliance, the
intent of which is to provide the Company with the full period of compliance as
stated herein.

 

8.06                           Disciplinary
Action.  The Executive understands
and agrees that any violation of this Article 8 while employed by the
Company may result in immediate disciplinary action by the Company, including
termination of employment pursuant to Section 4.05 hereof.

 

8.07                           Survival.  The obligations contained in this Article 8
shall survive the termination of this Agreement indefinitely.

 

ARTICLE 9

 

INTELLECTUAL PROPERTY

 

9.01                           Disclosure
and Assignment.  Executive will
promptly disclose in writing to the Company complete information concerning
each and every invention, discovery, improvement, device, design, apparatus,
practice, process, method or product, whether patentable or copyrightable or
not, made, developed, perfected, devised, conceived or first reduced to
practice by Executive, either solely or in collaboration with others, during the
period of Executive’s employment hereunder, whether or not during regular
working hours, relating either directly or indirectly to the business,
services, practices or techniques of the Company or its subsidiaries
(hereinafter referred to as “Developments”). 
Executive, to the extent that he has the legal right to do so, hereby
acknowledges that any and all of such Developments are the property of the
Company and hereby assigns and agrees to assign to the Company any and all of
Executive’s right, title and interest in and to any and all of such
Developments.

 

9.02                           Exclusion
Under Minnesota Law.  The provisions of Section 9.01 shall not
apply to any Development meeting the following conditions: (a) such Development
was developed entirely on Executive’s own time; and (b) such Development was
made without the use of any the Company’s equipment, supplies, facility or
trade secret information; and either (c) such Development does not result from
any work performed by Executive for the Company, or (d) such Development does
not relate (i) directly to the business of the Company or (ii) to the Company’s
actual or demonstrably anticipated research or development.

 

12

 

9.03                           Assist
the Company.  Upon request and
whether during the period of Executive’s employment hereunder or thereafter,
Executive will do all lawful acts, including, but not limited to, the execution
of papers and lawful oaths and the giving of testimony, that in the opinion of
the Company, its successors and assigns, may be necessary or desirable in
obtaining, sustaining, reissuing, extending and enforcing United States and
foreign letters patent, including, but not limited to, design patents, or other
applicable registrations, on any and all of such Developments, and for
perfecting, affirming and recording the Company’s complete ownership and title
thereto, and to cooperate otherwise in all proceedings and matters relating
thereto.  Executive will not be entitled
to compensation for acts performed under this Section 9.03 (other than
reimbursement for all reasonable expenses) if the Employee is employed by the
Company at the time such acts are performed. 
If Executive is not employed by the Company at the time such acts are
performed, and if the performance by Executive of such acts causes Executive to
lose compensation from other sources, the Company will pay Executive reasonable
compensation for such acts.

 

9.04                           Keep
and Maintain Records.  Executive will
keep reasonably complete accounts, notes, data and records of all Developments
in the manner and form requested by the Company.  Such accounts, notes, data and records shall
be the property of the Company, and, upon its request, Executive will promptly
surrender same to it or, if not previously surrendered upon its request or
otherwise, Executive will surrender the same, and all but one copy thereof, to
the Company upon the conclusion of his employment.

 

9.05                           Remedies
For Breach. 
Executive agrees that breach by him of the provisions of this Article 9
will cause the Company irreparable harm that is not fully remedied by monetary
damages.  In the event of a breach or
threatened breach by Executive of the provisions of this Article 9, the
Company shall be entitled to an injunction restraining Executive from breach of
this Article 9, without posting a bond or other security.  Nothing herein shall be construed as
prohibiting the Company from pursuing any other equitable or legal remedies
available to it for such breach or threatened breach, including the recovery of
damages from Executive and suspension or termination of the severance payments
being made to the Executive under Articles 5 or 6.  Executive and the Company agree that in event
of a disputed proceeding regarding Executive’s compliance with the provisions of
this Article 9, the prevailing party shall be entitled to recover his or
its costs of litigation and reasonable attorney fees incurred as a result.

 

9.06                           Disciplinary
Action.  The Executive understands
and agrees that any violation of this Article 9 while employed by the
Company may result in immediate disciplinary action by the Company, including
termination of employment pursuant to Section 4.05 hereof.

 

9.07                           Survival.  The obligations contained in this Article 9
shall survive the termination of this Agreement indefinitely.

 

ARTICLE 10

 

MISCELLANEOUS

 

10.01                     Governing
Law.  This Agreement shall be
governed and construed according to the laws of the State of Minnesota without
regard to conflicts of law provisions.

