Document:

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                                                                     Exhibit 4.5
                      LOAN ESCROW AND SECURITY AGREEMENT

     THIS LOAN ESCROW AND SECURITY AGREEMENT (this "Agreement"), dated as of
July 2, 2001, is by and among MISSION ENERGY HOLDING COMPANY, a Delaware
corporation (the "Company"), GOLDMAN SACHS CREDIT PARTNERS L.P., as the
Collateral Agent for the Lenders under the Credit Agreement (as defined below)
(in such capacity, together with its successors in such capacity, the "Term Loan
Collateral Agent"), GOLDMAN SACHS CREDIT PARTNERS L.P., as Administrative Agent
(in such capacity, together with its successors and assigns, the "Administrative
Agent") under the Credit Agreement (defined below) and WILMINGTON TRUST COMPANY,
as Loan Escrow Agent (in such capacity, together with its successors in such
capacity, the "Loan Escrow Agent"). Capitalized terms used herein and not
otherwise defined have the meanings assigned to them in the Credit Agreement.

                                  WITNESSETH:

     WHEREAS, the Company, various Lenders (the "Lenders"), the Administrative
Agent and the Term Loan Collateral Agent have entered into Credit Agreement,
dated as of the date hereof (as amended and supplemented from time to time, the
"Credit Agreement"), pursuant to which the Lenders have agreed to extend a loan
to the Company in an aggregate amount not to exceed $385,000,000 (the "Term
Loan");

     WHEREAS, the Company has agreed to grant to the Term Loan Collateral Agent
on behalf of the Term Loan Secured Parties (as defined in the Credit Agreement)
a security interest in the Account (as defined below) and all funds and
securities contained therein;

     WHEREAS, the Company has agreed to place in escrow the Initial Escrow
Amount (as defined below), to be held pursuant to the terms of this Agreement
and the Credit Agreement;

     WHEREAS, the Loan Escrow Agent has established an escrow account in the
State of New York, number 55552-0, in the name of the Company (the "Account");
and

     WHEREAS, the Company and the Loan Escrow Agent are entering into this
Agreement to provide for the control of the Account and to perfect the security
interest of the Term Loan Collateral Agent, for the benefit of the Term Loan
Secured Parties, in the Account and all funds and securities contained therein
as more fully described in this Agreement.

     NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, the parties hereto agree as follow for the
express benefit of the Term Loan Collateral Agent and the Administrative Agent
(each on behalf of the Term Loan Secured Parties):

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     1.    Initial Escrow Amount; Additional Escrow Amounts; Investment of
           ---------------------------------------------------------------
Funds
-----

          (a) Deposit of Initial Escrow Amount by the Company.  On the date
              -----------------------------------------------
     hereof, the Company shall deliver to the Loan Escrow Agent, from a portion
     of the net proceeds from the Term Loan, cash in an amount so as to be,
     together with any interest thereon, designed to pay the first eight
     scheduled cash interest payments on the Term Loan.  As of the date hereof,
     the parties agree that such amount shall be equal to $87,545,141.49 (the
     "Initial Escrow Amount").  The Initial Escrow Amount was calculated by (1)
     assuming that the Adjusted Eurodollar Rate for each of the seven Interest
     Periods (as defined in the Credit Agreement) beginning October 2, 2001 is
     identical to the Adjusted Eurodollar Rate for the initial Interest Period
     (i.e., 3.84%), (2) using a margin equal to the Applicable Margin (as
     defined in the Credit Agreement) plus 0.50% and (3) assuming a rate of
     return on the Initial Escrow Amount equal to the most recent yield on U.S.
     Government Securities (as defined below) with a maturity of three months
     (i.e., 3.64%).  Following the initial investment of the Initial Escrow
     Amount, (A) if the Administrative Agent determines that the actual rate of
     return is higher than 3.64% and that as a result there are excess funds in
     the Account, the Administrative Agent shall instruct the Loan Escrow Agent
     not later than two business days after such determination to transfer such
     excess funds to the Company, and (B) if the Administrative Agent determines
     that the actual rate of return is lower than 3.64% and that as a result
     there are insufficient funds in the Account, the Administrative Agent shall
     notify the Company not later than two business days after such
     determination and the Company shall deposit such additional funds to the
     Account.  The computations of the Administrative Agent pursuant hereto
     shall be binding on the Company, absent manifest error.

