Document:

Exhibit 4.1

 

 

Supplemental Indenture

 

 

Dated July 1, 2006

 

 

 

 

KENTUCKY UTILITIES COMPANY

 

TO

 

U.S. BANK NATIONAL ASSOCIATION

AND RICHARD PROKOSCH,

AS TRUSTEES

 

 

(SUPPLEMENTAL TO THE INDENTURE OF MORTGAGE OR DEED OF
TRUST DATED MAY 1, 1947, AS AMENDED, HERETOFORE EXECUTED BY KENTUCKY UTILITIES
COMPANY TO CONTINENTAL ILLINOIS NATIONAL BANK AND TRUST COMPANY OF CHICAGO AND
EDMOND B. STOFFT, AS TRUSTEES.)

 

 

 

 

(PROVIDING
FOR FIRST MORTGAGE BONDS, 

POLLUTION CONTROL SERIES NO. 20

DUE JUNE 1, 2036)

 

 

 

THIS SUPPLEMENTAL INDENTURE, dated July 1, 2006, made
and entered into by and between KENTUCKY UTILITIES COMPANY, a corporation
organized and existing under the laws of the Commonwealths of Kentucky and
Virginia (hereinafter commonly referred to as the “Company”), and U.S. BANK
NATIONAL ASSOCIATION, a national banking association having its office or place
of business in the City of Chicago, Cook County, State of Illinois, formerly
named First Trust of Illinois, National Association, successor to Bank of America
Illinois, formerly named Continental Bank, National Association and Continental
Illinois National Bank and Trust Company of Chicago (hereinafter commonly
referred to as the “Trustee”), and Richard Prokosch (successor Co-Trustee), of
the City of St. Paul, County of Ramsey, State of Minnesota, as Trustees under
the Indenture of Mortgage or Deed of Trust dated May 1, 1947, as modified and
amended by the several indentures supplemental thereto heretofore executed by
and between the Company and the Trustees from time to time under said Indenture
of Mortgage or Deed of Trust; said Indenture of Mortgage or Deed of Trust, as
so modified and amended, being hereinafter commonly referred to as the “Indenture”;
and said Trustees under the Indenture being hereinafter commonly referred to as
the “Trustees” or the “Trustees under the Indenture”; Witnesseth:

WHEREAS, the Company, by resolution of its Board of
Directors or the Pricing Committee thereof duly adopted, has determined to
issue forthwith an additional series of its bonds to be secured by the
Indenture, as hereby modified and amended, such bonds to be known and
designated as First Mortgage Bonds, Pollution Control Series No. 20
(hereinafter sometimes referred to as the “bonds of Series No. 20” or the “bonds
of said Series”), and to be authorized, authenticated and issued only as
registered bonds without coupons; and

WHEREAS, the County of
Carroll in the Commonwealth of Kentucky (the “County”) has agreed to issue
$16,693,620 in principal amount of its Environmental Facilities Revenue Bonds,
2006 Series A (Kentucky Utilities Company Project) (the “Revenue Bonds”), which
will be issued pursuant to the provisions of the Indenture of Trust dated as of
June 1, 2006 (the “County Indenture”), between the County and Deutsche Bank
Trust Company Americas, as Trustee, Paying Agent and Bond Registrar (said
Trustee or any successor trustee under the County Indenture, hereinafter
mentioned, being hereinafter referred to as the “County Trustee”); and

WHEREAS, the proceeds of the Revenue Bonds (other than
any accrued interest, if any, thereon) will be loaned by the County to the
Company pursuant to the provisions of the Loan Agreement, dated as of June 1,
2006, between the County and the Company (the “Agreement”), to finance a
portion of the costs of construction, acquisition, installation and equipping
of certain solid waste disposal facilities to serve the Ghent Generating
Station of the Company, which facilities are hereinafter sometimes referred to as the “Project,”
which Project is located in the County and which Project is more fully
described in Exhibit A to the Agreement; and

WHEREAS, payments by the
Company under and pursuant to the Agreement have been assigned by the County to
the County Trustee in order to secure the payment of the Revenue Bonds; and in
order to further secure the payment of the Revenue Bonds, the Company desires
to issue its bonds of Series No. 20 to the County Trustee as provided in the
Agreement; and

 

WHEREAS, the Company desires, in accordance with the
provisions of Article I, Section 6(e) of Article II and Article XVI of the
Indenture, to execute this supplemental indenture for the purpose of creating
and authorizing its bonds of Series No. 20 and modifying or amending
certain provisions of the Indenture in the particulars and to the extent
hereinafter in this supplemental indenture specifically provided; and

WHEREAS, the execution and delivery by the Company of
this supplemental indenture have been duly authorized by the Board of Directors
of the Company or the Pricing Committee thereof, and the Company has requested,
and hereby requests, the Trustees to enter into and join with the Company in
the execution and delivery of this supplemental indenture; and

WHEREAS, the bonds of Series No. 20
are to be authorized, authenticated and issued only in the form of registered
bonds without coupons, and each of such bonds shall be substantially in the
following form, to wit:

(Form of face of bond of Series No. 20)

	
  

  	
  This bond is nontransferable except as may be
  required to effect a transfer to any successor trustee under the Indenture of
  Trust dated as of June 1, 2006, hereinafter referred to.

  	
   

  
	
   

  

 

	
  No.

  	
   

  	
   

  	
  $

  	
   

  

 

Kentucky Utilities Company

First Mortgage Bond, Pollution Control Series No. 20

Due June 1, 2036

Kentucky Utilities Company, a Kentucky and Virginia
corporation (hereinafter referred to as the “Company”), for value received,
hereby promises to pay to Deutsche Bank Trust Company Americas, as Trustee
under the Indenture of Trust (the “County Indenture”) dated as of June 1, 2006,
from the County of Carroll, Kentucky (the “County”) to Deutsche Bank Trust
Company Americas, or any successor trustee under the County Indenture (the “County
Trustee”), the principal sum of Sixteen Million Six Hundred Ninety-Three
Thousand Six Hundred Twenty Dollars on the Demand Redemption Date, as
hereinafter defined, and to pay on the Demand Redemption Date to the County
Trustee interest on said sum from the Initial Interest Accrual Date, as
hereinafter defined, to the Demand Redemption Date, at the interest rate or
rates determined for the “Interest Rate Mode” (as described in Section 2.02 of
the County Indenture) applicable to the Revenue Bonds referred to on the
reverse hereof as selected from time to time by the Company, subject to the
provisions hereinafter set forth in the event of a rescission of a Redemption
Demand, as hereinafter defined.  Both the
principal of and the interest on this bond shall be payable at the office or
agency of the Company in Chicago, Illinois, in any coin or currency of the
United States of America which at the time of payment is legal tender for
public and private debts.

The provisions of this bond are continued on the
reverse side hereof and such continued provisions shall have the same effect,
for all purposes, as though fully set forth at this place.  

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This bond shall not be valid or become obligatory for
any purpose unless and until it shall have been authenticated by the execution
by the Trustee or its successor in trust under the Indenture of the Trustee’s
Certificate endorsed hereon.

IN WITNESS WHEREOF, Kentucky Utilities Company has
caused this bond to be executed in its name by the manual or facsimile
signature of its President or one of its Vice-Presidents, and its corporate
seal or a facsimile thereof to be hereto affixed or imprinted hereon and
attested by the manual or facsimile signature of its Secretary or one of its
Assistant Secretaries.

	
  Dated as of 

  	
   

  	
  , 2006

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Kentucky Utilities Company

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
   

  	
  Vice
  President

  
	
   

  	
   

  	
   

  
	
  Attest:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Secretary

  	
   

  	
   

  	
   

  
							

 

(Form of reverse side of bond of Series No. 20)

This bond is one of the bonds of the Company issued
and to be issued from time to time under and in accordance with and all secured
by the indenture of mortgage or deed of trust dated May 1, 1947, executed and
delivered by the Company to U.S. Bank National Association (formerly named
First Trust of Illinois, National Association, successor to Bank of America
Illinois, formerly Continental Bank, National Association and formerly
Continental Illinois National Bank and Trust Company of Chicago, and
hereinafter referred to as the “Trustee”) and Edmond B. Stofft, as Trustees,
and the indentures supplemental thereto heretofore executed and delivered by
the Company to the Trustees under said indenture of mortgage, including the
indenture supplemental thereto dated July 1, 2006, executed and delivered by
the Company to said U.S. Bank National Association and Richard Prokosch (successor
Co-Trustee), as Trustees (collectively the “Trustees”), prior to the
authentication of this bond (said indenture of mortgage and said supplemental
indentures being hereinafter referred to, collectively, as the “Indenture”).  Reference to the Indenture and to all
supplemental indentures, if any, hereafter executed pursuant to the Indenture
is hereby made for a description of the property mortgaged and pledged, the
nature and extent of the security and the rights of the holders and registered
owners of said bonds and of the Trustees and of the Company in respect of such
security.  By the terms of the Indenture,
the bonds to be secured thereby are issuable in series which may vary as to
date, amount, date of maturity, rate of interest, redemption provisions, medium
of payment and in other respects as in the Indenture provided.

This bond is one of a series of bonds of the Company
issued under the Indenture and designated as First Mortgage Bonds, Pollution
Control Series No. 20 (hereinafter called the “bonds of Series No. 20” or the “bonds
of said Series”).  The bonds of Series
No. 20 have been issued to the County Trustee under the County Indenture to
secure payment of the Environmental 

 3
 

 

Facilities Revenue Bonds, 2006 Series A (Kentucky
Utilities Company Project) (the “Revenue Bonds”), issued by the County under
the County Indenture, the proceeds of which (other than any accrued interest
thereon) have been loaned to the Company pursuant to the provisions of the Loan
Agreement dated as of June 1, 2006 (the “Agreement”), between the Company and
the County.

Except as provided in the next succeeding paragraph,
in the event of a default under Section 9.1 of the Agreement or in the event of
a default in the payment of the principal of, premium, if any, or interest (and
such default in the payment of interest continues for the full grace period, if
any, permitted by the County Indenture and the Revenue Bonds) on the Revenue
Bonds, whether at maturity, by tender for purchase, by acceleration, by sinking
fund, redemption or otherwise, as and when the same becomes due, the bonds of
Series No. 20 shall
be redeemable in whole upon receipt by the Trustee of a written demand
(hereinafter called a “Redemption Demand”) from the County Trustee stating that
there has been such a default, stating that it is acting pursuant to the
authorization granted by Section 9.02(c) of the County Indenture, specifying
the last date to which interest on the Revenue Bonds has been paid (such date
being hereinafter referred to as the “Initial Interest Accrual Date”) and
demanding redemption of the bonds of Series No. 20.  The Trustee shall, within 10 days after
receiving such Redemption Demand, mail a copy thereof to the Company marked to
indicate the date of its receipt by the Trustee.  Promptly upon receipt by the Company of such
copy of a Redemption Demand, the Company shall fix a date on which it will
redeem the bonds of Series No. 20 so demanded to be redeemed (hereinafter
called the “Demand Redemption Date”). 
Notice of the date fixed as and for the Demand Redemption Date shall be
mailed by the Company to the Trustee at least 30 days prior to such Demand
Redemption Date.  The date to be fixed by
the Company as and for the Demand Redemption Date may be any date up to and
including the earlier of (i) the 120th day after receipt by the Trustee of the
Redemption Demand or (ii) June 1, 2036, provided that if the Trustee shall not
have received such notice fixing the Demand Redemption Date within 90 days
after receipt by it of the Redemption Demand, the Demand Redemption Date shall
be deemed to be the earlier of (i) the 120th day after receipt by the Trustee
of the Redemption Demand or (ii) June 1, 2036. 
The Trustee shall mail notice of the Demand Redemption Date (such notice
being hereinafter called the “Demand Redemption Notice”) to the County Trustee
not more than 10 nor less than five days prior to the Demand Redemption
Date.  Notwithstanding the foregoing, if
a default to which this paragraph is applicable is existing on June 1, 2036, such
date shall be deemed to be the Demand Redemption Date without further action
(including actions specified in this paragraph) by the County Trustee, the
Trustee or the Company.  The bonds of
Series No. 20 shall be redeemed by the Company on the Demand Redemption Date,
upon surrender thereof by the County Trustee to the Trustee, at a redemption
price equal to the principal amount thereof plus accrued interest thereon at
the rate or rates then applicable to the Revenue Bonds or determined under the
provisions of the County Indenture from the Initial Interest Accrual Date to
the Demand Redemption Date.  If a
Redemption Demand is rescinded by the County Trustee by written notice to the
Trustee prior to the Demand Redemption Date, no Demand Redemption Notice shall
be given, or, if already given, shall be automatically annulled, and interest
on the bonds of Series No. 20 shall cease to accrue, all interest accrued
thereon shall be automatically rescinded and cancelled and the Company shall
not be obligated to make any payments of principal of or interest on the bonds
of said Series; but no such rescission shall extend to or affect any subsequent
default or impair any right consequent thereon.

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In the event that all of the bonds outstanding under
the Indenture shall have become immediately due and payable, whether by
declaration or otherwise, and such acceleration shall not have been annulled,
the bonds of Series No. 20 shall bear interest at the rate or rates applicable
to the Revenue Bonds from the Initial Interest Accrual Date, as specified in a
written notice to the Trustee from the County Trustee, and the principal of and
interest on the bonds of said Series from the Initial Interest Accrual Date
shall be payable in accordance with the provisions of Article X of the Indenture.

Upon payment of the principal of and premium, if any,
and interest on the Revenue Bonds, whether at maturity or prior to maturity by
redemption or otherwise, and the surrender thereof to and cancellation thereof
by the County Trustee (other than any Revenue Bond that was cancelled by the
County Trustee and for which one or more other Revenue Bonds were delivered and
authenticated pursuant to the County Indenture in lieu of or in exchange or
substitution for such cancelled Revenue Bond), or upon provision for the
payment thereof having been made in accordance with the County Indenture, bonds
of Series No. 20 in a principal amount equal to the principal amount of the
Revenue Bonds so surrendered and cancelled or for the provision for which
payment has been made shall be deemed fully paid and the obligations of the
Company thereunder shall be terminated, and such bonds of Series No. 20 shall
be surrendered by the County Trustee to the Trustee and shall be cancelled by
the Trustee.  From and after the Release
Date (as defined below), the bonds of Series No. 20 shall be deemed fully paid,
satisfied and discharged and the obligations of the Company hereunder and
thereunder shall be terminated. The Release Date shall be the date that the
Bond Insurer (as such term is defined in the County Indenture), at the request
of the Company, consents to the release of the bonds of this Series, as
security for the Revenue Bonds, provided that in no event shall that date be
later than the date as of which all bonds issued under the Indenture prior to
the date of initial issuance of this bond (and excluding bonds of Series
Nos. 11, 12, 13, 14, 15, 16, 17, 18, 19 and 20) have been retired through
payment, redemption or otherwise (including those bonds “deemed to be paid”
within the meaning of that term as used in Article XII of the Indenture) at,
before or after the maturity thereof.  On
the Release Date, the bonds of Series No. 20 shall be surrendered by the County
Trustee to the Trustee whereupon the bonds of Series No. 20 so surrendered
shall be cancelled by the Trustee.

No recourse shall be had for the payment of the
principal of or interest on this bond, or for any claim based hereon, or
otherwise in respect hereof or of the Indenture or any indenture supplemental
thereto, to or against any incorporator, stockholder, officer or director,
past, present or future, of the Company, or of any predecessor or successor
corporation, either directly or through the Company or such predecessor or
successor corporation, under any constitution or statute or rule of law, or by
the enforcement of any assessment or penalty, or otherwise, all such liability
of incorporators, stockholders, directors and officers being waived and
released by the registered owner hereof by the acceptance of this bond and
being likewise waived and released by the terms of the Indenture.