 

13

 

10.02                     Interpretation.  Pursuant to its authority previously granted
and delegated by the Board, the Compensation Committee has the discretion to
interpret, determine, and apply the provisions of this Agreement.

 

10.03                     Headings.  The captions and headings contained herein
are not part of this Agreement, but are only for the convenience of the parties
and do not in any way modify or amend any of the terms, covenants or conditions
of this Agreement.

 

10.04                     Successors.  This Agreement is personal to Executive and
Executive may not assign or transfer any part of his rights or duties
hereunder, or any compensation due to him hereunder, to any other person or
entity.  This Agreement may be assigned
by the Company and the Company shall require any successors or assigns as
defined in Section 6.03 to expressly assume and agree to perform the
Company’s obligations under this Agreement.

 

10.05                     Waiver.  The waiver by the Company of the breach or
nonperformance of any provision of this Agreement by Executive will not operate
or be construed as a waiver of any future breach or nonperformance under any
such provision of this Agreement or any similar agreement with any other
employee.

 

10.06                     Modification.  Other than Executive’s stock option
agreements with the Company as in existence as of the Effective Date of this
Agreement, this Agreement supercedes and replaces any and all prior oral or
written understandings, if any, between the parties relating to the subject
matter of this Agreement, which are hereby revoked.  The parties agree that this Agreement (a) is
the entire understanding and agreement between the parties and (b) is the
complete and exclusive statement of the terms and conditions thereof, and there
are no other written or oral agreements in regard to the subject matter of this
Agreement.  This Agreement shall not be
changed or modified except by a written document signed by the parties hereto.

 

10.07                     Severability
and Blue Penciling.  To the extent
that any provision of this Agreement shall be determined to be invalid or
unenforceable as written, the validity and enforceability of the remainder of
such provision and of this Agreement shall be unaffected.  If any particular provision of this Agreement
shall be adjudicated to be invalid or unenforceable, the Company and Executive
specifically authorize the tribunal making such determination to edit the
invalid or unenforceable provision to allow this Agreement, and the provisions
thereof, to be valid and enforceable to the fullest extent allowed by law or public
policy.

 

10.08                     Notice.  Any notice required or permitted to be given
under this Agreement shall be deemed to have been delivered on the date
following the day the notice is deposited in the United States mail, certified
or registered, postage prepaid, return receipt requested, and addressed as
follows:

 

	
  If to Executive:

  	
   

  	
  Paul F. Foley

  	
   

  
	
   

  	
   

  	
  19 Tall Pines Drive

  	
   

  
	
   

  	
   

  	
  Weston, CT 06883

  	
   

  

 

or
such other address as Executive elects by giving such to the Company with not
less than 30 days advance written notice.

 

14

 

	
  If to the Company:

  	
   

  	
  MAIR Holdings,
  Inc.

  	
   

  
	
   

  	
   

  	
  Fifth Street Towers, Suite 1725

  	
   

  
	
   

  	
   

  	
  150 South Fifth Street

  	
   

  
	
   

  	
   

  	
  Minneapolis, MN 55402

  	
   

  
	
   

  	
   

  	
  Attn: Chief Financial Officer

  	
   

  

 

or
such other address as the Company elects by giving such to Executive with not
less than 30 days advance written notice.

 

10.09                     Arbitration.  All justiciable claims and disputes arising
out of or relating to Executive’s employment relationship with the Company, or
regarding the making or interpretation of this Agreement, including any claim
of fraud in the inducement, shall be decided by binding arbitration in
accordance with the Federal Arbitration Act and the rules of the American
Arbitration Association, unless the parties mutually agree in writing
otherwise.  Among such claims and
disputes, Employee and the Company agree that, to the extent permitted by law,
all those arising out of federal, state, or local statutes, ordinances or
regulations shall be decided by such binding arbitration, including without
limitation those claims and disputes arising under the Age Discrimination in
Employment Act, Title VII of the Civil Rights Act of 1964, the Civil Rights Act
of 1991, the Americans with Disabilities Act, the Employee Retirement Income
Security Act of 1974 (ERISA), the Family and Medical Leave Act, each as may
have been amended, or any state or local discrimination law including the
Minnesota Human Rights Act.  This
agreement to arbitrate does not apply to any claims Executive may have for
workers compensation or unemployment compensation benefits or to any claims the
Company may have for injunctive relief.