          (b) Deposit of Additional Escrow Amounts by the Company.  If the
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     Adjusted Eurodollar Rate (as determined by the Administrative Agent
     pursuant to the Credit Agreement) for any Interest Period after the initial
     Interest Period (the "New High Rate") exceeds the highest Adjusted
     Eurodollar Rate for any previous Interest Period, then the Company shall,
     as promptly as practicable and in no event later than two Business Days
     after receiving notice to such effect from the Administrative Agent,
     deliver to the Loan Escrow Agent cash in an additional amount (an
     "Additional Escrow Amount") equal to the positive difference (rounded to
     the nearest cent) between (i) an amount calculated by (1) assuming that the
     Adjusted Eurodollar Rate for each of the remaining Interest Periods ending
     on (and including) July 2, 2003 is identical to the New High Rate, (2)
     using a margin equal to the Applicable Margin plus 0.50% and (3) assuming a
     rate of return on the amount then held in the Account pursuant to this
     Agreement and the Additional Escrow Amount equal to the most recent yield
     on U.S. Government Securities with a maturity of three months and (ii) the
     amount then held in the Account pursuant to this Agreement.  The
     Administrative Agent shall make such computation and notify the Company and
     the Loan Escrow Agent, and the computations of the Administrative Agent
     pursuant hereto shall be binding on the Company, absent manifest error.

          (c) Investment of Funds In Account.  Funds deposited in the Account
              ------------------------------
     shall be invested and reinvested only upon the following terms and
     conditions:

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          (i)       Acceptable Investments. All funds deposited or held in the
                    ----------------------
                    Account at any time shall be invested by the Loan Escrow
                    Agent in U.S. Government Securities (as defined below) in
                    accordance with the Company's written instructions from time
                    to time to the Loan Escrow Agent; provided, however, that
                                                      --------  -------
                    the Company shall only designate investment of funds in U.S.
                    Government Securities maturing in an amount sufficient to
                    and/or generating interest income sufficient to, when added
                    to the balance of funds held in the Account, provide for the
                    payment of interest on the Term Loan on the Interest Payment
                    Date beginning on and including October 2, 2001 and through
                    and including the Interest Payment Date on July 2, 2003;
                    provided, further, however, that any such written
                    --------  -------  -------
                    instruction shall specify the particular investment to be
                    made, shall state that such investment is authorized to be
                    made hereby and in particular satisfies the requirements of
                    the preceding proviso, shall contain the certification
                    referred to in Section 1(c)(ii), and shall be executed by
                    any officer of the Company; provided, further, however, that
                                                --------  -------  -------
                    the Company may from time to time substitute additional
                    funds consisting of cash or Cash Equivalents for some or all
                    of the U.S. Government Securities then contained in the
                    Account provided that (i) the cash or Cash Equivalents have
                    a fair market value equal to or greater than the U.S.
                    Government Securities so replaced, (ii) the Company provides
                    the certification required by Section 1(c)(ii) and certifies
                    that the foregoing clause (i) has been complied with and
                    (iii) the cash and Cash Equivalents are promptly invested in
                    U.S. Government Securities in accordance with this Section
                    1(c)(i).  All U.S. Government Securities shall be assigned
                    to and held in the possession of, or, in the case of U.S.
                    Government Securities maintained in book-entry form with the
                    Federal Reserve Bank, transferred to a book-entry account in
                    the name of the Loan Escrow Agent, for the benefit of the
                    Term Loan Collateral Agent and the ratable benefit of the
                    Term Loan Secured Parties, except that U.S. Government
                    Securities maintained in book-entry form with the Federal
                    Reserve Bank shall be transferred to a book-entry account in
                    the name of the Loan Escrow Agent at the Federal Reserve
                    Bank that includes only U.S. Government Securities held by
                    the Loan Escrow Agent for its customers and segregated by
                    separate recordation in the books and records of the Loan
                    Escrow Agent.  As used herein, U.S. Government Securities
                    shall mean securities that are (a) direct obligations (or
                    certificates representing an ownership interest in such
                    obligations) of the United States of America (including any
                    agency or instrumentality thereof) the payment of which the
                    full faith and credit of the United States of America is
                    pledged, (b) obligations of a Person controlled or
                    supervised by and acting as an agency or instrumentality of
                    the United States of America the payment of which is
                    unconditionally guaranteed as a full faith and credit
                    obligation by the United States of America or (c)
                    obligations of a Person the payment of which is
                    unconditionally