This bond is nontransferable except as may be required
to effect a transfer to any successor trustee under the County Indenture.  Any such transfer may be made by the
registered owner hereof, in person or by attorney duly authorized, at the
principal office or place of business of the Trustee under the Indenture, upon
the surrender and cancellation of this bond and the payment of any stamp tax or
other governmental charge, and upon any such transfer a new 

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registered bond or bonds without coupons, of the same
series and for the same aggregate principal amount, will be issued to the
transferee in exchange herefor.

AND WHEREAS, there is to be endorsed on each of the
bonds of Series No. 20 (whether in temporary or definitive form) a certificate
of the Trustee substantially in the following form, to-wit:

Trustee’s Certificate

This bond is one of the bonds of the series designated
therein, described in the within mentioned Indenture.

	
  

  	
  U.S. BANK NATIONAL ASSOCIATION

  
	
   

  	
  as Trustee

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
   

  	
  Authorized
  Officer

  

NOW, THEREFORE, in consideration of the premises and
of the sum of One Dollar ($1.00) duly paid by the Trustee to the Company, and
of other good and valuable considerations, the receipt whereof is hereby
acknowledged, and for the purpose of further assuring to the Trustees under the
Indenture their title to, or lien upon, the property hereinafter described,
under and pursuant to the terms of the Indenture and for the purpose of further
securing the due and punctual payment of the principal of and interest and the
premium, if any, on all bonds which have been heretofore or shall be hereafter
issued under the Indenture and indentures supplemental thereto and which shall
be at any time outstanding thereunder and secured thereby, and for the purpose
of securing the faithful performance and observance of all the covenants and
conditions set forth in the Indenture and/or in any indenture supplemental
thereto, the Company has given, granted, bargained, sold, transferred,
assigned, pledged, mortgaged, warranted the title to and conveyed, and by these
presents does give, grant, bargain, sell, transfer, assign, pledge, mortgage,
warrant the title to and convey unto U.S. BANK NATIONAL ASSOCIATION AND RICHARD
PROKOSCH, as Trustees under the Indenture as therein provided, and the
successors in the trusts thereby created, and to their assigns, all the right,
title and interest of the Company in and to any and all premises, plants,
property, leases and leaseholds, franchises, permits, rights and powers, of
every kind and description, real and personal (1) which have been acquired by
the Company through construction, purchase, consolidation or merger, or
otherwise, and which at the date hereof are owned by the Company, and (2) which
shall be acquired by the Company, through construction, purchase,
consolidation, merger, or otherwise, on or subsequent to the date hereof,
together, in each case, with the rents, issues, products and profits therefrom,
excepting, however, and there is
hereby expressly reserved and excluded from the lien and effect of the
Indenture and of this supplemental indenture, all right, title and
interest of the Company, now owned, or hereinafter acquired, in and to (a) all
cash, bonds, shares of stock, obligations and other securities not deposited
with the Trustee or Trustees under the Indenture, and (b) all accounts and
bills receivable, judgments (other than for the recovery of real property or
establishing a lien or charge thereon or right therein) and choses in action
not specifically assigned to and pledged with the Trustee or Trustees under the
Indenture, and (c) all lamps and 

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supplies, machinery, appliances, goods, wares,
merchandise, commodities, equipment, apparatus, materials and/or supplies
acquired or held by the Company for sale, lease, rental or consumption in the
ordinary course of business, and (d) the last day of each of the demised terms
created by any lease of property leased to the Company and under each and every
renewal of any such lease, the last day of each and every such demised term
being hereby expressly reserved to and by the Company, and (e) all gas, oil,
ore, copper and other minerals now or hereafter existing upon, within or under
any real estate of the Company subject to, or hereby subjected to, the lien of
the Indenture and (f) the real estate expressly excepted from the lien and
operation of the Indenture.

TO HAVE AND TO HOLD all said property, right and
interests hereinabove described or referred to and conveyed, assigned, pledged
or mortgaged, or intended to be conveyed, assigned, pledged or mortgaged,
together with the rents, issues, products and profits therefrom unto said U.S.
BANK NATIONAL ASSOCIATION AND RICHARD PROKOSCH, as Trustees under the
Indenture, as hereby modified and amended, and unto their successor or
successors in trust forever, BUT IN TRUST NEVERTHELESS, upon the trusts, for
the purposes and subject to all the terms, conditions, provisions and
restrictions of the Indenture, as hereby modified and amended.

And upon the considerations and for the purposes
aforesaid, and in order to provide, pursuant to the terms of the Indenture, for
the issuance under the Indenture, as hereby modified and amended, of bonds of
Series No. 20 and to fix the terms, provisions and characteristics of the bonds
of said Series, and to modify and amend the Indenture in the particulars and to
the extent hereinafter in this supplemental indenture specifically provided,
the Company hereby covenants and agrees with the Trustees as follows:

ARTICLE I.

Section 1.  A series of bonds issuable under the
Indenture, as hereby modified and amended, and to be known and designated as “First
Mortgage Bonds, Pollution Control Series No. 20” (hereinafter sometimes
referred to as the “bonds of Series No. 20” or the “bonds of said Series”), and
which shall be executed, authenticated and issued only in the form of
registered bonds without coupons, in a denomination or denominations equal to the principal amount of the
Revenue Bonds from time to time outstanding.  The bonds of said Series shall be payable as
provided in Section 3 of this Article and shall be substantially in the form
thereof hereinbefore recited.  Each bond
of said Series shall be issued to and registered in the name of the County
Trustee and shall be nontransferable except as required to effect any transfer
of bonds of said Series to any successor trustee under the County
Indenture.  Each bond of said Series
shall be dated as of the date of issuance of the Revenue Bonds.

Section 2.  The bonds of Series No. 20 shall bear
interest, and the principal thereof and interest thereon shall be payable, only
to the extent and in the manner provided in Section 3 of this Article.  The bonds of said Series shall mature on June
1, 2036.  The bonds of said Series shall
be payable, both as to principal and interest, at the office or agency of the
Company in Chicago, Illinois in any coin or currency of the United States of
America which at the time of payment is legal tender for public and private
debts.

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The bonds of said Series shall be deemed fully paid,
and the obligations of the Company thereunder shall be terminated, to the
extent and in the manner provided in Section 4 of this Article.

Section 3.  (a)  Except as provided in
paragraph (b) of this Section 3, in the event of a default under Section 9.1 of
the Agreement or in the event of a default in the payment of the principal of,
premium, if any, or interest (and such default in the payment of interest
continues for the full grace period, if any, permitted by the County Indenture
and the Revenue Bonds) on the Revenue Bonds, whether at maturity, by tender for
purchase, by acceleration, by sinking fund, redemption or otherwise, as and
when the same becomes due, the bonds of Series No. 20 shall be redeemable in
whole upon receipt by the Trustee of a written demand (hereinafter in this
Article called a “Redemption Demand”) from the County Trustee stating that
there has been such a default, stating that it is acting pursuant to the
authorization granted by Section 9.02(c) of the County Indenture, specifying
the last date to which interest on the Revenue Bonds has been paid (such date
being hereinafter referred to in this Article as the “Initial Interest Accrual
Date”) and demanding redemption of the bonds of Series No. 20.  The Trustee shall, within 10 days after
receiving such Redemption Demand, mail a copy thereof to the Company marked to
indicate the date of its receipt by the Trustee.  Promptly upon receipt by the Company of such
copy of a Redemption Demand, the Company shall fix a date on which it will
redeem the bonds of Series No. 20 so demanded to be redeemed (hereinafter in
this Article called the “Demand Redemption Date”).  Notice of the date fixed as and for the
Demand Redemption Date shall be mailed by the Company to the Trustee at least
30 days prior to such Demand Redemption Date. 
The date to be fixed by the Company as and for the Demand Redemption
Date may be any date up to and including the earlier of (i) the 120th day after
receipt by the Trustee of the Redemption Demand or (ii) June 1, 2036, provided
that if the Trustee shall not have received such notice fixing the Demand
Redemption Date within 90 days after receipt by it of the Redemption Demand,
the Demand Redemption Date shall be deemed to be the earlier of (i) the 120th
day after receipt by the Trustee of the Redemption Demand or (ii) June 1,
2036.  The Trustee shall mail notice of
the Demand Redemption Date (such notice being hereinafter in this Article
called the “Demand Redemption Notice”) to the County Trustee not more than 10
nor less than five days prior to the Demand Redemption Date.  Notwithstanding the foregoing, if a default
to which this paragraph is applicable is existing on June 1, 2036, such date
shall be deemed to be the Demand Redemption Date without further action
(including actions specified in this paragraph) by the County Trustee, the
Trustee or the Company.  The bonds of
Series No. 20 shall be redeemed by the Company on the Demand Redemption Date,
upon surrender thereof by the County Trustee to the Trustee, at a redemption
price equal to the principal amount thereof, plus accrued interest thereon at
the rate or rates then applicable to the Revenue Bonds or determined under the
provisions of the County Indenture from the Initial Interest Accrual Date to
the Demand Redemption Date.  If a
Redemption Demand is rescinded by the County Trustee by written notice to the
Trustee prior to the Demand Redemption Date, no Demand Redemption Notice shall
be given, or, if already given, shall be automatically annulled, and interest
on the bonds of Series No. 20 shall cease to accrue, all interest accrued
thereon shall be automatically rescinded and cancelled and the Company shall
not be obligated to make any payments of principal of or interest on the bonds
of this Series; but no such rescission shall extend to or affect any subsequent
default or impair any right consequent thereon.

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(b)           In the event that all of the bonds
outstanding under the Indenture shall have become immediately due and payable,
whether by declaration or otherwise, and such acceleration shall not have been
annulled, the bonds of Series No. 20 shall bear interest at the rate or rates
applicable to the Revenue Bonds from the Initial Interest Accrual Date, as
specified in a written notice to the Trustee from the County Trustee, and the
principal of and interest on the bonds of said Series from the Initial Interest
Accrual Date shall be payable in accordance with the provisions of Article X of
the Indenture.

(c)           Anything herein contained to the
contrary notwithstanding, the Trustee is not authorized to take any action
pursuant to a Redemption Demand or a rescission thereof or a written notice
required by paragraph (b) of this Section 3, and such Redemption Demand,
rescission or notice shall be of no force or effect, unless it is executed in
the name of the County Trustee by one of its Vice-Presidents.

Section 4.  Upon payment of the principal of and premium,
if any, and interest on the Revenue Bonds, whether at maturity or prior to
maturity by redemption or otherwise, and the surrender thereof to and
cancellation thereof by the County Trustee, or upon provision for the payment
thereof having been made in accordance with Article VIII of the County
Indenture, bonds of Series No. 20 in a principal amount equal to the principal
amount of the Revenue Bonds so surrendered and cancelled shall be surrendered
by the County Trustee to the Trustee, whereupon the bonds of said Series so
surrendered shall be deemed fully paid and the obligations of the Company
thereunder shall be terminated, and such bonds of said Series shall be
cancelled and destroyed by the Trustee by shredding, compacting or other
suitable means and a certificate of such cancellation and destruction shall be
delivered to the Company.  From and after
the Release Date (as defined below), the bonds of Series No. 20 shall be deemed
fully paid, satisfied and discharged and the obligations of the Company
hereunder and thereunder shall be terminated. 
The Release Date shall be the date that the Bond Insurer (as such term
is defined in the County Indenture), at the request of the Company, consents to
the release of the bonds of this Series, as security for the Revenue Bonds,
provided that in no event shall that date be later than the date as of which all bonds issued under
the Indenture prior to the date of initial issuance of the bonds of said Series
(and excluding bonds of said Series and First Mortgage Bonds, Pollution Control
Series Nos. 11, 12, 13, 14, 15, 16, 17, 18 and 19) have been retired
through payment, redemption or otherwise (including those Bonds “deemed to be
paid” within the meaning of that term used in Article XII of the Indenture) at,
before or after the maturity thereof.  On
the Release Date, the bonds of said Series shall be surrendered by the County
Trustee to the Trustee whereupon the bonds of Series No. 20 so surrendered
shall be cancelled by the Trustee.

ARTICLE II.

Section 1.  The bonds of Series No. 20 shall be executed on
behalf of the Company and sealed with the corporate seal of the Company, all in
the manner provided in or permitted by Section 6 of Article I of the Indenture,
as follows:

(a)           bonds
of said Series executed on behalf of the Company by its President or a Vice-President
and by its Secretary or an Assistant Secretary may be so executed by the manual
or facsimile signature of such President or Vice-President and of such
Secretary or Assistant Secretary, as the case may be, of the Company, or of any
person or 

 9
 

 

persons who shall
have been such officer or officers, as the case may be, of the Company on or
subsequent to the date of this supplemental indenture, notwithstanding that he
or they may have ceased to be such officer or officers of the Company at the
time of the actual execution, authentication, issue or delivery of any of such
bonds, and any such manual or facsimile signature or signatures of such officer
or officers of the Company, as above provided, on any such bonds shall
constitute execution of such bonds on behalf of the Company by such officer or
officers of the Company for the purposes of the Indenture, as hereby modified
and amended, and shall be valid and effective for all purposes, provided that all bonds of said Series shall always be
executed on behalf of the Company by the manual or facsimile signature of its
President or a Vice-President and of its Secretary or an Assistant Secretary,
as above provided, and provided, further, that
none of such bonds shall be executed on behalf of the Company by the manual or
facsimile signature of the same officer or person acting in more than one
capacity; and

(b)           such
corporate seal of the Company may be facsimile, and the bonds of said Series on
which such facsimile seal of the Company shall be affixed, impressed, imprinted
or reproduced shall be deemed to be sealed with the corporate seal of the
Company for the purposes of the Indenture as hereby modified and amended, and
such facsimile seal shall be valid and effective for all purposes.

ARTICLE III.

Section 10 of Article III of the Indenture is hereby
further amended to provide that the Company agrees to observe and comply with
the provisions of said section as so amended hereby so long as the bonds of
Series No. 20 are outstanding.  The bonds
outstanding on the date hereof to which said Section 10 applies are Series P,
Nos. 10, 11, 12, 13, 14, 15, 16, 17, 18 and 19.

No covenant to provide a maintenance and renewal fund
is made in respect of the bonds of Series No. 20.  The absence of such a covenant shall not,
however, limit the right of the Company to use, apply or certify bonds of
Series No. 20 to comply with, or to satisfy its obligations under, any
provision of the Indenture (including, without limitation, the provisions of
Section 1 of Article VII of the Indenture).

The bonds of Series No. 20 are intended to be used as
collateral for and to secure payment of the Revenue Bonds, as hereinabove
provided, and, accordingly, the bonds of Series No. 20 shall be dated as of the
date of issuance of the Revenue Bonds and shall bear interest from the Initial
Interest Accrual Date, as hereinabove provided, notwithstanding anything to the
contrary contained in the Indenture with respect to the dating of bonds and the
date from which interest on bonds shall accrue.

ARTICLE IV.

Section 1.  Capitalized terms used in this Article IV and
not otherwise defined in this Indenture shall have the meanings set forth in
the County Indenture.