 

IN WITNESS WHEREOF the following parties have executed
the above instrument the day and year indicated below.

 

 

	
  MAIR HOLDINGS, INC.

  	
  EXECUTIVE:

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Robert E.
  Weil

  	
   

  	
  /s/ Paul F.
  Foley

  	
   

  
	
   

  	
  Paul F. Foley

  	
   

  
	
   

  	
  Its:

  	
  Chief Financial
  Officer

  	
   

  	
   

  
	
   

  	
   

  
	
  Dated: October
  21, 2004

  	
  Dated: October
  21, 2004

  
						

 

15

 

APPENDIX A

 

RELEASE

 

Definitions.  Specific terms I use in this Release have the
following meanings:

 

1.                                       “I,”
“me,” and “my” include both me and anyone who has or obtains any legal rights
or claims through me.

 

2.                                       “Company”
means MAIR Holdings, Inc., its predecessors, successors, assigns, affiliates,
subsidiaries and related entities, and all of the foregoing entities’ owners,
officers, directors, shareholders, partners, employees, agents, consultants,
representatives, attorneys, trustees, and administrators, and each of their
affiliated entities.

 

3.                                       “My
Claims” means all rights, demands, actions, and causes of action seeking any
relief of any kind, including damages, costs, liabilities, expenses and
compensation of any nature, whether for compensatory or punitive damages,
including but not limited to claims arising under the Age Discrimination in
Employment Act, Title VII of the Civil Rights Act of 1964, the Civil Rights Act
of 1991, the Americans with Disabilities Act, the Employee Retirement Income
Security Act of 1974 (ERISA), the Family and Medical Leave Act, each as may
have been amended, or any state or local discrimination law including the
Minnesota Human Rights Act, and those based on wrongful discharge, breach of an
implied or express contract, promissory estoppel, emotional distress,
defamation, misrepresentation, fraud, breach of public policy, common law, good
faith and fair dealing, invasion of privacy, negligence or other breach of
duty, retaliation, harassment or any other claim that I now have or that may
later arise out of the relationship between me and the Company to date, whether
known or unknown, foreseen or unforeseen, at the time of signing this
Release.  This Release shall not affect
my rights regarding acts occurring after the date I sign this Release or my
right to challenge the enforceability of this Release.

 

Agreement
to Release My Claims. 
I am receiving certain benefits from the Company that are separately
stated in my Management Compensation Agreement. 
In exchange for those benefits and by signing this Release, I am
agreeing to give up forever all My Claims against the Company.  The benefits I am receiving is full and fair payment for the release of all My
Claims.  I acknowledge that the Company
does not owe me anything, directly or indirectly, in addition to what I will be
receiving under my Management Compensation Agreement.

 

Agreement
to Not Sue.  I
also represent that I have not and will not institute any lawsuit against or
otherwise sue the Company based on My Claims. 
If I do sue the Company regarding My Claims, I agree that this Release
shall be a total and complete bar to any recovery or relief by me.

 

No Admissions.  I agree that the Company does not admit that
it is or may be in any way responsible or legally obligated to me in any way.

 

16

 

Consideration
of Agreement.  I
agree that the Company allowed me up to 21 days from the day I received this
Release to review it and sign it.  I
understand that the Company told me that I could consult with a lawyer prior to
signing if I wanted to.

 

Right
to Rescind.  I
understand that I may rescind (that is, cancel) this Release within seven (7)
calendar days of signing it to reinstate any claims I believe I may have under
the federal Age Discrimination in Employment Act and within fifteen (15)
calendar days of signing it to reinstate any claims I believe I may have under
the Minnesota Human Rights Act.  My
Management Compensation Agreement severance payments will not be effective or
enforceable until these rescission periods expire without my having exercised
my right to rescind.  To be effective, my
rescission, if any, must be in writing and delivered to the Company to the
attention of Chief Financial Officer, MAIR Holdings, Inc., Fifth Street Towers,
Suite 1725, 150 South Fifth Street, Minneapolis, Minnesota 55402, either by
hand or by mail within the relevant rescission period.  If sent by mail, the rescission must be (a)
postmarked within the 7-day or 15-day period, (b) properly addressed to the
Company, and (c) sent by Certified Mail, Return Receipt Requested.

 

I have read this Release
carefully and understand all its terms. 
I have had an opportunity to discuss this Release with legal counsel of
my own choosing.  I am signing this Release
voluntarily and without duress.

 

 

	
  Dated:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Paul F. Foley

  

 

17

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