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                    guaranteed as a full faith and credit obligation by the
                    United States of America, which, in each case, are not
                    callable or redeemable at the issuer's option, and shall
                    also include a depository receipt issued by a bank (as
                    defined in Section 3(a)(2) of the Securities Act), as
                    custodian with respect to any such U.S. Government
                    Securities or a specific payment of principal of or interest
                    on any such U.S. Government Securities held by such
                    custodian for the account of the holder of such depository
                    receipt; provided that (except as required by law) such
                    custodian is not authorized to make any deduction from the
                    amount payable to the holder of such depository receipt from
                    any amount received by the custodian in respect of the U.S.
                    Government Securities or the specific payment of principal
                    of or interest on the U.S. Government Securities evidenced
                    by such depository receipt.

          (ii)      Security Interest in Investments. No investment of funds in
                    --------------------------------
                    the Account shall be made unless the Company has certified
                    to the Loan Escrow Agent and the Term Loan Collateral Agent
                    that, upon such investment, the Term Loan Collateral Agent
                    will have a first priority perfected security interest in
                    the applicable investment for the benefit of the Term Loan
                    Secured Parties.

          (iii)     Principal and Interest. All principal and interest earned on
                    ----------------------
                    funds invested in U.S. Government Securities shall be
                    deposited in the Account as additional Collateral (as
                    defined below) for the benefit of the Term Loan Collateral
                    Agent and the ratable benefit of the Term Loan Secured
                    Parties and shall be reinvested in accordance with Section
                    1(c)(i) hereof.

          (iv)      Limitation on Loan Escrow Agent's Responsibilities. The Loan
                    --------------------------------------------------
                    Escrow Agent's sole responsibilities under this Section 1(c)
                    shall be (A) to retain possession of certificated U.S.
                    Government Securities and to be the registered or designated
                    owner of U.S. Government Securities which are not
                    certificated, if any, (B) to follow the Company's written
                    instructions given in accordance with Section 1(c)(i), (C)
                    to invest and reinvest funds pursuant to this Section 1(c),
                    (D) to maintain possession of, and dominion and control
                    over, the Account and the funds and U.S. Government
                    Securities therein, unless and until such funds are
                    permitted to be released or disbursed in accordance with the
                    terms of this Agreement and (E) to use reasonable efforts to
                    reduce to cash such U.S. Government Securities as may be
                    required to fund any disbursement or payment in accordance
                    with Section 1(a)(A) or Section 10. In connection with
                    clause (A) above, the Loan Escrow Agent will maintain
                    continuous possession in the State of New York of
                    certificated U.S. Government Securities and cash included in
                    the Collateral and will cause uncertificated U.S. Government
                    Securities, if any, to be registered in the book-entry
                    system of, and transferred to an account of the Loan

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                    Escrow Agent or a sub-agent of the Loan Escrow Agent at, the
                    Federal Reserve Bank of New York. Except as provided in
                    Section 6, the Loan Escrow Agent shall have no other
                    responsibilities with respect to perfecting or maintaining
                    the perfection of the Loan Escrow Agent's security interest
                    in the Collateral and shall not be required to file any
                    instrument, document or notice in any public office at any
                    time or times. In connection with clause (E) above, and
                    subject to the following sentence and except as otherwise
                    provided in Section 10, the Loan Escrow Agent shall not be
                    required to reduce to cash any U.S. Government Securities to
                    fund any disbursement or payment in accordance with Section
                    1(a)(A) or Section 10 in the absence of written instructions
                    signed by an officer of the Company specifying the
                    particular investment to liquidate. If no such written
                    instructions are received, the Loan Escrow Agent shall
                    liquidate those U.S. Government Securities having the lowest
                    interest rate per annum or if none such exist, those having
                    the nearest maturity.

          (v)       Manner of Investment. Funds deposited in the Account shall
                    --------------------
                    be invested in a manner such that (excluding future
                    increases in the Adjusted Eurodollar Rate) there will be
                    sufficient funds available without any further investment by
                    the Company to cover all interest due on the Term Loan, as
                    such interest becomes due, for each Interest Payment Date
                    occurring from the date of this Agreement and ending on (and
                    including) July 2, 2003, provided that such investments
                    shall have such maturities and/or interest payment dates
                    such that funds will be available with respect to each such
                    Interest Payment Date no later than the time the Loan Escrow
                    Agent is required to distribute such funds to the
                    Administrative Agent pursuant to Section 10(a). The Loan
                    Escrow Agent shall have no responsibility for determining
                    whether funds held in the Account shall have been invested
                    in such a manner so as to comply with the requirements of
                    this clause (v).