Section 2.  Subsequent to the issuance of the Revenue
Bonds, the Company shall not be required to establish compliance with the net
earnings requirements of Section 5 of Article II of 

 10
 

 

the Indenture in connection with any Conversion of
Interest Rate Mode on the Revenue Bonds or any change in length of Long Term
Rate Period.  So long as the Revenue
Bonds operate in any Interest Rate Mode other than the Long Term Rate where the
Long Term Rate Period ends on the day prior to the final maturity of the
Revenue Bonds, the Company shall include, for purposes of any required
calculation of such net earnings requirement (as such requirement shall then be
in effect), interest on the bonds of said Series at an annual rate of 15%.  If at any time the interest rate on the
Revenue Bonds is a Long Term Rate where the Long Term Rate Period ends on the
day prior to the final maturity of the Revenue Bonds, the Company may include,
for purposes of any calculation of such net earnings requirement, interest on
the bonds of said Series at the Long Term Rate then borne by the Revenue Bonds.

ARTICLE V.

Section 1.  The provisions of this supplemental indenture
shall be effective from and after the execution hereof; and the Indenture, as
hereby modified and amended, shall remain in full force and effect.

Section 2.  Each holder or registered owner of a bond of
any series not now outstanding which shall be authenticated by the Trustee and
issued by the Company under the Indenture (as hereby amended) subsequent to the
execution of this supplemental indenture and of any coupon pertaining to any
such bond, by the acquisition, holding or ownership of such bond and coupon,
thereby consents and agrees to, and shall be bound by, the provisions of this
supplemental indenture.

Section 3.  Each reference in the Indenture, or in this
supplemental indenture, to any article, section, term or provision of the
Indenture shall mean and be deemed to refer to such article, section, term or
provision of the Indenture, as hereby modified and amended, except where the
context otherwise indicates.

Section 4.  All the covenants, provisions, stipulations
and agreements in this supplemental indenture contained are and shall be for
the sole and exclusive benefit of the parties hereto, their successors and
assigns, and of the holders and registered owners from time to time of the
bonds and of the coupons issued and outstanding from time to time under and
secured by the Indenture, as hereby modified and amended.

This supplemental indenture has been executed in a
number of identical counterparts, each of which so executed shall be deemed to
be an original.

At the time of the execution of this supplemental
indenture, the aggregate principal amount of all indebtedness outstanding, or
to be outstanding, under and secured by the Indenture, as hereby modified and amended, is $342,257,520, consisting of and represented
by First Mortgage Bonds, Series P and Pollution Control Series No. 10, No. 11,
No. 12, No. 13, No. 14, No. 15, No. 16, No. 17, No. 18, No. 19 and No. 20 of
the Company, as follows:

 

 11

 

	
  Series

  	
   

  	
  Interest

  Rate

  	
   

  	
  Maturity Date

  	
   

  	
  Principal

  Amount

  	
   

  
	
  P

  	
   

  	
  7.92

  	
   

  	
  May 15, 2007

  	
   

  	
  $53,000,000

  	
   

  
	
  No. 10

  	
   

  	
  Variable

  	
   

  	
  November
  l, 2024

  	
   

  	
  54,000,000

  	
   

  
	
  No. 11

  	
   

  	
  Variable

  	
   

  	
  May
  1, 2023

  	
   

  	
  12,900,000

  	
   

  
	
  No. 12

  	
   

  	
  Variable

  	
   

  	
  February
  1, 2032

  	
   

  	
  20,930,000

  	
   

  
	
  No. 13

  	
   

  	
  Variable

  	
   

  	
  February
  1, 2032

  	
   

  	
  2,400,000

  	
   

  
	
  No. 14

  	
   

  	
  Variable

  	
   

  	
  February
  1, 2032

  	
   

  	
  2,400,000

  	
   

  
	
  No. 15

  	
   

  	
  Variable

  	
   

  	
  February
  1, 2032

  	
   

  	
  7,400,000

  	
   

  
	
  No. 16

  	
   

  	
  Variable

  	
   

  	
  October
  1, 2032

  	
   

  	
  96,000,000

  	
   

  
	
  No. 17

  	
   

  	
  Variable

  	
   

  	
  October
  1, 2034

  	
   

  	
  50,000,000

  	
   

  
	
  No. 18

  	
   

  	
  Variable

  	
   

  	
  June
  1, 2035

  	
   

  	
  13,266,950

  	
   

  
	
  No. 19

  	
   

  	
  Variable

  	
   

  	
  June
  1, 2035

  	
   

  	
  13,266,950

  	
   

  
	
  No. 20

  	
   

  	
  Variable

  	
   

  	
  June 1, 2036

  	
   

  	
  16,693,620

  	
  (a)

  

(a)                                  To
be presently issued by the Company under the Indenture, as hereby modified and
amended.

All of said bonds of Series P were sold by the Company
to, and upon the issue thereof were owned and held by, the corporations and
partnerships whose names and residences are stated in the Supplemental
Indenture dated May 15, 1992 executed by the Company to the Trustees under
said Indenture as heretofore modified and amended.

All of said bonds of Series No. 10 were heretofore
issued and delivered by the Company to, and upon the issuance thereof were held
by, Bank One, Kentucky, N.A., 201 East Main Street, Lexington, Fayette County,
Kentucky 40507, as trustee.

All of said bonds of Series No. 11 were heretofore
issued and delivered by the Company to, and upon the issuance thereof were held
by, The Bank of New York, 101 Barclay Street, 21st Floor, New York, New York 10286, as
trustee.

All of said bonds of Series Nos. 12, 13, 14, 15 and
16, respectively, were heretofore issued and delivered by the Company to, and
upon the issuance thereof were held by, Deutsche Bank Trust Company Americas,
Corporate Trust & Agency Services, c/o DB Services New Jersey, Inc., 100 Plaza
One, 6th Floor, Jersey City, New Jersey 07310, as trustee.

 12
 

 

All of said bonds of Series No. 17 were heretofore
issued and delivered by the Company to, and upon the issuance thereof were held
by, Wachovia Bank of Delaware, National Association, 9300 Shelbyville Road,
Suite 507, Louisville, Kentucky 40222, as trustee.

All of said bonds of Series Nos. 18 and 19 were
heretofore issued and delivered by the Company to, and upon the issuance
thereof were held by, Deutsche Bank Trust Company Americas, Corporate Trust
& Agency Services, c/o DB Services New Jersey, Inc., 100 Plaza One, 6th
Floor, Jersey City, New Jersey 07310, as trustee.

The Sixteen Million Six Hundred Ninety-Three Thousand
Six Hundred Twenty Dollars ($16,693,620) in principal amount of bonds of Series
No. 20 proposed to be issued by the Company under the Indenture as hereby
modified and amended, are to be issued and delivered by the Company to, and
upon the issuance thereof held by, Deutsche Bank Trust Company Americas,
Corporate Trust & Agency Services, c/o DB Services New Jersey, Inc., 100
Plaza One, 6th Floor, Jersey City, New Jersey 07310, as County Trustee.

Section 5.  The Company hereby expressly gives, grants,
bargains, sells, transfers, assigns, pledges, mortgages, warrants the title to
and conveys unto the Trustees under the Indenture, upon the trusts and for the
purposes of the Indenture, as hereby modified and amended, the following
described properties:

FIRST.  The
following described real estate of the Company situated on Willard Knob, Lob Mountain,
Bell County, Kentucky:

ITEM 1.  Unless stated otherwise, any
monument referred to herein as a “rod and cap” is a set 5/8” x 18” rebar, with
a yellow plastic cap stamped PLS 1850. 
All bearings are referred to Kentucky State Plane Coordinates (South
Zone).

Beginning at a rod and
cap set at the southeast corner of Marcus Cable Associates, LP (D.B. 282, P.700
and D.B.312, P.638), a corner between Marcus Cable Associates, LP and Ataya
Hardwoods, LLC (D.B. 318, P.520); thence with the line between Marcus Cable
Associates and Ataya Hardwoods N 36 degrees 48 minutes 15 seconds W, 16.38 feet
to a rod and cap (set); thence leaving the line of Marcus Cable and severing
the property of Ataya Hardwoods the following calls, N 60 degrees 43 minutes 35
seconds E, 100.00 feet to a rod and cap (set); S 36 degrees 48 minutes 16
seconds E, 100.00 feet to a rod and cap (set); S 60 degrees 43 minutes 35
seconds W, 100.00 feet to a rod and cap (set); N 36 degrees 48 minutes 16
seconds W, 83.62 feet to the beginning, containing 0.23 acres, more or less,
according to a survey by J.D. Dean, PLS # 1850 in July, 2005 and being a
portion of the Ataya Hardwoods, LLC property which is of record in Deed Book
318, page 520 in the office of the Bell County Court Clerk.

The centerline of an
existing access road leading from Kentucky 74, through the property of Ataya
Hardwoods, LLC, to the above described parcel is described as follows:
Beginning at the intersection of the centerline of an existing access road with
the north edge of Kentucky 74 (N 36 degrees 38 minutes 25 seconds, W 83 degrees
46 minutes 38 second); thence with the approximate centerline the following
calls:  N 06 degrees 17 minutes 30
seconds E, 157.90 feet; N 31 degrees 38 minutes 07 seconds E,

 13
 

 

108.31 feet; N 01 degrees 24 minutes 54 seconds E,
258.76 feet; N 23 degrees 08 minutes 22 seconds W, 533.85 feet; N 14 degrees 33
minutes 40 seconds W, 520.18 feet; N 24 degrees 20 minutes 27 seconds W,
1425.52 feet; N 42 degrees 26 minutes 02 seconds W, 440.67 feet; N 22 degrees
22 minutes 35 seconds W, 616.97 feet; N 45 degrees 46 minutes 33 seconds W,
664.65 feet; N 49 degrees 51 minutes 16 seconds W, 1019.98 feet; N 29 degrees
25 minutes 57 seconds W, 409.18 feet; N 38 degrees 00 minutes 29 seconds W,
641.34 feet; N 07 degrees 29 minutes 55 seconds W, 479.85 feet; N 03 degrees 55
minutes 32 seconds W, 612.35 feet; N 18 degrees 55 minutes 59 seconds W, 558.13
feet; N 04 degrees 01 minutes 35 seconds W, 295.26 feet;  N 31 degrees 05 minutes 05 seconds W, 953.41
feet; N 24 degrees 54 minutes 29 seconds W, 349.98 feet; N 48 degrees 56
minutes 44 seconds W, 752.94 feet; N 57 degrees 31 minutes 50 seconds W, 775.41
feet; N 43 degrees 16 minutes 30 seconds W, 809.64 feet; N 23 degrees 31
minutes 56 seconds W, 1133.78 feet; N 40 degrees 27 minutes 07 seconds W,
630.26 feet; N 68 degrees 52 minutes 03 seconds E, 127.98 feet; S 58 degrees 21
minutes 10 seconds E, 530.67 feet; S 35 degrees 16 minutes 07 seconds E, 329.74
feet; N 02 degrees 54 minutes 15 seconds W, 291.39 feet; N 37 degrees 50
minutes 33 seconds W, 417.59 feet; N 59 degrees 08 minutes 47 seconds W, 425.65
feet; N 08 degrees 48 minutes 33 seconds E, 321.61 feet; S 19 degrees 29
minutes 44 seconds E, 279.97 feet; S 77 degrees 25 minutes 09 seconds E, 658.47
feet; S 43 degrees 25 minutes 28 seconds E, 850.90 feet; S 53 degrees 15
minutes 03 seconds E, 319.87 feet; N 76 degrees 28 minutes 21 seconds E, 510.60
feet; S 73 degrees 27 minutes 06 seconds E, 203.29 feet; S 63 degrees 41
minutes 11 seconds E, 512.66 feet; S 35 degrees 26 minutes 47 seconds E, 484.61
feet; S 57 degrees 03 minutes 31 seconds E, 538.71 feet; N 75 degrees 22
minutes 20 seconds E, 579.23 feet; N 89 degrees 36 minutes 33 seconds E, 264.09
feet; S 26 degrees 46 minutes 29 seconds E, 427.91 feet; S 48 degrees 27
minutes 20 seconds E, 531.23 feet; N 82 degrees 41 minutes 32 seconds E, 545.94
feet; S 75 degrees 39 minutes 56 seconds E, 435.46 feet; S 58 degrees 04
minutes 29 seconds E, 753.15 feet; N 80 degrees 30 minutes 32 seconds E, 554.51
feet; N 44 degrees 40 minutes 12 seconds E, 412.98 feet; N 70 degrees 32
minutes 19 seconds E, 383.16 feet; N 51 degrees 20 minutes 41 seconds E,
1131.20 feet; N 68 degrees 52 minutes 48 seconds E, 480.63 feet; N 55 degrees
37 minutes 46 seconds E, 585.44 feet; S 81 degrees 46 minutes 06 seconds E,
466.95 feet; S 59 degrees 44 minutes 41 seconds E, 481.50 feet; S 74 degrees 36
minutes 38 seconds E, 765.36 feet; S 30 degrees 32 minutes 35 seconds E, 898.01
feet; N 52 degrees 46 minutes 22 seconds E, 210.44 feet; N 24 degrees 45
minutes 57 seconds E, 194.37 feet; N 48 degrees 27 minutes 10 seconds E, 427.36
feet; N 61 degrees 27 minutes 03 seconds E, 519.81 feet; N 64 degrees 49
minutes 17 seconds E, 18.06 feet to a point in the west property line of Marcus
Cable Associates, LP, said point being S 36 degrees 48 minutes 16 seconds E,
78.43 feet from the northwest corner of the Marcus Cable Associates; thence
beginning at a point in the east line of Marcus Cable Associates, said point
being S 36 degrees 48 minutes 16 seconds E, 184.88 feet form the northeast
corner of said Marcus; thence N 77 degrees 33 minutes 19 seconds E, 33.75 feet;
N 83 degrees 10 minutes 19 seconds E, 20.67 feet; S 70 degrees 25 minutes 37
seconds E, 24.91 feet to a point in the north line of the above described
parcel, said point being S 60 degrees 43 minutes 35 seconds W, 37.01 feet from
the northeast corner of said parcel and being a total of approximately 6.08
miles of road through the Ataya property.

 14
 

 

 

Being the same property
conveyed to Kentucky Utilities Company by deed dated February 14, 2006 and
recorded in Deed Book 330, Page 559 in the office of the Bell County Clerk.

 15
 

 

IN WITNESS WHEREOF, said Kentucky Utilities Company
has caused this instrument to be executed in its corporate name by its
President, Vice-President or its Treasurer and its corporate seal to be
hereunto affixed and to be attested and countersigned by its Executive Vice
President, General Counsel and Corporate Secretary, and said U.S. Bank National
Association, for the purpose of entering into and joining with the Company in
the execution of this supplemental indenture, has caused this instrument to be
executed in its corporate name by one of its Vice Presidents and to be attested
by one of its Vice Presidents, and said Richard Prokosch for the purpose of
entering into and joining with the Company in the execution of this
supplemental indenture, has signed this instrument; all as of the day and year
first above written.