     2.        Release Of Amounts in Account. The Loan Escrow Agent shall hold
               -----------------------------
all amounts in the Account in escrow pursuant to this Agreement until authorized
hereunder to deliver any or all of such amounts to the Company or to the
Administrative Agent in accordance with the requirements of Section 1(a)(A) or
Section 10 hereof or to the Term Loan Collateral Agent in accordance with
Section 6 hereof.

     3.        Certain Additional Agreements. The Company, the Term Loan
               -----------------------------
Collateral Agent and the Administrative Agent shall, upon request by the Loan
Escrow Agent, execute and deliver to the Loan Escrow Agent such additional
written instructions and certificates hereunder as may be reasonably required by
the Loan Escrow Agent to give effect to the provisions of Sections 1 and 2
hereof.

     4.        The Account.
               -----------

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          (a) THE PARTIES AGREE AND REPRESENT THAT (A) THE ACCOUNT HAS BEEN
     ESTABLISHED IN THE NAME OF THE COMPANY AS RECITED ABOVE, (B) THE ACCOUNT IS
     AN ACCOUNT AS TO WHICH FINANCIAL ASSETS ARE OR MAY BE CREDITED AND THE
     ACCOUNT IS A SECURITIES ACCOUNT, AND (C) THE ACCOUNT HAS NO FINANCIAL
     ASSETS WHICH ARE REGISTERED IN THE NAME OF THE COMPANY, PAYABLE TO ITS
     ORDER, OR SPECIALLY ENDORSED TO IT, WHICH HAVE NOT BEEN ENDORSED TO THE
     LOAN ESCROW AGENT OR IN BLANK.

          (b) THE LOAN ESCROW AGENT AGREES AND REPRESENTS THAT (A) THIS
     AGREEMENT IS THE VALID AND LEGALLY BINDING OBLIGATION OF THE LOAN ESCROW
     AGENT, (B) EXCEPT FOR THE CLAIMS AND INTERESTS OF THE TERM LOAN COLLATERAL
     AGENT FOR THE BENEFIT OF THE TERM LOAN SECURED PARTIES AND THE CLAIMS AND
     INTERESTS OF THE COMPANY IN THE ACCOUNT, THE LOAN ESCROW AGENT DOES NOT
     KNOW OF ANY CLAIM TO OR INTEREST IN THE ACCOUNT OR IN ANY FINANCIAL ASSET
     CONTAINED THEREIN, (C) THE LOAN ESCROW AGENT SHALL, SUBJECT TO THE TERMS OF
     THIS AGREEMENT, TREAT THE COMPANY AS ENTITLED TO EXERCISE THE RIGHTS THAT
     COMPRISE ANY FINANCIAL ASSET CREDITED TO THE ACCOUNT AND (D) ALL PROPERTY
     DELIVERED TO THE LOAN ESCROW AGENT FOR DEPOSIT TO THE ACCOUNT WILL PROMPTLY
     BE CREDITED TO THE ACCOUNT. THE LOAN ESCROW AGENT WILL TREAT ALL PROPERTY
     HELD BY IT IN THE ACCOUNT AS FINANCIAL ASSETS UNDER ARTICLE 8 OF THE
     UNIFORM COMMERCIAL CODE OF THE STATE OF NEW YORK (THE "CODE"), PROVIDED,
     HOWEVER, IN THE EVENT THAT, BY REASON OF MANDATORY PROVISIONS OF LAW, ANY
     OR ALL OF THE PERFECTION OR PRIORITY OF THE SECURITY INTEREST IN ANY
     COLLATERAL IS GOVERNED BY THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN A
     JURISDICTION OTHER THAN THE STATE OF NEW YORK, THE TERM "CODE" SHALL MEAN
     THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN SUCH OTHER JURISDICTION FOR
     PURPOSES OF THE PROVISIONS HEREOF RELATING TO SUCH PERFECTION OR PRIORITY
     AND FOR PURPOSES OF DEFINITIONS RELATED TO SUCH PROVISIONS, AND ANY
     REFERENCE TO ANY SECTION OF THE CODE HEREIN SHALL BE A REFERENCE TO SUCH
     SECTION AS IT IS MODIFIED AND AMENDED FROM TIME TO TIME AND TO ANY
     SUCCESSOR SECTION.

     5.   No Withdrawals. The Loan Escrow Agent shall neither accept nor comply
          --------------
with any order from the Company withdrawing any assets from the Account nor
deliver any such assets to the Company, except in the circumstances described in
Section 10(b) or 10(c) hereof, as applicable, and only if the requirements to
such transfer set forth in Section 10(b) or 10(c), as applicable, have been
satisfied.

     6.   Grant Of Security Interest; Priority Of Security Interest.
          ---------------------------------------------------------

          (a) The Company hereby grants to the Term Loan Collateral Agent for
     the benefit of the Term Loan Secured Parties, to secure all Obligations
     under the Credit

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     Agreement, a first priority security interest in the Account and all funds
     and securities contained therein and any and all proceeds of the foregoing
     (the "Collateral"). The Loan Escrow Agent consents to such security
     interest. The Loan Escrow Agent hereby waives and releases all liens,
     encumbrances, claims and rights of setoff the Loan Escrow Agent may have
     against the Account or any and all funds and securities contained in the
     Account and agrees that it will not assert any such lien, encumbrance,
     claim or right or the priority thereof against the Account or any funds or
     securities contained in the Account. The Loan Escrow Agent will not agree
     with any third party that the Loan Escrow Agent will comply with orders
     concerning the Account originated by such third party without the prior
     written consent of the Term Loan Collateral Agent and the Company. The
     Company represents and warrants that, except for the security interest
     granted to the Term Loan Collateral Agent for the benefit of the Term Loan
     Secured Parties hereby, the Company owns the Collateral free and clear of
     any and all liens, encumbrances and claims of others.

          (b) The Company and the Term Loan Collateral Agent hereby irrevocably
     instruct the Loan Escrow Agent to, and the Loan Escrow Agent shall, (i) (A)
     maintain sole dominion and control over funds and U.S. Government
     Securities in the Account for the benefit of the Term Loan Secured Parties
     to the extent specifically required herein, (B) maintain, or cause its
     agent within the State of New York to maintain, possession of all
     certificated U.S. Government Securities purchased hereunder that are
     physically possessed by the Loan Escrow Agent in order for the Term Loan
     Collateral Agent for the benefit of the Term Loan Secured Parties to enjoy
     a continuous perfected first priority security interest therein under the
     law of the State of New York (the Company hereby agreeing that in the event
     any certificated U.S. Government Securities are in the possession of the
     Company or a third party, the Company shall undertake to deliver all such
     certificates to the Loan Escrow Agent), (C) take all steps specified by the
     Company pursuant to paragraph (a) above to cause the Term Loan Collateral
     Agent for the benefit of the Term Loan Secured Parties to enjoy a
     continuous perfected first priority security interest under the New York
     Uniform Commercial Code and any applicable law of the State of New York in
     all Collateral consisting of securities entitlements including, as
     applicable, all U.S. Government Securities purchased hereunder that are not
     certificated, if any, and (D) maintain the Collateral free and clear of all
     liens, encumbrances and claims against the Loan Escrow Agent of any nature
     now or hereafter existing in favor of anyone other than the Term Loan
     Collateral Agent  for the benefit of the Term Loan Secured Parties; (ii)
     promptly notify the Term Loan Collateral Agent if the Loan Escrow Agent
     receives written notice that any person other than the Term Loan Collateral
     Agent has a lien, encumbrance or claim upon any portion of the Collateral;
     and (iii) in addition to disbursing amounts held in escrow pursuant to any
     order given to it by the Administrative Agent pursuant to Section 1(a)(A)
     or Section 10, upon receipt of written notice from the Administrative Agent
     of the acceleration of the maturity of the Term Loan, and direction from
     the Administrative Agent to disburse all funds in the Account to the
     Administrative Agent, as promptly as practicable, disburse all funds held
     in the Account to the Administrative Agent and transfer title to all U.S.
     Government Securities held by the Loan Escrow Agent hereunder to the
     Administrative Agent.  The lien and security interest provided for by this
     Section 6 shall automatically terminate and cease to exist, and shall not
     extend or apply to, and the Term Loan Collateral Agent shall have no