	
  

  	
  KENTUCKY UTILITIES COMPANY

  
	
  

  	
  By:

  	
  /s/
  Daniel K. Arbough 

  
	
   

  	
   

  	
  Daniel K. Arbough

  
	
   

  	
   

  	
  Treasurer

  
	
   ATTEST:

  	
  /s/ John R. McCall 

  	
   

  
	
   

  	
  John R. McCall

  Executive Vice President

  General Counsel and

  Corporate Secretary

  	
   

  
	
   

  	
  (CORPORATE
  SEAL)

  
	
   

  	
  U.S. BANK NATIONAL
  ASSOCIATION

  
	
  

  	
  By:

  	
  /s/
  Richard Prokosch

  
	
   

  	
   

  	
  Richard Prokosch

  
	
   

  	
   

  	
  Vice President

  
	
   ATTEST:

  	
  /s/ Raymond Haverstock

  	
   

  
	
   

  	
  Raymond Haverstock

  Vice President

  	
   

  
	
   

  	
  By:

  	
  /s/ Richard Prokosch

  
	
   

  	
   

  	
  RICHARD PROKOSCH

  
					

 

 16

 

	
  COMMONWEALTH OF KENTUCKY

  	
  }

  	
   

  
	
   

  	
  SS:

  
	
  COUNTY OF JEFFERSON

  	
   

  

 

I, Betty Brinly, a Notary Public in and for said
County in the Commonwealth aforesaid, do hereby certify that Daniel K. Arbough,
Treasurer of Kentucky Utilities Company, a Kentucky and Virginia corporation,
and John R. McCall, Executive Vice President, General Counsel and Corporate
Secretary of said corporation, who are both personally known to me to be the
same persons whose names are subscribed to the foregoing instrument as such
officers of said corporation, and who are both personally known to me to be
such officers, appeared before me this day in person and severally acknowledged
before me that they signed, sealed and delivered said instrument as their free
and voluntary act as such officers, and as the free and voluntary act and deed
of said corporation, for the uses and purposes therein set forth; and said
Daniel K. Arbough, upon oath, acknowledged himself to be Treasurer of said
corporation and that, as such officer, being authorized so to do, he executed
said instrument for the purposes therein contained, by signing the name of said
corporation thereto by himself as such officer.

Given under my hand and official seal this   5    day of July, 2006.

	
  

  	
   

  	
  /s/ Betty Brinly

  
	
   

  	
   

  	
  Notary Public

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  My commission expires 6/21/2010

  

 

(NOTARIAL SEAL)

 

 

	
  STATE OF MINNESOTA

  	
  }

  	
   

  
	
   

  	
  SS:

  
	
  COUNTY OF RAMSEY

  	
   

  

 

I, Mollie Yetter, a Notary Public in and for said
County in the State aforesaid, do hereby certify that:

(a)           Richard
Prokosch, a Vice President of U.S. Bank National Association, a national
banking association, and Raymond Haverstock, a Vice President of said
corporation, who are both personally known to me to be the same persons whose
names are subscribed to the foregoing instrument as such Vice Presidents of
said corporation, and who are both personally known to me to be such officers,
appeared before me this day in person and severally acknowledged before me that
they signed and delivered said instrument as their free and voluntary act as
such officers, and as the free and voluntary act and deed of said corporation,
for the uses and purposes therein set forth; and said Richard Prokosch upon
oath, acknowledged himself to be a Vice President of said corporation and that,
as such officer, being authorized so to do, he executed said instrument for the
purposes therein contained, by signing the name of said corporation thereto by
himself as such officer; and

(b)           Richard
Prokosch, personally known to me to be the same person described in, and whose
name is subscribed to, the foregoing instrument, appeared before me this day in
person and acknowledged before me that he executed, signed and delivered said
instrument as his free and voluntary act and deed, for the uses and purposes
therein set forth.

Given under my hand and official seal this 29th day of
July, 2006.

	
  

  	
   

  	
  /s/ Mollie Yetter

  
	
   

  	
   

  	
  Notary Public

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  My commission expires:  January 31, 2007

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (NOTARIAL SEAL)

  

 

 

	
  This instrument prepared by:

  	
   

  
	
   

  	
   

  
	
  /s/ James Dimas

  	
   

  
	
  James Dimas, Esq.
 220 West Main Street 

  Louisville, Kentucky 40202Exhibit 4.2

COUNTY OF CARROLL,
KENTUCKY

AND

KENTUCKY UTILITIES
COMPANY

A Kentucky and Virginia
Corporation

*   * 
*  *  *

LOAN AGREEMENT IN
CONNECTION 

WITH ENVIRONMENTAL FACILITIES

*   *  
*   *   *

Dated as June 1, 2006

*   *  
*   *   *

	
  

  	
  NOTICE:

  	
  The interest of the County of Carroll, Kentucky, in
  and to this Loan Agreement has been assigned to Deutsche Bank Trust Company
  Americas, as Trustee, under the Indenture of Trust dated as of June 1,
  2006

  

 

 

TABLE OF
CONTENTS

	
  ARTICLE I DEFINITIONS

  	
   

  	
  2

  
	
   

  	
   

  	
   

  
	
  Section 1.1.

  	
   

  	
  USE OF DEFINED TERMS

  	
   

  	
  2

  
	
  Section 1.2.

  	
   

  	
  INCORPORATION OF
  CERTAIN TERMS BY REFERENCE

  	
   

  	
  2

  
	
  Section 1.3.

  	
   

  	
  ADDITIONAL DEFINITIONS

  	
   

  	
  3

  
	
   

  	
   

  	
   

  
	
  ARTICLE II REPRESENTATIONS,
  WARRANTIES AND COVENANTS

  	
   

  	
  5

  
	
   

  	
   

  	
   

  
	
  Section 2.1.

  	
   

  	
  REPRESENTATIONS,
  WARRANTIES AND COVENANTS BY ISSUER

  	
   

  	
  5

  
	
  Section 2.2.

  	
   

  	
  REPRESENTATIONS,
  WARRANTIES AND COVENANTS BY COMPANY

  	
   

  	
  6

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE III COMPLETION AND
  OWNERSHIP OF PROJECT

  	
   

  	
  10

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 3.1.

  	
   

  	
  COMPLETION AND
  EQUIPPING OF PROJECT

  	
   

  	
  10

  
	
  Section 3.2.

  	
   

  	
  ESTABLISHMENT OF
  COMPLETION DATE

  	
   

  	
  10

  
	
  Section 3.3.

  	
   

  	
  AGREEMENT AS TO
  OWNERSHIP OF PROJECT

  	
   

  	
  11

  
	
  Section 3.4.

  	
   

  	
  USE OF PROJECT

  	
   

  	
  11

  
	
  Section 3.5.

  	
   

  	
  FINANCING OF ADDITIONAL
  SOLID WASTE DISPOSAL FACILITIES

  	
   

  	
  11

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV ISSUANCE OF 2006 SERIES A BONDS;
  APPLICATION OF PROCEEDS; COMPANY TO ISSUE FIRST MORTGAGE BONDS  

  	
   

  	
  12

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 4.1.

  	
   

  	
  AGREEMENT TO ISSUE 2006
  SERIES A BONDS; APPLICATION OF 2006 SERIES A BOND PROCEEDS   

  	
   

  	
  12

  
	
  Section 4.2.

  	
   

  	
  DISBURSEMENTS FROM
  CONSTRUCTION FUND

  	
   

  	
  12

  
	
  Section 4.3.

  	
   

  	
  FURNISHING DOCUMENTS TO
  THE TRUSTEE

  	
   

  	
  12

  
	
  Section 4.4.

  	
   

  	
  COMPANY REQUIRED TO PAY
  IN EVENT CONSTRUCTION FUND INSUFFICIENT

  	
   

  	
  12

  
	
  Section 4.5.

  	
   

  	
  INVESTMENT OF
  CONSTRUCTION FUND, BOND FUND AND REBATE FUND MONEYS

  	
   

  	
  13

  
	
  Section 4.6.

  	
   

  	
  SPECIAL ARBITRAGE
  CERTIFICATIONS

  	
   

  	
  13

  
	
  Section 4.7.

  	
   

  	
  OPINION OF BOND COUNSEL

  	
   

  	
  14

  
	
  Section 4.8.

  	
   

  	
  FIRST MORTGAGE BONDS

  	
   

  	
  15

  
	
  Section 4.9.

  	
   

  	
  CONSTRUCTION FUND
  PLEDGED AS FURTHER SECURITY

  	
   

  	
  16

  
	
   

  	
   

  	
   

  
	
  ARTICLE V PROVISIONS FOR
  PAYMENT

  	
   

  	
  16

  
	
   

  	
   

  	
   

  
	
  Section 5.1.

  	
   

  	
  LOAN PAYMENTS AND OTHER
  AMOUNTS PAYABLE

  	
   

  	
  16

  
	
  Section 5.2.

  	
   

  	
  PAYMENTS ASSIGNED

  	
   

  	
  17

  
	
  Section 5.3.

  	
   

  	
  TAXES AND OTHER
  GOVERNMENTAL CHARGES

  	
   

  	
  17

  
	
  Section 5.4.

  	
   

  	
  OBLIGATIONS OF COMPANY
  UNCONDITIONAL

  	
   

  	
  18

  
	
  Section 5.5.

  	
   

  	
  REBATE FUND

  	
   

  	
  18

  
	
  Section 5.6.

  	
   

  	
  REDEMPTION OF THE 2006
  SERIES A BONDS IN ADVANCE OF SCHEDULED MATURITY

  	
   

  	
  19

  
	
  Section 5.7.

  	
   

  	
  CANCELLATION OF 2006
  SERIES A BONDS

  	
   

  	
  19

  
	
   

  	
   

  	
   

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

  	
   

  	
  19

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 6.1.

  	
   

  	
  MAINTENANCE

  	
   

  	
  19

  
	
  Section 6.2.

  	
   

  	
  INSURANCE

  	
   

  	
  20

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VII SPECIAL COVENANTS

  	
   

  	
  20

  
	
   

  	
   

  	
   

  
	
  Section 7.1.

  	
   

  	
  NO WARRANTY OF
  CONDITION OR SUITABILITY BY ISSUER

  	
   

  	
  20

  
	
  Section 7.2.

  	
   

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

  	
   

  	
  20

  
	
  Section 7.3.

  	
   

  	
  FINANCIAL STATEMENTS

  	
   

  	
  20

  
	
  Section 7.4.

  	
   

  	
  FURTHER ASSURANCES AND
  CORRECTIVE INSTRUMENTS

  	
   

  	
  21

  
	
  Section 7.5.

  	
   

  	
  ISSUER REPRESENTATIVE

  	
   

  	
  21

  
	
  Section 7.6.

  	
   

  	
  COMPANY REPRESENTATIVE

  	
   

  	
  21

  
	
  Section 7.7.

  	
   

  	
  FINANCING STATEMENTS

  	
   

  	
  21

  
	
  Section 7.8.

  	
   

  	
  COMPANY’S PERFORMANCE
  UNDER INDENTURE

  	
   

  	
  21

  
	
  Section 7.9.

  	
   

  	
  NEGATIVE PLEDGE

  	
   

  	
  22

  

 

 

 i
 

 

 

	
  ARTICLE VIII ASSIGNMENT; INDEMNIFICATION; REDEMPTION

  	
   

  	
  23

  
	
   

  	
   

  	
   

  
	
    Section 8.1.

  	
   

  	
  ASSIGNMENT

  	
   

  	
  23

  
	
    Section 8.2.

  	
   

  	
  RELEASE AND INDEMNIFICATION COVENANTS

  	
   

  	
  23

  
	
    Section 8.3.

  	
   

  	
  ASSIGNMENT OF INTEREST IN AGREEMENT BY ISSUER

  	
   

  	
  24

  
	
    Section 8.4.

  	
   

  	
  REDEMPTION OF 2006 SERIES A BONDS

  	
   

  	
  24

  
	
    Section 8.5.

  	
   

  	
  REFERENCE TO 2006 SERIES A BONDS INEFFECTIVE AFTER
  2006 SERIES A BONDS PAID

  	
   

  	
  24

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX EVENTS OF DEFAULT AND REMEDIES

  	
   

  	
  24

  
	
   

  	
   

  	
   

  
	
    Section 9.1.

  	
   

  	
  EVENTS OF DEFAULT DEFINED

  	
   

  	
  24

  
	
    Section 9.2.

  	
   

  	
  REMEDIES ON DEFAULT

  	
   

  	
  26

  
	
    Section 9.3.

  	
   

  	
  NO REMEDY EXCLUSIVE

  	
   

  	
  27

  
	
    Section 9.4.

  	
   

  	
  AGREEMENT TO PAY REASONABLE ATTORNEYS’ FEES AND
  EXPENSES

  	
   

  	
  27

  
	
    Section 9.5.

  	
   

  	
  WAIVER OF EVENTS OF DEFAULT

  	
   

  	
  27

  
	
   

  	
   

  	
   

  
	
  ARTICLE X PREPAYMENT OF LOAN

  	
   

  	
  28

  
	
   

  	
   

  	
   

  
	
    Section
  10.1.

  	
   

  	
  OPTIONS TO PREPAY LOAN

  	
   

  	
  28

  
	
    Section
  10.2.

  	
   

  	
  ADDITIONAL OPTION TO PREPAY LOAN

  	
   

  	
  29

  
	
    Section
  10.3.

  	
   

  	
  OBLIGATIONS TO PREPAY LOAN

  	
   

  	
  29

  
	
    Section
  10.4.

  	
   

  	
  NOTICE OF PREPAYMENT; REDEMPTION PROCEDURES

  	
   

  	
  31

  
	
    Section
  10.5.

  	
   

  	
  RELATIVE POSITION OF THIS ARTICLE AND INDENTURE

  	
   

  	
  31

  
	
    Section
  10.6.

  	
   

  	
  CONCURRENT DISCHARGE OF FIRST MORTGAGE BONDS

  	
   

  	
  31

  
	
   

  	
   

  	
   

  
	
  ARTICLE XI MISCELLANEOUS

  	
   

  	
  31

  
	
   

  	
   

  	
   

  
	
    Section
  11.1.

  	
   

  	
  TERM OF AGREEMENT

  	
   

  	
  31

  
	
    Section
  11.2.

  	
   

  	
  NOTICES

  	
   

  	
  32

  
	
    Section
  11.3.

  	
   

  	
  BINDING EFFECT; BOND COUNSEL OPINIONS

  	
   

  	
  32

  
	
    Section
  11.4.

  	
   

  	
  SEVERABILITY

  	
   

  	
  32

  
	
    Section
  11.5.

  	
   

  	
  AMOUNTS REMAINING IN CONSTRUCTION FUND, BOND FUND
  AND REBATE FUND

  	
   

  	
  32

  
	
    Section
  11.6.

  	
   

  	
  AMENDMENTS, CHANGES AND MODIFICATIONS

  	
   

  	
  33

  
	
    Section
  11.7.

  	
   

  	
  EXECUTION IN COUNTERPARTS

  	
   

  	
  33

  
	
    Section
  11.8.

  	
   

  	
  APPLICABLE LAW

  	
   

  	
  33

  
	
    Section
  11.9.

  	
   

  	
  CAPTIONS

  	
   

  	
  33

  
	
    Section
  11.10.

  	
   

  	
  NO PECUNIARY LIABILITY OF ISSUER

  	
   

  	
  33

  
	
    Section
  11.11.