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     security interest in, any funds disbursed by the Loan Escrow Agent to the
     Company pursuant to this Agreement to the extent not inconsistent with the
     terms hereof.  Notwithstanding any other provisions contained in this
     Agreement, the Loan Escrow Agent shall act solely as the Term Loan
     Collateral Agent's agent in connection with its duties under this Section
     6.  The Loan Escrow Agent shall not have any right to receive compensation
     from the Term Loan Collateral Agent or the Administrative Agent and shall
     have no authority to obligate the Term Loan Collateral Agent or the
     Administrative Agent or to subordinate, compromise or pledge its security
     interest hereunder.  Accordingly, the Loan Escrow Agent is hereby directed
     to cooperate with the Term Loan Collateral Agent and the Administrative
     Agent in the exercise of its rights in the Collateral provided for herein.

          (c)  Any money and U.S. Government Securities collected by the
     Administrative Agent pursuant to Section 6(b)(iii) shall be applied as
     provided in the Credit Agreement.  Any surplus of such cash or cash
     proceeds held by the Term Loan Collateral Agent or the Administrative Agent
     and remaining after the 91st day after payment in full of all the
     Obligations under the Credit Agreement shall be paid over as provided in
     Section 10(c).

          (d)  The Company hereby appoints the Term Loan Collateral Agent as its
     attorney-in-fact with full power of substitution, upon an Event of Default
     as defined in the Credit Agreement, to do any act which the Company is
     obligated hereto to do, and the Term Loan Collateral Agent may exercise
     such rights as the Company might exercise with respect to the Collateral
     and take any action in the Company's name to protect the Term Loan
     Collateral Agent's security interest hereunder.  In addition to the rights
     provided under Section 6(b)(iii) hereof, upon an Event of Default and for
     so long as such Event of Default continues, the Term Loan Collateral Agent
     may exercise in respect of the Collateral, in addition to other rights and
     remedies provided for herein or otherwise available to it, all the rights
     and remedies of a secured party under the Code or other applicable law, and
     the Term Loan Collateral Agent may also upon obtaining possession of the
     Collateral as set forth herein, without notice to the Company except as
     specified below, sell the Collateral or any part thereof in one or more
     parcels at public or private sale, at any exchange, broker's board or at
     any of the Term Loan Collateral Agent's offices or elsewhere, for cash, on
     credit or for future delivery, and upon such other terms as the Term Loan
     Collateral Agent may deem commercially reasonable.  The Company
     acknowledges and agrees that any such private sale may result in prices and
     other terms less favorable to the seller than if such sale were a public
     sale.  The Company agrees that, to the extent notice of sale shall be
     required by law, at least ten (10) days' notice to the Company of the time
     and place of any public sale or the time after which any private sale is to
     be made shall constitute reasonable notification.  The Term Loan Collateral
     Agent shall not be obligated to make any sale regardless of notice of sale
     having been given.  The Term Loan Collateral Agent may adjourn any public
     or private sale from time to time by announcement at the time and place
     fixed therefor, and such sale may, without further notice, be made at the
     time and place to which it was so adjourned.

     7.   Statements, Confirmations And Notices Of Adverse Claims. The Loan
          -------------------------------------------------------
Escrow Agent will send copies of all statements (including monthly statements),
confirmations and other

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correspondence concerning the Account simultaneously to the Company, the Term
Loan Collateral Agent and the Administrative Agent at the addresses set forth in
Section 11(f) of this Agreement. If any person asserts in writing any lien,
encumbrance or adverse claim against the Account or in any financial asset
carried therein, the Loan Escrow Agent will promptly notify the Company, the
Term Loan Collateral Agent and Administrative Agent thereof.

     8.   Loan Escrow Agent.
          -----------------

          (a) The Loan Escrow Agent, in its capacity as such, shall have no
     duties or responsibilities, including, without limitation, a duty to review
     or interpret the Credit Agreement, except those expressly set forth herein.
     Except for this Agreement, the Loan Escrow Agent, in its capacity as such,
     is not a party to, or bound by, any agreement that may be required under,
     evidenced by, or arise out of the Credit Agreement.