  	
   

  	
  PAYMENTS DUE ON OTHER THAN BUSINESS DAYS

  	
   

  	
  33

  

 

    EXHIBIT
A - DESCRIPTION  OF PROJECT

 ii

 

 

LOAN AGREEMENT IN CONNECTION 

WITH  ENVIRONMENTAL FACILITIES

 This LOAN AGREEMENT, dated as of
June 1, 2006, 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 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 (“Issuer”), and pursuant to the provisions of Sections
103.200 to 103.285, inclusive, of the Kentucky Revised Statutes (“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 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 final disposal of solid wastes; 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”), is desirous of financing the
qualified costs of acquisition, construction, installation and equipping of
certain solid waste disposal facilities to serve the Ghent Generating Station
of Company, which facilities constitute the Project, as defined in the
Indenture and as described in Exhibit A hereto (the “Project”), which
Project is located within the corporate boundaries of Issuer and consists of
certain solid waste disposal facilities and which Project qualifies for
financing within the meaning of the Act; and

WHEREAS, the Project is described
and has been previously approved for tax-exempt bond financing in a preliminary
resolution adopted by the Fiscal Court of Issuer on February 22, 2005 and
amended by the Fiscal Court of Issuer on January 24, 2006 for the purpose
of increasing the principal amount of bonds to be issued from $30,000,000 to
$100,000,000; and

 1
 

 

 

WHEREAS, pursuant to and in
accordance with the provisions of the Act, a Memorandum of Agreement between
the Issuer and Company dated February 22, 2005 and an Ordinance duly
adopted by the Fiscal Court of Issuer on June 13, 2006, 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, 2006 Series A (Kentucky
Utilities Company Project)” (the “2006 Series A Bonds”), the proceeds of which
will be lent to Company to finance the acquisition, construction, installation
and equipping of the Project; and

WHEREAS, the Project will provide
for the collection, storage, treatment, processing and final disposal of solid
wastes in the Commonwealth of Kentucky; and

WHEREAS, the 2006 Series A Bonds are
to be issued under and pursuant to and are secured by an Indenture of Trust by
and between Issuer and Deutsche Bank Trust Company Americas, as trustee
thereunder, dated as of  June 1,
2006 (the “Indenture”); and

WHEREAS, Issuer proposes to lend to
Company and Company desires to borrow from Issuer the proceeds from the sale of
the 2006 Series A Bonds to finance the acquisition, construction, installation
and equipping of the Project;

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 1.2 and 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”

 2
 

 

 

“Company Representative”

“Construction Fund”

“Cost of Construction”

“Cumulative Excess Earnings”

“Excess Earnings”

“First Mortgage Bonds”

“First Mortgage Indenture”

“First Mortgage Trustee”

“Governmental Obligations”

“Indenture”

“Initial Broker-Dealer”

“Interest Payment Date”

“Issuer”

“Issuer Representative”

“Loan”

“Net Proceeds”

“No Auction Rate”

“Paying Agent”

“Permitted Investments”

“Plans and Specifications”

“Pollution Control Facilities”

“Prevailing Rating”

“Project”

“Project Site”

“Purchase Date”

“Purchase Fund”

“Rating Service”

“Rebate Fund”

“Redemption Date”

“Redemption Demand”

“Release Date”

“2006 Series A Bonds”

“Solid Waste Disposal Facilities”

“Supplemental Indenture”

“Tender Agent”
 “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

 3
 

 

 

(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.

“Completion Date” means the date of completion
of the construction of the Project, as that date shall be certified as provided
in Section 3.2 of this Agreement.

“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.

“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.

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.

 4
 

 

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 de jure
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
2006 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 2006 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 2006 Series A Bonds
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 2006 Series A Bonds to Company to
provide for the financing of the construction, acquisition, installation and
equipping of the Project, which Project shall provide for solid wastes to be
collected, stored, treated, processed and disposed of at the Project Site.

(c)           To accomplish the
foregoing, Issuer agrees to issue $16,693,620 aggregate principal amount of its
2006 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 2006 Series A Bonds shall be applied
to finance the Cost of Construction of the Project.

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

(e)           Issuer has received
its allocation from the Commonwealth for the issuance of the 2006 Series A
Bonds, as prescribed by Section 146 of the Code.

(f)            The Project Site is
located within the boundaries of Issuer.

(g)           Each of  Resolution No. 2005-0222 of the Fiscal Court
of the Issuer adopted February 22, 2005 in respect of approval of the
Project and its financing, the Memorandum of Agreement between Issuer and
Company, dated February 22, 2005, Resolution No. 2006-0124 of
the Fiscal Court of the Issuer adopted on January 24, 2006, in respect of
amending Resolution No. 2005-0222 and the Memorandum of Agreement, and
Ordinance No. 2006-0613 of the Fiscal Court of the Issuer adopted on
second reading on June 13, 2006 has been in continuous effect since the
respective dates of adoption thereof.

 5
 

 

 

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 2006 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 Project financed
by application of the proceeds of the 2006 Series A Bonds has been designed and
will be constructed to collect, store, treat, process and dispose of solid
wastes at the Project Site.  The Project
was and is necessary for the public health and welfare, and has been designed
and will be constructed solely for the purposes of solid waste collection,
storage, treatment, processing and final disposal of solid wastes, consisting
of contaminated scrubber sludge solid wastes created by operation of
desulphurization facilities at the Project Site.  The 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.

(d)           Not less than
substantially all of the net proceeds of the 2006 Series A Bonds (i.e., at
least 95% of the net proceeds thereof, including investment earnings thereon)
will be applied and used to finance the Cost of Construction of the Project,
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 Company will not
use or cause to be used any of the funds provided by the Issuer hereunder
(including the earnings on any of such funds) in such a manner as to, or take
or omit to take any action with respect to the use of such funds which would,
impair the exclusion of the interest on any of the 2006 Series A Bonds from
gross income for federal income tax purposes. 
Except for certain environmental or building permits which will be
required from time to time in connection with the construction, occupation and
use of the Project (which the Company has no reason to believe will not be
received in the ordinary course as and when required), no consent, approval,
authorization or other order of any federal, state or local governmental
authority (other than the Issuer), not previously obtained or given is required
in connection with the acquisition, construction, installation or equipping of
the Project or the consummation of the transactions contemplated thereby.

(f)            The Project is of
the type authorized and permitted by the Act, and the Cost of Construction of
the Project is not less than $16,693,620.

 6
 

 

 

(g)           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.

(h)           Company intends to
operate or cause the Project to be operated as Solid Waste Disposal Facilities
until all of the 2006 Series A Bonds are paid and discharged.

(i)            No portion of the
proceeds of 2006 Series A Bonds will be invested at a yield in excess of the
yield on the 2006 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 2006 Series A Bonds, not in excess of the lesser of 5% of the proceeds of
the 2006 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.

(j)            No part or
component of the Project to be financed with proceeds of the 2006 Series A
Bonds was acquired, constructed or installed by Company prior to
February 22, 2005; and no part of the proceeds of the 2006 Series A Bonds
will be used by Company, directly or indirectly, as working capital or to
finance inventory.

(k)           At
least 95% of the net proceeds of the 2006 Series A Bonds (including investment
earnings thereon) will be used to pay costs of the Project incurred after the
date which is 60 days prior to February 22, 2005; and the facilities
constituting the Project constitute and will constitute (i) land or property of
a character subject to the allowance for depreciation under Section 167 of the
Code and (ii) Solid Waste Disposal Facilities.

(l)            Company will cause
no investment of 2006 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 2006
Series A Bonds or any funds reasonably expected to be used to pay the 2006
Series A Bonds which will cause the 2006 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 2006 Series A Bonds from gross income for federal income tax purposes.

 7
 

 

 

(m)          The average maturity
of the 2006 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 2006 Series A Bonds) of the Solid Waste Disposal Facilities.

(n)           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 2006
Series A Bonds and the Solid Waste Disposal Facilities constituting the
Project, and such information will be true and correct in all material
respects.

(o)           Within the meaning
of Section 149 of the Code, no portion of the payment of the principal or
interest on the 2006 Series A Bonds shall be guaranteed directly or indirectly
by the United States or any agency or instrumentality thereof.

(p)           The Project financed
by the proceeds of the 2006 Series A Bonds will not have been placed in
operation at substantially its design level, pursuant to and within the meaning
of Section 1.150-2(c)(2) of the Treasury Regulations, more than 18 months prior
to the date of the issuance of the 2006 Series A Bonds.

(q)           For purposes of
Section 147(c) of the Code, the allocable cost of the land portion of the
Project, if any, to be financed with the proceeds of the 2006 Series A Bonds
shall be less than 25% of the proceeds of the 2006 Series A Bonds, and none of
the 2006 Series A Bond proceeds shall be used to finance land to be used for
farming.

(r)            Within the meaning
of Section 147(e) of the Code, no portion of the proceeds of the 2006 Series A
Bonds shall be used to provide any airplane, skybox or other private luxury
box, any health club facility, any facilities used primarily for gambling, or
any store the principal business of which is the sale of alcoholic beverages
for consumption off the premises.

(s)           The costs of the
issuance of the 2006 Series A Bonds paid from the proceeds of the 2006 Series A
Bonds, if any, shall not exceed 2% of the proceeds of the 2006 Series A Bonds
to the public (less accrued interest).

(t)            None of the
proceeds of the 2006 Series A Bonds will be used to acquire, construct or
install any property or interest therein unless the first use of such property
shall be pursuant to such acquisition, construction or installation.

(u)           No portion of the
proceeds of the 2006 Series A Bonds will be deposited to the account of any reserve
or replacement fund.

(v)           Company shall not
cause an amount less than 95% of the net proceeds, as defined in the Code and
Treasury Regulations, of the 2006 Series A Bonds (including all investment
income therefrom) to be expended for the Solid Waste Disposal Facilities
constituting the Project to be financed by the 2006 Series A Bonds and will
direct the Trustee to make payments and transfers of 2006 Series A Bond
proceeds to the extent necessary to satisfy such covenant.  In furtherance of such covenant, moneys may
not be withdrawn from the Construction Fund until there has been filed with the
Trustee prior to each drawing a written requisition as required by Section
4.2 hereof.  For purposes of
foregoing provisions of this subsection (v) the portion of the 

 8
 

 

 

proceeds used
to finance the costs of issuing the 2006 Series A Bonds, including underwriter’s
discount or underwriting compensation, is not considered used to provide Solid
Waste Disposal Facilities.

(w)          Except for Company or
any “related person” or group of “related persons”, no person has (i)
guaranteed, arranged, participated in, assisted with or paid any portion of the
cost of the issuance of, the 2006 Series A Bonds, or (ii) provided any property
or any franchise, trademark or trade name (within the meaning of Section 1253
of the Code) which is to be used in connection with the solid waste disposal
facilities constituting the Project financed with the 2006 Series A Bonds.

(x)            Company reasonably
expects that (i) all of the spendable proceeds of the 2006 Series A Bonds will
be used for the governmental purpose of the issue within three years from date
of issuance of such 2006 Series A Bonds and (ii) none of the proceeds of such
2006 Series A Bonds will be invested in nonpurpose obligations having a
substantially guaranteed yield for three years or more.

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

(z)            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
2006 Series A Bonds to the United States of America.

(aa)         Upon the date of
issuance of the 2006 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 2006 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.

(bb)         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.

(cc)         The solid waste which
is to be collected, stored, treated, processed and  disposed of by the Project is and will be
useless, unused and unwanted and constitute discarded solid waste materials
which have no market or other value at the place where it is located.   To the best knowledge of the Company, no
person is or would be willing to purchase such solid waste material in its
condition when disposed of in waste pits at any price.  Such solid waste, being sludge created by
sulphur dioxide removal facilities at the Ghent Generating Station of the
Company will be disposed of by placing such SO2 scrubber sludge into solid
waste landfills, as required by law.

 9
 

 

 

(dd)         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 2006 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.

(ee)         Company
covenants to perform and observe all provisions of the Indenture required to be
performed or observed by it.

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 2006  Series A Bonds from gross income for federal
income tax purposes under Section 103(a) of the Code.

ARTICLE III

COMPLETION AND OWNERSHIP OF ProjecT

Section 3.1.   Completion and
Equipping of Project.   Company represents that:

(a)           it will cause or has
caused the Project to be constructed as herein provided on the Project Site in
accordance with the Plans and Specifications as the same may be amended from
time to time.

(b)           it will make,
execute, acknowledge and deliver any contracts, orders, receipts, writings and
instructions with any other persons, firms or corporations and in general do
all  things which may be requisite or
proper, all for acquiring, constructing, installing and equipping the Project.

(c)           It will ask, demand,
sue for, levy and use its best efforts to recover and receive such sums of
money, debts or other demands whatsoever in connection with the Project, to
which it may be entitled under any contract, order, guaranty, warranty, writing
or instruction in connection with any of the foregoing, and it will enforce the
provisions of any contract, agreement, obligation, bond or other security in
connection with the Project.  Any amounts
received in connection with the foregoing, after deduction of expenses incurred
in such recovery, prior to the Completion Date and full disposition of the
Construction Fund in accordance with this Agreement and the Indenture, shall be
paid into the Construction Fund.

(d)           It will promptly
commence and thereafter diligently pursue and continue the acquisition,
construction, installation and equipping of the Project to completion and
placement in service.

Section 3.2.   Establishment
of Completion Date.   The Completion Date of the Project shall be
evidenced to the Trustee by a certificate signed by Company Representative
stating that, except for amounts retained by the Trustee at the Company’s
direction for any amount of the 

 10
 

 

 

Cost of Construction not
then due and payable or the liability for payment of which is being contested
or disputed by Company, (i) construction of the Project has been completed in
accordance with the Plans and Specifications and all labor, services, materials
and supplies used in such construction, installation and equipping have been
paid for, (ii) all other facilities necessary in connection with the Project
have been acquired, constructed, installed and equipped in accordance with the
Plans and Specifications and all costs and expenses incurred in connection
therewith have been paid, and (iii) to the best of Company’s knowledge and
belief and based upon reasonable inquiry, the Project is suitable and
sufficient for its intended purposes. 
Notwithstanding the foregoing, such certificate shall state that it is
given without prejudice to any rights against third parties which exist at the
date of such certificate or which may subsequently come into being.  Upon receipt of such certificate, the Trustee
shall retain in the Construction Fund a sum (specified in writing to it by
Company) equal to the amounts necessary for payment of any portion of the Cost
of Construction of the Project not then due and payable or the liability for
payment of which is being contested or disputed by Company.  The remaining amounts in the Construction
Fund shall be applied by the Trustee as provided in Section 6.06 of the
Indenture.

Section 3.3.   Agreement as
to Ownership of  Project.   Issuer
and Company agree that title to and ownership of the Project shall remain in
and be the sole property of Company in which Issuer shall have no
interest.  The 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 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 2006 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 3.4.   Use of 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 Project or to prevent Company from having possession, custody, use and
enjoyment of the Project.

Section 3.5.   Financing of
Additional Solid Waste Disposal Facilities.   Company and Issuer hereby
recognize that additional Solid Waste Disposal Facilities at the Project Site
(other than those Solid Waste Disposal Facilities which constitute the Project)
have in the past been and may in the future be acquired, constructed, installed
and equipped at the Project Site, and that same may be financed with proceeds
of one or more series of Issuer’s solid waste disposal facility revenue bonds
issued in addition to the 2006 Series A Bonds issued pursuant to the Indenture,
to the extent permitted by law.

 11

 

 

ARTICLE
IV

ISSUANCE
OF 2006 SERIES A BONDS; APPLICATION OF PROCEEDS; 

COMPANY TO ISSUE FIRST MORTGAGE BONDS

Section 4.1.            Agreement
to Issue 2006 Series A Bonds; Application of 2006 Series A Bond Proceeds.  In order to provide funds to make the Loan,
Issuer will issue, sell and deliver the 2006 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 2006 Series A Bonds.

(b)           Into the
Construction Fund, the balance of the proceeds of the 2006 Series A Bonds for
application as provided in the Indenture.

Section 4.2.            Disbursements
from Construction Fund.  The Issuer
has, in the Indenture, authorized and directed Trustee to make payments from
the Construction Fund to pay the Cost of Construction or to reimburse Company
for any amount of the Cost of Construction paid or incurred by it.  Except for requisitions for costs of issuance
of the 2006 Series A Bonds  (which costs
shall not be considered to be qualifying), requisitions made in the form and
manner described below shall be made initially exclusively for expenditures
which qualify as solid waste disposal facilities and none, except for the
requisitions for such costs of issuance, shall be made for expenditures which
do not so qualify until such time as the ratio of qualifying expenditures to
nonqualifying expenditures can be maintained at not less than 95% qualifying to
5% nonqualifying.  Notwithstanding the
foregoing exception for costs of issuance of the 2006 Series A Bonds, amounts
requisitioned for such purposes shall not exceed two percent (2%) of the
proceeds of the 2006 Series A Bonds and shall be considered part of the 5%
nonqualifying portion.  Payments for Cost
of Construction shall be made upon receipt in the case of every disbursement of
a requisition signed by the Company Representative stating with respect to each
payment to be made: (i) the requisition number, (ii) the name and address of
the person, firm or corporation to whom payment has been made or is due, (iii)
the amount paid or to be paid, (iv) that each obligation mentioned therein has
been properly incurred, is a proper charge against the Construction Fund, is
unpaid or unreimbursed, and has not been the basis of any previous withdrawal,
and (v) that either (a) the expenditures qualify exclusively as Solid Waste
Disposal Facilities or (b) the 95%-5% ratio as required above has been
satisfied and the payment of the amount shown in such requisition will not
result in less than 95% of the proceeds of the 2006 Series A Bonds expended at
such time being used for the acquisition, construction or installation of Solid
Waste Disposal Facilities.

Section 4.3.            Furnishing
Documents to the Trustee.  Company
agrees to cause such requisitions to be directed to the Trustee as may be
necessary to effect payments out of the Construction Fund in accordance with Section
4.2 hereof.

Section 4.4.            Company
Required to Pay in Event Construction Fund Insufficient.  In the event the moneys in the Construction
Fund available for payment of the Cost of Construction should not be sufficient
to pay such Cost of Construction in full, Company agrees to pay such 

 12
 

 

 

portion of the
Cost of Construction in excess of the moneys available therefor in the
Construction Fund.  Issuer does not make
any warranty, either express or implied, that the moneys paid into the
Construction Fund and available for payment of the Cost of Construction will be
sufficient to pay all of such Cost of Construction.  Company agrees that if, after exhaustion of
such moneys in the Construction Fund, Company should directly pay any portion
of the Cost of Construction pursuant to the provisions of this Section, it
shall not be entitled to any diminution or abatement of the amounts payable
under Section 5.1 hereof.

Section 4.5.            Investment
of Construction Fund, Bond Fund and Rebate Fund Moneys.  Subject to the provisions of Section 148 of
the Code, any moneys held as a part of the Construction Fund, Bond Fund or the
Rebate Fund, 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 Construction Fund or Bond Fund is insufficient to pay the principal of,
premium, if any, and interest on the 2006 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 4.6.            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 or would result in interest paid on any of the 2006 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
Project or a “related person” within the meaning of Section 147(a) of the Code)
or adversely affects the validity of the 2006 Series A Bonds.

(b)           Company
warrants, represents and certifies to Issuer that the proceeds of the 2006 Series
A Bonds will not be used in any manner that would cause the 2006 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 2006 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 2006 Series A 

 13
 

 

 

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 2006 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 2006 Series A
Bonds is or are hereby authorized and directed to give an appropriate
certificate of Issuer, for inclusion in the transcript of proceedings for the
2006 Series A Bonds, setting forth the reasonable expectations of Issuer
regarding the amount and use of the proceeds of the 2006 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 2006 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 2006 Series A Bonds regarding the amount and
use of the proceeds of the 2006 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 2006 Series A Bonds, that no use will be made
of the proceeds of the sale of the 2006 Series A Bonds which would cause the
2006 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 2006 Series A Bonds, comply with the provisions of the Code at
all times, including after the 2006 Series A Bonds are discharged, to the
extent Excess Earnings with respect to the 2006 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 2006 Series A Bonds
will be applied and invested in compliance with the current requirements of
Section 149(g) of the Code and that consequently the 2006 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 6.07
of the Indenture.  Specifically, Company
shall carry out, do and perform all acts stipulated to be performed by Company
pursuant to such Section 6.07 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 2006 Series A
Bonds.  Company also covenants to take
all necessary acts and steps as required to cause Issuer to comply with the
provisions of Sections 7.02 and  7.03
of the Indenture.

Section 4.7.            Opinion
of Bond Counsel.  Company need not
comply with the covenants or representations in Section 4.6 if and to
the extent that Issuer and Company (with a copy to Trustee) receive a written
opinion of Bond Counsel that such failure to comply will not affect 

 14
 

 

 

adversely the
exclusion of interest on any of the 2006 Series A Bonds from gross income for
federal income tax purposes under Section 103(a) of the Code.

Section 4.8.            First
Mortgage Bonds.  Company covenants
and agrees with Issuer that it will, for the purpose of providing security for
the 2006 Series A Bonds, execute and deliver on the date of issuance of the
2006 Series A Bonds, the First Mortgage Bonds to Trustee in aggregate principal
amount not less than the aggregate principal amount of the 2006 Series A
Bonds.  The First Mortgage Bonds shall
mature as to principal identically as in the case of the 2006 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 2006 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 2006 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 at the rate of
interest of the 2006 Series A Bonds and principal and interest thereon will be
payable at the same time and in the same manner in which such amounts are
payable with respect to the 2006 Series A Bonds, whether on schedule, at maturity,
by redemption, by acceleration or otherwise.

Upon payment of the principal of, premium, if any, and
interest on any of the 2006 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 2006 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 2006 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.

 15
 

 

 

Section 4.9.            Construction
Fund Pledged as Further Security. 
Pending complete disbursement of all moneys in the Construction Fund
pursuant to the provisions of this Agreement, pursuant to the Indenture all of
such moneys or investments of such moneys are pledged to the Trustee and the
holders of the 2006 Series A Bonds for the further security of the 2006 Series
A Bonds.

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 2006 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 2006 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 2006 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 2006 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 2006
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 Initial
Broker-Dealer, 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, the Tender Agent, the Initial Broker-Dealer
and the Auction Agent for their respective own accounts as and when such amounts
become due and payable.

 16
 

 

 

(d)           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 2006 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.

(e)           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 2006 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 2006 Series
A Bonds delivered to it for purchase, as provided in the Indenture.

(f)            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(b) and (c) 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,
Initial Broker-Dealer,  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, Initial Broker-Dealer, 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 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 2006 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 

 17
 

 

 

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 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
6.07 of the Indenture shall be absolute and unconditional.  Until such time as the principal of, premium,
if any, and interest on the 2006 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 Project or any part
thereof, any acts or circumstances that may constitute failure of
consideration, destruction of or damage to the 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 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 6.07 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.

 18
 

 

 

Section 5.6.            Redemption
of the 2006 Series A Bonds in Advance of Scheduled Maturity.  Under the terms of the Indenture, the 2006
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 2006 Series A Bonds at the written
direction of the Company.

Section 5.7.            Cancellation
of 2006 Series A Bonds.  The
cancellation by the Bond Registrar of any 2006 Series A Bond or Bonds purchased
by the Company and delivered to the Bond Registrar for cancellation or of any
2006 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 2006 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 2006 Series A Bonds are
Outstanding, as that term is defined in the Indenture, Company will maintain,
preserve and keep the Project, or cause the 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 Project as Solid Waste Disposal
Facilities; provided, however, that Company will have no obligation to
maintain, preserve, keep, repair, replace or renew any element or portion of
the 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 Project or the generating facilities to which
the element or unit of the 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 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 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 2006 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 Project or making substitutions, modifications and improvements
to the 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 Project; provided, however, that Company shall take no
actions which will change or alter the basic nature of the Project as Solid
Waste Disposal Facilities.

If, prior to full payment of all 2006 Series A Bonds
outstanding (or provision for payment thereof having been made in accordance
with the provisions of the Indenture), the Project or any portion thereof is
destroyed or damaged in whole or in part by fire or other casualty, or title
to, or 

 19
 

 

 

the temporary use of, the
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 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 Project, or (ii) take any other action, including the
redemption of 2006 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 2006 Series A Bonds from gross income
for federal income tax purposes under Section 103(a) of the Code; provided that
if the 2006 Series A Bonds bear interest at the Flexible Rate or Semi-Annual
Rate, such redemption must occur on a date on which the 2006 Series A Bonds are
otherwise subject to optional redemption.

Section 6.2.            Insurance.
 Prior to the Release Date, Company
agrees to insure the 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 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 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 

 20
 

 

 

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 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 2006 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.

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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 2006 Series A Bonds remain outstanding, the Company will not issue,
assume or guarantee any Debt secured by any mortgage, security interest, pledge
or lien (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 2006 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.

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(b)           Notwithstanding the
provisions of Section 7.9(a) from and after the Release Date and so long
as any 2006 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 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)           Notwithstanding the
provisions of Section 7.9(a) and Section 7.9(b), the Company will
not, from and after the Release Date, issue, assume, guarantee or permit to
exist any debt of the Company secured by a mortgage, the creditor of which
controls, is controlled by, or is under common control with, the Company.

(d)           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 2006 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 2006 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 2006 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, 

 23
 

 

 

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 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.

Section 8.4.            Redemption
of 2006 Series A Bonds.  Upon the
agreement of Company to deposit moneys in the Bond Fund in an amount sufficient
to redeem 2006 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 2006
Series A Bonds outstanding, as may be specified by Company, on the redemption
date specified by the Company.

Section 8.5.            Reference
to 2006 Series A Bonds Ineffective after 2006 Series A Bonds Paid.  Upon payment in full of the 2006 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 4.6 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 2006 Series A Bonds, the First
Mortgage Bonds and the Trustee shall be ineffective and neither the Trustee nor
the holders of any of the 2006 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 (e) of Section
5.1 hereof which results in failure to pay principal of, premium or
interest on or the purchase price of the 2006 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, 

 24
 

 

 

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.

(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.

(f)            The occurrence of
an Event of Default under the Indenture.

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(k) and (l), Section 4.6, Section 4.8 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 2006 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,
including terrorists; 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; 

 25
 

 

 

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.

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

(a)           By written notice to
Company, the Trustee, on behalf of the Issuer at the direction of the Bond
Insurer, may declare an amount equal to the principal and accrued interest on
the 2006 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)           The Trustee, on
behalf of the Issuer at the direction of the 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)           The Trustee, on
behalf of the Issuer at the direction of the Bond Insurer, 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, upon direction
by the Bond Insurer or the Bond Insurer itself, 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 2006 Series A Bonds
have been fully paid (or provision for payment thereof has been made in
accordance 

 26
 

 

 

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 2006
Series A Bonds, and all other liabilities of Company accrued and to accrue
hereunder or under the Indenture through final payment of the 2006 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 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 2006
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 and/or Trustee 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 and/or Trustee 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 2006 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 2006 Series A
Bonds and the principal of, and premium, if any, on any and all 2006 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 2006 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 2006 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.

 27

 

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:

(a)           If
in the judgment of Company, unreasonable burdens or excessive liabilities shall
have been imposed after the issuance of the 2006 Series A Bonds upon Company
with respect to the 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
Project;

(b)           If the Project or a
portion thereof or other property of Company in connection with which the
Project is used shall have been damaged or destroyed to such an extent so as,
in the judgment of the Company, to render the Project or other property of
Company in connection with which the 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 Project or
the taking by eminent domain of such use or control of the Project or other
property of Company in connection with which the Project is used so as, in the
judgment of the Company, to render the Project or other property of Company in
connection with which the 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 2006 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 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 2006
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.

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In the case of prepayment pursuant to this Section (or
if any 2006 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 2006 Series A Bonds then outstanding (or, in the case any 2006
Series A Bonds are redeemed in part pursuant to Section 6.1 hereof, such
portion of the 2006 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 2006 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 2006 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 2006 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 2006 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
2006 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 2006 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 2006 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 2006
Series A Bonds in order to effect such redemption.  The 2006 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 2006 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 

 29
 

 

 

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 2006 Series A Bonds, the interest on the 2006 Series A
Bonds is included in the gross income of the owners thereof for federal income
tax purposes, other than with respect 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 2006 Series A Bond or from the Issuer unless (i) the Issuer
or the registered owner or former registered owner of the 2006 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 2006 Series A Bond in the computation of minimum or indirect
taxes.  All of the 2006 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 2006 Series A
Bonds of one or more series or one or more maturities would have the result
that interest payable on the remaining 2006 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 2006 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 2006 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 2006 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 2006 Series A Bonds.

 30
 

 

 

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
2006 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 2006 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 2006 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 2006 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 June 1, 2036, or
until such earlier or later time as all of the 2006 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 2006 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 2006 Series A Bonds shall be for the equal
and ratable benefit, protection and security of the holders of any and all of
the 2006 Series A Bonds and shall survive the termination of this Agreement and
all obligations of Company contained herein relating to indemnification of
Issuer, Trustee, 

 31
 

 

 

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:

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 E.ON U.S. LLC, 220
West Main Street, Louisville, Kentucky 40202, Attention: Treasurer, and

If to Trustee, at 60 Wall Street, 27th Floor, Mailstop NYC60-2715, New York, New York
10005, Attn: Trust & Securities Services (Municipal Group).

If to Bond Insurer, at One State Street Plaza, New
York, New York 10004, Attn: Surveillance Department, Global Utilities.

If to Paying Agent, Remarketing Agent, Auction Agent,
Initial Broker-Dealer 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.

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 Construction
Fund, Bond Fund and Rebate Fund.  It
is agreed by the parties hereto that any amounts remaining in the Construction
Fund and 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
2006 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 6.07 of the Indenture.

 32
 

 

 

Section 11.6.          Amendments, Changes and
Modifications.  Subsequent to the
issuance of the 2006 Series A Bonds and prior to payment in full of all 2006
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 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.

Section 11.12.        The Bond Insurer shall be a third party
beneficiary of the provisions of this Agreement.

(remainder of page
left blank intentionally)

 33

 

 

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 “Shorty” 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
13th day of
July, 2006, the foregoing instrument was produced to me in said County by
Harold Tomlinson and Traci Courtney, 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 13th day of
July, 2006.  My commission expires June
28, 2009.

	
  (SEAL)

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Debra L. Ewen

  
	
   

  	
  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
13th day of
July, 2006, 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 13th day of July, 2006.  My commission expires 6/21/2010.

	
  (SEAL)

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/  Betty Brinly

  
	
   

  	
  Notary Public

  
	
   

  	
  State at Large, Kentucky

  

 

This
Instrument Prepared by the

Undersigned, Attorney at Law of

STOLL KEENON OGDEN PLLC
 2000 PNC Plaza

500 West Jefferson Street

Louisville, Kentucky 40202

	
  

  	
  /s/ Spencer E.
  Harper, Jr.

  	
   

  
	
   

  	
  SPENCER E.
  HARPER, JR.