          (b) If the Loan Escrow Agent shall be uncertain as to its duties or
     rights hereunder or shall receive instructions from any of the undersigned
     with respect to the Account, which, in its opinion, are in conflict with
     any of the provisions of this Agreement, it shall be entitled to refrain
     from taking any action until it shall be directed otherwise in writing by a
     joint written instruction of the Company and the Administrative Agent or by
     order of a court of competent jurisdiction. The Loan Escrow Agent shall be
     protected in acting upon any notice, request, waiver, consent, receipt or
     other document reasonably believed by the Loan Escrow Agent to be signed by
     the proper party or parties and shall not be liable with respect to any
     action taken or omitted to be taken by it in accordance with any
     instruction received by it hereunder.

          (c) The Loan Escrow Agent, in its capacity as such, shall not be
     liable for any error or judgment or for any act done or step taken or
     omitted by it in good faith or for any mistake of fact or law, or for
     anything that it may do or refrain from doing in connection herewith,
     except for its own gross negligence or willful misconduct, and the Loan
     Escrow Agent shall have no duties to anyone except the Company, the Term
     Loan Collateral Agent and the Administrative Agent and their respective
     successors and permitted assigns.

          (d) The Loan Escrow Agent may consult legal counsel in the event of
     any dispute or question as to the construction of this Agreement, or the
     Loan Escrow Agent's duties hereunder, and the Loan Escrow Agent shall incur
     no liability and shall be fully protected with respect to any action taken
     or omitted in good faith in accordance with the opinion and instructions of
     counsel.

          (e) In the event of any disagreement between the undersigned or any of
     them, and/or any other person, resulting in adverse claims and demands
     being made in connection with or for the Account, the Loan Escrow Agent
     shall be entitled at its option to refuse to comply with any such claim or
     demand, so long as such disagreement shall continue, and in so doing the
     Loan Escrow Agent shall not be or become liable for damages or interest to
     the undersigned or any of them or to any person named herein for its
     failure or refusal to comply with such conflicting or adverse demands. The
     Loan Escrow Agent shall be entitled to continue so to refrain and refuse so
     to act until all

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     differences shall have been resolved by agreement and the Loan Escrow Agent
     shall have been notified thereof in writing signed by the Company and the
     Administrative Agent. In the event of such disagreement which continues for
     ninety (90) days or more, the Loan Escrow Agent in its discretion may, but
     shall be under no obligation to, file a suit in interpleader for the
     purpose of having the respective rights of the claimants adjudicated and
     may deposit with the court all documents and property held hereunder. The
     Company agrees to pay all reasonable out-of-pocket costs and expenses
     incurred by the Loan Escrow Agent in such action, including reasonable
     attorneys' fees and disbursements.

          (f) The Loan Escrow Agent is hereby indemnified by the Company from
     all losses, costs and expenses of any nature incurred by the Loan Escrow
     Agent arising out of or in connection with this Agreement or with the
     administration of its duties hereunder, unless such losses, costs or
     expenses shall have been caused by the Loan Escrow Agent's willful
     misconduct or gross negligence. Such indemnification shall survive the
     resignation or removal of the Loan Escrow Agent and the termination of this
     Agreement until extinguished by any applicable statute of limitations.

          (g) The Loan Escrow Agent, in its capacity as such, does not have any
     interest in the Account or any funds or securities deposited hereunder but
     is serving as escrow holder only and having only possession thereof. This
     paragraph shall survive notwithstanding any termination of this Agreement
     or the resignation of the Loan Escrow Agent.

          (h) The Loan Escrow Agent (and any successor Loan Escrow Agent) may at
     any time resign as such by giving written notice of its resignation to the
     parties hereto at least thirty (30) days prior to the date specified for
     such resignation to take effect.  The Loan Escrow Agent may be removed at
     any time by act of the Administrative Agent.  Upon the effective date of
     such resignation or removal of the Loan Escrow Agent, all funds and
     securities in the Account shall be delivered by it to such successor Loan
     Escrow Agent or as otherwise shall be instructed in writing by the Company
     and the Administrative Agent, whereupon the Loan Escrow Agent shall be
     discharged of and from any and all further obligations arising in
     connection with this Agreement. If at that time the Loan Escrow Agent has
     not received such instruction, the Loan Escrow Agent's sole responsibility
     after that time shall be to safekeep the Account and all funds and
     securities contained therein until receipt of a designation of successor
     Loan Escrow Agent, or a joint written instruction as to disposition of the
     Account and all funds and securities contained therein by the Company and
     the Administrative Agent or a final order of a court of competent
     jurisdiction mandating disposition of the Account and all funds and
     securities contained therein.  If the Loan Escrow Agent is removed or
     resigns, the Company, by a Board Resolution, shall promptly appoint a
     successor Loan Escrow Agent.