  	
   

  

 

 

 

Tax-Exempt Analysis Report

Kentucky Utilities Company

Ghent Generating Station Unit No. 4 Collection,

Storage, Treatment, Processing, and

Disposal of Solid Wastes

July 20, 2006

 

 

R. W. BECK
TAX-EXEMPT ANALYSIS REPORT

Table of Contents

	
  SECTION 1 INTRODUCTION

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.1

  	
   

  	
  Purpose

  	
   

  	
  1-1

  	
   

  
	
  1.2

  	
   

  	
  Project Overview

  	
   

  	
  1-2

  	
   

  
	
   

  	
   

  	
  General Description

  	
   

  	
  1-2

  	
   

  
	
   

  	
   

  	
  Classification as Solid
  Wastes

  	
   

  	
  1-2

  	
   

  
	
   

  	
   

  	
  FGD and the Solid Waste
  Facilities

  	
   

  	
  1-3

  	
   

  
	
   

  	
   

  	
  The General FGD
  Project

  	
   

  	
  1-3

  	
   

  
	
   

  	
   

  	
  Solid Waste Processing

  	
   

  	
  1-3

  	
   

  
	
   

  	
   

  	
  FGD Process
  Equipment

  	
   

  	
  1-4

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 2 TAX-EXEMPT ANALYSIS

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.1

  	
   

  	
  FGD Scrubber Vessel and
  Associated Equipment

  	
   

  	
  2-4

  	
   

  
	
   

  	
   

  	
  Description

  	
   

  	
  2-4

  	
   

  
	
   

  	
   

  	
  Cost Allocation

  	
   

  	
  2-5

  	
   

  
	
  2.2

  	
   

  	
  Sludge Transfer Piping
  and Pumps

  	
   

  	
  2-5

  	
   

  
	
  2.3

  	
   

  	
  Decant Pumps and Return
  Piping

  	
   

  	
  2-5

  	
   

  
	
  2.4

  	
   

  	
  Construction Costs

  	
   

  	
  2-5

  	
   

  
	
  2.5

  	
   

  	
  Additional Project Costs

  	
   

  	
  2-5

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 3 CONSIDERATIONS AND ASSUMPTIONS

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 4 OPINIONS

  	
   

  	
   

  	
   

  

 

EXHIBIT 1

This
report has been prepared for the use of the client for the specific purposes
identified in the report.  The
conclusions, observations and recommendations contained herein attributed to R.  W. Beck, Inc. (R. W. Beck) constitute the
opinions of R. W. Beck. To the extent that 
statements, information and opinions provided by the client or others
have been used in the preparation of this report, R. W. Beck has relied upon
the same to be accurate, and for which no assurances are intended and no
representations or warranties are made. 
R. W. Beck makes no certification and gives no assurances except as
explicitly set forth in this report.

Copyright 2006, R. W. Beck, Inc.
 All rights reserved.

 

 

Section 1

INTRODUCTION

1.1 Purpose

R.
W. Beck, Inc. (“R. W. Beck”) was retained by Citigroup Global Markets, Inc.
(the “Client”) and Kentucky Utilities Company (the “Sponsor”), pursuant to a
Professional Services Agreement dated June 28, 2006 (herein, the “PSA”).  Under the PSA,  R. W. Beck was to undertake an independent
engineering review of the Sponsor’s proposed solid waste collection, storage,
treatment, processing, and disposal facilities, for the collection, control,
and disposal of solid wastes created at the Ghent Generating Station Unit 4
(the “Project”) by operation of flue gas desulphurization facilities serving
such Ghent Unit 4 generating unit (the “FGD”) in order to determine the type or
classification of equipment and systems within the Project which qualify for
the solid waste disposal facilities designation for tax exempt status.

Included
in the services provided by R. W. Beck were the following:

·                       Site
visit to the Sponsor’s corporate office in Louisville, Kentucky and to the
Ghent Plant in Carroll County, Kentucky;

·                       Review
of various cost estimates and other documents made available by the Sponsor,
associated with the Project to the extent necessary to form
professionalopinions about the Project; and

·                       Formulation
of an opinion as to qualification of Project facilities for tax-exempt financing
status pursuant to Section 103 and Section 142(a)(6) of the Internal Revenue
Code of 1986, as solid waste disposal facilities.

Presented
herein is the report (the “Report”), summarizing R. W. Beck’s review and
analyses concerning the Project.  The
Report is considered confidential and is prepared solely for the use of the
Client and Sponsor, or duly assigned agents or representatives, including any
bond counsel rendering an opinion on the tax-exempt status of any bonds issued
in connection with or for the purpose of financing the Project.  The Report may not be used for any other
purpose without our prior written consent, and as expressly provided for in the
executed PSA.  The Report is to be used
only for the purpose for which it was prepared, and should not be relied upon
by others for any other use.  The Report
has been prepared at the request of and for the use of the Client and the
Sponsor, and the conclusions, observations, and recommendations contained
herein constitute only the opinions of R. W. Beck.  To the extent that statements and books of
record and accounts of the Client and/or the Sponsor, statements of independent
public accountants and auditors employed by the Client, and information prepared
by others have been used in the preparation of the Report, no assurances are
intended and no representations or warranties are made.  R. W. Beck makes no certification and gives
no assurances except as explicitly set forth in the Report.

 

 

1.2 Project Overview

The
Project will be constructed at the existing Sponsor Ghent electrical Generating
Station located in Carroll County, Kentucky. 
The Sponsor reported to R. W. Beck that it intends to construct the
Project through Fluor Corporation (or a subsidiary or an affiliate thereto)
(herein, “Fluor”) and that major equipment such as the absorber, reaction tank,
and related facilities will be provided by Babcock Power Environmental,
Incorporated (“BPEI”).  The Sponsor
provided R. W. Beck with limited capital cost estimates for certain pieces of
the major equipment, as more fully discussed herein and has provided summary
information with respect to the Ghent Plant Unit No. 3 flue gas
desulphurization project (herein, the “Unit No. 3 Scrubber”). The Sponsor stated
that the Unit No. 3 Scrubber is a similar unit to the Project and advised R. W.
Beck to use the Unit No. 3 Scrubber summary as a basis from which to perform
its analysis with respect to capital costs required to compute the costs of the
Project but not part of the existing capital cost estimates submitted by BPEI.

General Description

The
Ghent Generating Station is a coal fired steam electric generating station
located in Carroll County, Kentucky.  Air
emission control regulations require removal of particulates and sulfur dioxide
(“SO2”)
from the flue gas exhaust emissions and solid waste disposal regulations
require the disposal of combustion by-products including FGD-generated waste
reagent slurry (calcium sulfite, also referred to as lime mud sludge).

To
comply with air emission control regulations, the use of FGD systems are
required for removal of SO2
from the flue gas exhaust of the generating units at the Ghent Generating
Station. This is accomplished using FGDs, which mix limestone with flue gas to
remove SO2.
Operation of the FGD using calcium carbonate (a limestone reagent), for
desulfurization, produces a solid waste in the form of calcium sulfite, which
is oxidized to produce calcium sulfate.

The
large quantity of FGD-produced solid sludge wastes requires large scale solid
waste sludge handling and disposal facilities. The disposal costs for
collection, storage, treatment, processing and final disposal of such solid
wastes are very significant and the Sponsor has an indefinite responsibility to
maintain the solid waste storage facilities.

Classification as Solid Wastes

FGD
sludge wastes are solid wastes produced at the Ghent Generating Station.  These wastes have no use and no value in
their original form and are required to be disposed of in a solid waste
disposal facility.  This is necessary to
comply with solid waste disposal regulations.

 1-2
 

 

 

FGD and the Solid Waste
Facilities

The General FGD Project

On
December 20, 2004, the Sponsor filed with the Public Service Commission of
Kentucky a petition for approval of a certificate of public convenience and
necessity for construction of FGD systems to be constructed and installed to
serve the Ghent Generating Station Units 2, 3 and 4. Ghent is a 4-unit, 2,100
MW plant.  An FGD was installed on Ghent Unit
1 in 1994 and has been in continuous operation since its completion.  Estimated completion years for the three FGD
additions will be: Ghent Unit 3, May 1, 2007; Ghent Unit 2, 2009; and Ghent
Unit 4, 2008.  The Project includes all
necessary equipment for FGD solid waste reagent sludge collection, storage,
treatment, processing and final disposal in off-site waste dumps.

The
Ghent Unit 4, 2008 Project is the subject of this report, together with certain
common elements of the other FGD systems to be constructed and construction
labor costs. A complete new FGD will be installed to serve Ghent Unit 4.  Solid waste sludge from Ghent Unit 4 will be
conveyed to the existing sludge waste (impure gypsum) settling pond.  The pumps and piping connecting with the settling
pond will be added to and upgraded, as will the decant pumps and piping that
return carrier water to the FGD.

Solid Waste Processing

In
the FGD process, SO2
is removed from the flue gas by reacting it with calcium carbonate
(limestone).  The calcium carbonate is
mixed with water (a carrier) to create a slurry that can be sprayed into the
flue gas within the FGD absorber vessel. 
The initial step of the process chemically substitutes SO2
for the carbonate in limestone to create a solid sludge waste, primarily
calcium sulfite, a sludge which must be removed from the reagent solution
circulating through the FGD.  Calcium
sulfite is useless, unused, unwanted, or discarded solid waste material and has
no market or other value at the place where it is located.

	
  SO2

  	
  +

  	
  CaCO3

  	
  +

  	
  1⁄2 H2O

  	
  →

  	
  CaCO3

  	
  *

  	
  1⁄2 H2O

  	
  +

  	
  CO2

  
	
  (gas)

  	
   

  	
  (limestone)

  	
   

  	
  (water)

  	
   

  	
  (calcium sulfite
  with water)

  	
   

  	
  (gas)

  

 

Further
treatment and processing of the solid waste with the introduction of oxygen (“forced
oxidation”) promotes the dewatering and handling characteristics of the solid
waste by reacting oxygen with the solid waste calcium sulfite and creating
imperfect calcium sulfate.

	
  2 (CaSO3

  	
  *

  	
  1⁄2 H2O)

  	
  +

  	
  O2

  	
  +

  	
  3 H2O

  	
  →

  	
  2 CaSO4

  	
  4 H2O

  
	
  2 (calcium
  sulfite with water)

  	
   

  	
   

  	
   

  	
   2 (calcium sulfate)

  

 

This
further treatment and processing of the solid waste enables the waste
by-product to be dewatered more readily and to be disposed of more efficiently.

 1-3
 

 

 

The
calcium sulfate solids (impure gypsum) that are produced after forced oxidation
are suspended in water and will settle out if left undisturbed. However, for
efficient operation, water is required as a means of transport to solid waste
disposal facilities constituting landfills and solid waste dumps.  This is the current practice for the Ghent
Generating Station, where water, as a carrier, transports the waste impure
gypsum to an on-site settling pond. This same method of operation is planned
and is being implemented for the 2007, Ghent Unit 3 Project.  Impure gypsum transfer pumps and piping transport
the solid waste (impure gypsum) to on-site settling sludge disposal ponds.

Additions
and upgrades will be required to increase the solid waste handling capabilities
of the pumps and piping to handle and process the additional solid wastes to be
created. A mixture of approximately 20 to 30 percent solids is maintained for
efficient transport of the impure gypsum to the settling and disposal
ponds.  Decant pumps currently are used
to reclaim carrier water from the settling ponds and send it back to the Ghent
Unit 1 FGD. Additions and upgrades will be required to increase the handling
capabilities of the decant pumps and return piping to the various FGD systems
being installed.

FGD Process Equipment

The
FGD includes equipment to clean flue gas of SO2
generated by the combustion of coal. The cleaning process in turn produces the
calcium sulfite, which itself is contaminated by inert particulates and
unreacted limestone.  Additional solid
waste treatment and processing of the calcium sulfite produces an impure gypsum
material, which, although more easily transported to waste disposal dumps, is
useless, unwanted and discarded solid waste having no market or value at the
place where it is located. Further cleaning, dewatering, processing and
purification would be required to convert the impure gypsum into a form which
has any commercial value or uses. Additionally, unreacted limestone is
recirculated through the absorber vessel to convert the limestone into calcium
sulfite, a solid waste.

 1-4

 

Section 2

TAX-EXEMPT ANALYSIS

According
to Treasury Regulation Section 1.103- 8(f), a solid waste disposal facility
means “... any property or portion thereof used for the collection, storage,
treatment, utilization, processing, or final disposal of solid waste...A facility
which disposes of solid waste by reconstituting, converting, or otherwise
recycling it into material which is not waste shall also qualify as a solid
waste disposal facility if solid waste ... constitutes at least 65 percent, by
weight or volume, of the total materials introduced into the recycling process
... Solid waste is ... property which is useless, unused, unwanted, or discarded
solid material which has no market or other value at the place where it is
located.” The Project is a solid waste disposal facility and does not function
as a recycling facility.

The
solid wastes disposed of by the Project will primarily consist of calcium
sulfite and impure solid waste calcium sulfate by-product generated by the
FGD.  The Project collects, stores, treats,
and processes the solid wastes generated by the FGD for disposal in a solid
waste landfill.  Such solid wastes have
no market or other value at the place where they are located because: (i) no
person is willing to purchase the non­commercial grade impure gypsum on-site at
any price; and (ii) the transportation cost to market exceeds the value, if
any, of the non-commercial grade impure gypsum at the market.

Impure
contaminated gypsum from the Project will be transported to a holding tank and
then pumped to a waste landfill and dump. 
At present, Synthetic Materials Company is allowed to mine, without
purchase, the unwanted material from the pond and waste landfill and dump and
process it in an attempt to produce a commercial grade product. Solid waste
that cannot be processed into a commercial grade product is returned to the
waste landfill and dump.

This
Project has both solid waste disposal-related functions and non-solid
waste-related functions. Therefore, a methodology was established to separate and
allocate the Project’s total costs between the costs related to solid waste
disposal functions, which are tax-exempt (“Qualifying Costs”), and any costs
related to any other function, which are not tax-exempt (“Non-Qualifying Costs”).  The Project components were separated into
three categories as follows: 

·           Project components that do not serve
any solid waste disposal-related function;

·           Project components that serve only a
solid waste disposal-related function; and

·           Project components that serve a dual
function.

The
following paragraphs describe the methodology used to allocate costs.  Table 1 presents a summary of the tax-exempt
Qualifying Cost analysis.  Exhibit 1 to
this Report provides the cost information supplied by the Sponsor.

 

 

Specifically,
as part of R. W. Beck’s methodology, we reviewed the design concept of the
Ghent Generating Station Unit No. 4 FGD, identified those parts of the system
that collect, store, treat, and process the calcium sulfite and impure calcium
sulfate wastes, reviewed costs for the various parts of the system provided by
the Sponsor, and categorized those costs as qualified/non qualified for tax
exempt financing purposes using our professional judgment to identify those
portions of the costs that are associated with solid waste collection, storage,
treatment, processing and disposal. Our professional judgment in allocating
those costs associated with waste collection, storage, treatment, processing
and disposal as qualified costs is based on the incremental costs associated
with the design, procurement and installation of the proposed system to
collect, store, treat, process and dispose of the wastes as compared to
generation and FGD facilities not so equipped. 
Important design variables such as liquid to gas ratios and solid waste
concentrations of the various streams were used to allocate costs as Qualifying
Costs for tax-exempt financing purposes.

 2-2

 

TAX-EXEMPT ANALYSIS

Table 1 Summary of the Tax-Exempt Qualifying Cost
Analysis(1)

	
   

  	
   

  	
   

  	
   

  	
  Estimated

  	
   

  	
  Percentage Qualifying

  	
   

  	
  Qualifying

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Costs

  	
   

  	
  Costs (%)

  	
   

  	
  Costs

  	
   

  
	
  Material Costs

  	
   

  
	
  BPEI Absorber Vessel

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Struct & Ext Embeds
  (2) (5)

  	
   

  	
  Absorber Vessel

  	
   

  	
  $

  	
  281,721.22

  	
   

  	
  67.5

  	
  %

  	
  $

  	
  190,161.82

  	
   

  
	
  Outlet Duct/Wall Rings (2) (2)

  	
   

  	
  Absorber Vessel

  	
   

  	
  1,036,521.46

  	
   

  	
  67.5

  	
  %

  	
  699,651.99

  	
   

  
	
  Absorber Vessel (2) (5)

  	
   

  	
  Absorber Vessel

  	
   

  	
  4,821,153.67

  	
   

  	
  67.5

  	
  %

  	
  $

  	
  3,254,278.73

  	
   

  
	
  BPEI Reaction Tank

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Struct & Ext Embeds
  (2)

  	
   

  	
  Absorber Vessel

  	
   

  	
  $

  	
  448,126.50

  	
   

  	
  100

  	
  %

  	
  $

  	
  448,126.50

  	
   

  
	
  Outlet Duct/Wall Rings (2)

  	
   

  	
  Absorber Vessel

  	
   

  	
  1,648,767.30

  	
   

  	
  100

  	
  %

  	
  1,648,767.30

  	
   

  
	
  Absorber Vessel (2)

  	
   

  	
  Absorber Vessel

  	
   

  	
  7,668,881.75

  	
   

  	
  100

  	
  %

  	
  7,668,881.75

  	
   

  
	
  Agitators (3)

  	
   

  	
  Reaction tank

  	
   

  	
  1,514,778.28

  	
   

  	
  100

  	
  %

  	
  1,514,778.28

  	
   

  
	
  BPEI Recirculation Loop

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Spray & Quench
  System (5)

  	
   

  	
  Recirculation Loop

  	
   

  	
  $

  	
  4,613,188.39

  	
   

  	
  67.5

  	
  %

  	
  $

  	
  3,113,902.16

  	
   

  
	
  Piping Systems (5)

  	
   

  	
  Recirculation Loop

  	
   

  	
  3,786,945.69

  	
   

  	
  67.5

  	
  %

  	
  2,556,188.34

  	
   

  
	
  Sludge Transfer
  Piping/Pumps

  	
   

  	
   

  	
   

  	
  2,000,000.00

  	
   

  	
  100

  	
  %

  	
  2,000,000.00

  	
   

  
	
  Decant Pumps and Return
  Piping

  	
   

  	
   

  	
   

  	
  2,000,000.00

  	
   

  	
  0

  	
  %

  	
  0.00

  	
   

  
	
  Equipment Costs

  	
   

  
	
  BPEI Absorber Vessel

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Instruments &
  Controls (5)

  	
   

  	
  Absorber Vessel

  	
   

  	
  $

  	
  199,331.05

  	
   

  	
  67.5

  	
  %

  	
  $

  	
  134,548.46

  	
   

  
	
  Mist Eliminator Systems

  	
   

  	
  Absorber Vessel

  	
   

  	
  757,457.99

  	
   

  	
  0

  	
  %

  	
  0.00

  	
   

  
	
  BPEI Reaction Tank

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Instruments &
  Controls

  	
   

  	
  Absorber Vessel

  	
   

  	
  $

  	
  317,070.63

  	
   

  	
  100

  	
  %

  	
  $

  	
  317,070.63

  	
   

  
	
  Mist Eliminator Systems

  	
   

  	
  Absorber Vessel

  	
   

  	
  1,204,868.41

  	
   

  	
  0

  	
  %

  	
  0.00

  	
   

  
	
  BPEI Recirculation Loop

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Recirculation Pumps (5)

  	
   

  	
  Recirculation Loop

  	
   

  	
  $

  	
  1,824,619.29

  	
   

  	
  67.5

  	
  %

  	
  $

  	
  1,231,618.02

  	
   

  
	
  BPEI Oxidation Blowers

  	
   

  	
  Oxidation Blowers

  	
   

  	
  1,411,497.94

  	
   

  	
  100

  	
  %

  	
  1,411,497.94

  	
   

  
	
  BPEI Other Costs

  	
   

  
	
  BPEI Engineering (4)

  	
   

  	
   

  	
   

  	
  $

  	
  2,891,849.44

  	
   

  	
  70

  	
  %

  	
  $

  	
  2,031,915.64

  	
   

  
	
  Overall Total

  	
   

  	
   

  	
   

  	
  $

  	
  38,426,779.00

  	
   

  	
  73

  	
  %

  	
  $

  	
  28,221,387.55

  	
   

  

(1)             All
Qualifying Costs exclude allowance for associated construction and labor, which
is a qualified cost.

(2)             The
absorber vessel and reaction tank are a single integrated structure.  KU reports that BPEI provided a breakdown of
Absorber costs indicating that 38.6 percent of the absorber cost
attributed  to the absorber vessel and
61.4 percent of the absorber cost is associated with the reaction tank.

(3)             The
Agitators are strictly associated with the reaction tank as indicated in
information provided by the Sponsor.

(4)             The
percent of Qualifying Costs of the BPEI engineering costs is the overall
proportion of the of BPEI Qualifying Costs to the total BPEI Costs allocated to
any facility.

(5)             Due
to the increased amount of solids in the recirculation loop and the increased
liquid to gas ratio due to the oxidation system, the total additional liquid
pumping demand is increased.   Solids
waste processing is proportionally increased. 
The qualified costs associated with this increase are 67.5 percent of
total cost.

Exhibit 1 shows that each component of
the Project’s total estimated capital cost is classified within one of the
following areas:

·           Material

 2-3
 

 

 

·              Equipment; and

·              Labor (not included in Qualifying
Costs for this Report).

Within
each of these major classifications, component costs were further classified,
if applicable, into one of the following sub-classifications: 

·           Absorber Vessel; 

·           Absorber Reaction Tank; 

·           Absorber Recirculation Loop; 

·           Oxidation Air Blowers; 

·           Sludge Transfer Pumps and Piping;
and  

·           Decant Pumps and Piping. 

Following
is a description of the Project components and the allocation of the component
costs between Qualifying and Non-Qualifying Costs.

2.1 FGD Scrubber Vessel and
Associated Equipment

Description

The
Unit No. 4 FGD Scrubber will consist of a Stebbins scrubber tower, a reactant
slurry recirculation system, and oxidation air blowers.  The scrubber tower will be composed of a
liquid holding area (the reaction tank) underneath a space allowing for vertical
air and spray slurry countercurrent flow (the absorber vessel).  Flue gas enters the bottom of the absorber
vessel, passes through a mist eliminator at the top of the absorber vessel, and
is ducted to a stack for discharge to the atmosphere. Recirculation pumps will
recirculate the slurry primarily consisting of limestone, calcium sulfite,
calcium sulfate, and inert materials from the reaction tank to a spray
distribution system at the top of the absorber vessel.  The recirculating waste slurry will fall into
the reaction tank located at the bottom of the absorber tower.  In this stage, the calcium carbonate in the
limestone slurry will react with water and SO2
in the flue gas to produce calcium sulfite, while oxygen exchanged between the
flue gas and the liquid droplets will promote some oxidation of calcium sulfite
to calcium sulfate.

The
reaction tank is designed to hold an adequate liquid volume to ensure efficient
usage of limestone and to provide adequate residence time for complete
oxidation of calcium sulfite to impure calcium sulfate (impure gypsum).  Included as part of the reaction tank will be
a fixed air sparger system supplied by the oxidation air blowers, which will be
supplied to introduce large quantities of air to maximize the efficiency of the
oxidation of calcium sulfite to impure calcium sulfate (impure gypsum).  The reaction tank will be the primary vessel
in the process to convert calcium sulfite waste by-product into calcium sulfate
for efficiency in movement and disposal of such solid wastes.

 2-4

 

 

Cost Allocation

The
principal purpose of the scrubber tower is to remove SO2
from the flue gas. However, the costs associated with a portion of the absorber
vessel and recirculation loop and all of the absorber reaction tank and
oxidation air blowers are included as being Qualifying Costs, because they are
directly associated with collecting and processing the solid waste (impure
gypsum) sludge.

Water
acts as the processing medium and transport mechanism for the recirculation of
calcium carbonate and the calcium sulfite waste by-product. Due to the
additional pumping demands associated with the oxidation of calcium sulfite,
67.5 percent of the recirculation loop is included as a Qualifying Cost.

The
absorber vessel serves a dual function - an air pollution control function
associated with the removal of SO2
from the flue gas, which creates a calcium sulfite solid wastes, and a
simultaneous solid waste collection, processing, and disposal function
associated with recirculating all of the solid wastes to better utilize the
calcium carbonate and to enhance the oxidation of calcium sulfite into calcium
sulfate (impure gypsum).  The increased
recirculation of 67.5 percent is also applied to the absorber vessel and is
included as a Qualifying Cost.

The
remaining conversion of calcium sulfite to calcium sulfate takes place in the
absorber reaction tank, which is the primary step in the conversion process
that converts calcium sulfite waste to calcium sulfate.

2.2 Sludge Transfer Piping and
Pumps

In
order to further process the impure gypsum sludge produced in the absorbers, it
is pumped to a holding tank and then pumped to a landfill and solid waste
dump.  All of the impure gypsum sludge
transfer piping and pumps are included as Qualifying Costs.

2.3 Decant Pumps and Return
Piping

Decant
pumps and return piping bring makeup water back to the scrubber system. Since
this equipment does not collect, store, treat, or process the solid waste, it
is not included as a Qualifying Cost.

2.4 Construction Costs

No
labor or construction costs were provided as part of this analysis.  Therefore, there are no construction costs
that are included as Qualifying Costs.

2.5 Additional Project Costs

Additionally
project-related costs would typically include an allocable share of the costs,
a portion of utilities, foundations, land, control rooms, owner’s general and 

 2-5
 

 

 

administrative
costs, construction management, and start-up. 
However, due to the limited information made available by the Sponsor
with regard to these costs, such costs have not been included in this analysis,
and thus, are not included in the Qualifying Costs.

 2-6

 

 

Section 3

CONSIDERATIONS AND ASSUMPTIONS

In
the preparation of this Report and the opinions that follow, R. W. Beck has
made certain assumptions with respect to conditions, which may occur in the
future.  In addition, we have used and
relied upon certain information and assumptions provided to us by sources,
which we believe to be reliable.  We
believe the use of such information and assumptions is reasonable for the
purposes of this Report.  However, some
assumptions will invariably not materialize as stated herein or may vary
significantly due to unanticipated events and circumstances.  Therefore, the actual results can be expected
to vary from those forecasted to the extent that actual future conditions
differ from those assumed by us or provided to us by others.  The principal considerations and assumptions
made by us and the principal information and assumptions provided to us by
others include the following:

·                       We
have made no determination as to the validity, enforceability or interpretation
of any law, contract, rule, or regulation applicable to the Project and its
operations, except for our interpretation of Section 142(a)(b) of the Internal
Revenue Code of 1986, required to undertake the analysis and reach the opinion
and conclusions stated herein. However, for the purposes of this Report, we
have assumed that all such laws, contracts, rules, and regulations will be
fully enforceable in accordance with their terms as we understand them.

·                       During
the preparation of this Report, we have reviewed capital cost estimates
provided to us by the Sponsor for completion of the Project most of which the
Sponsor reported were provided by BPEI. 
We have relied on the capital cost estimate, as being true, accurate,
and complete for the purposes of conducting our analysis and completing the
Report.

·                       Our
opinions set forth herein are based on information provided by the Sponsor and
others, other information generally available to us, and on studies and
analyses undertaken by us, all of which are basic to and in support of our
opinions and analyses of the Project. 
The studies and analyses undertaken in the preparation of the opinions
contained herein have been performed in accordance with standard engineering
practices. These studies and analyses have included investigations, inspection
and review of certain documents relating to the Project. These studies and
analyses have also included investigations, inspection and review of certain
other documents and drawings made available to us by the Sponsor.

 

 

Section 4 

OPINIONS

Set forth below are the principal opinions R. W.
Beck has reached after review of the Project. For a complete understanding of
the estimates, assumptions, and calculations upon which these opinions are
based, the Report should be read in its entirety.  On the basis of our reviews, analyses, and
investigations of the Project, and the assumptions set forth in this Report, we
are of the opinion that:

1.                 The
Project includes only property that will be used for the collection, storage,
treatment, utilization, processing, or final disposal of solid wastes or
property that is functionally related and subordinate thereto.

2.                 The
solid wastes collected, stored, processed, and disposed of will consist of
calcium sulfite and impure calcium sulfate waste by-products generated by the
FGD process. Such solid waste is useless, unused, unwanted, or discarded solid
material, which has no market or other value at the place where it is located.

3.                 The
calcium sulfite and impure sulfate waste by-product constitutes at least 65
percent, by weight or volume, of the total materials introduced into each
element of the solid waste disposal process.

4.                 The
Project includes property which has both a solid waste disposal function and a
function other than the disposal of solid waste, and thus, requires an
allocation of the cost of the Project’s property between the property’s solid
waste disposal functions and other functions. 
Such allocations contained in this Report are based on the methodology
presented in this Report.

 

Exhibit 1

 

 

EXHIBIT 1

Original Cost Information from BPEI

 

	
  BPEI Description

  	
   

  	
  Amounts

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Struct & Ext Embeds (1) (2)

  	
   

  	
  $

  	
  729,847.71

  	
   

  	
  absorber vessel

  	
   

  	
  material

  	
   

  
	
  Outlet Duct/Wall Rings (1) (2)

  	
   

  	
  2,685,288.76

  	
   

  	
  absorber vessel

  	
   

  	
  material

  	
   

  
	
  Absorber Vessel (1) (2)

  	
   

  	
  12,490,035.42

  	
   

  	
  absorber vessel

  	
   

  	
  material

  	
   

  
	
  Agitators

  	
   

  	
  1,514,778.28

  	
   

  	
  reaction tank

  	
   

  	
  material

  	
   

  
	
  Spray & Quench
  System

  	
   

  	
  4,613,188.39

  	
   

  	
  recirculation loop

  	
   

  	
  material

  	
   

  
	
  Piping Systems

  	
   

  	
  3,786,945.69

  	
   

  	
  recirculation loop

  	
   

  	
  material

  	
   

  
	
  Oxidation Blowers

  	
   

  	
  1,411,497.94

  	
   

  	
  oxidation blowers

  	
   

  	
  equipment

  	
   

  
	
  Instruments &
  Controls (1) (2)

  	
   

  	
  516,401.69

  	
   

  	
  absorber vessel

  	
   

  	
  equipment

  	
   

  
	
  Mist Eliminator Systems
  (1) (2)

  	
   

  	
  1,962,326.40

  	
   

  	
  absorber vessel

  	
   

  	
  equipment

  	
   

  
	
  Recirculation Pumps

  	
   

  	
  1,824,619.29

  	
   

  	
  recirculation loop

  	
   

  	
  equipment

  	
   

  
	
  Engineering

  	
   

  	
  2,891,849.44

  	
   

  	
  spread

  	
   

  	
   

  	
   

  
	
  Total

  	
   

  	
  $

  	
  34,426,779.00

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Estimated cost information provided by Sponsor

  	
   

  
	
  Sludge Transfer
  Piping/Pumps

  	
   

  	
  $

  	
  2,000,000

  	
   

  	
  material

  	
   

  	
   

  	
   

  
	
  Decant Pumps and Return Piping

  	
   

  	
  $

  	
  2,000,000

  	
   

  	
  material

  	
   

  	
   

  	
   

  

(1)             The
label of “Absorber Vessel” is equivalent to the designation of Scrubber Tower
in this report

(2)             The
absorber vessel and absorber tank are a single integrated structure - the
scrubber tower.  KU reports that BPEI
provided a breakdown of Absorber costs indicating that 38.6 percent of the
scrubber tower cost attributed  to the
absorber vessel and 61.4 percent of the scrubber tower is associated with the
absorber reaction tank.

 E-2

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00107-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00107-of-00352.parquet"}]]