          (i) The Loan Escrow Agent hereby accepts its appointment and agrees to
     act as Loan Escrow Agent under the terms and conditions of this Agreement
     and acknowledges receipt of the Initial Escrow Amount. The Company agrees
     to pay to the Loan Escrow Agent as payment in full for its services
     hereunder the Loan Escrow Agent's compensation as mutually agreed by the
     parties hereto. The Company further

                                       10
<PAGE>

     agrees to reimburse the Loan Escrow Agent for all reasonable out-of-pocket
     expenses, disbursements and advances incurred or made by the Loan Escrow
     Agent in the performance of its duties hereunder (including reasonable
     fees, and out-of-pocket expenses and disbursements, of its counsel). The
     obligations of the Company under the preceding two sentences shall survive
     the resignation or removal of the Loan Escrow Agent and the termination of
     this Agreement until extinguished by any applicable statute of limitations.

     9.   Tax Reporting. The Company shall be responsible for reporting all
          -------------
items of income, gain, expense and loss recognized in the Account.

     10.  Interest Payments; Partial Release; Termination; Remedies.
          ---------------------------------------------------------

          (a) Immediately prior to or on each of the first eight scheduled
     Interest Payment Dates for the Term Loan, the Company shall either (i)
     deposit with the Administrative Agent cash from funds other than those
     contained in the Account in an amount that is sufficient to pay the
     interest then due or (ii) direct the Administrative Agent to issue a
     release order to the Loan Escrow Agent providing for the release from the
     Account of cash sufficient to pay the interest on the Term Loan then due as
     directed; provided, however, that if the Company fails to effect either of
               --------  -------
     options (i) or (ii) in this Section 10(a) by 10:00 A.M. New York time on
     the applicable Interest Payment Date, the Administrative Agent shall direct
     the Loan Escrow Agent to liquidate investments (to the extent required),
     and disburse to the Administrative Agent the amounts required to be paid on
     the Term Loan as interest with respect to such applicable Interest Payment
     Date.  The Loan Escrow Agent shall incur no liability arising out of its
     choice of investments to be liquidated pursuant to this Section 10(a).

          (b) If the Company has exercised the option set forth in clause (i) of
     Section 10(a), the Administrative Agent promptly shall direct the Loan
     Escrow Agent to transfer, and the Loan Escrow Agent promptly shall
     transfer, an amount equal to such amount deposited with the Loan Escrow
     Agent in the Account (the "Release Amount") to the Company to an account in
     the name of the Company or its designee as designated by the Company or its
     authorized representative. Concurrent with such transfer of the Release
     Amount, the security interest in the amounts so transferred shall be
     released and terminated without further notice, agreement or other action
     by any party hereto.

          (c) After such time as the first seven scheduled interest payments on
     the Term Loan have been made, the Administrative Agent and the Term Loan
     Collateral Agent promptly shall jointly direct the Loan Escrow Agent to
     transfer, and the Loan Escrow Agent promptly shall transfer, any and all
     remaining funds and securities in the Account and any proceeds thereof in
     excess of the amount of such funds and securities which, together with the
     proceeds thereof, are equal to the amount of the eighth interest payment on
     the Term Loan to the Company to an account in the name of the Company or
     its designee as designated by the Company or its authorized representative
     and to take such other steps as the Company may request to vest full
     ownership and control of the Account in the Company. Upon payment of the
     eighth scheduled interest payment, the security interest in the Account,
     the funds and securities therein, and the amount so

                                       11
<PAGE>

     transferred shall be released and terminated without further notice,
     agreement or other action by any party hereto. The Term Loan Collateral
     Agent and the Loan Escrow Agent agree to execute and file any and all UCC
     termination statements or releases as may be necessary to effectuate the
     foregoing.

          (d) THE RIGHTS AND POWERS GRANTED HEREIN TO THE TERM LOAN COLLATERAL
     AGENT HAVE BEEN GRANTED IN ORDER TO PERFECT ITS SECURITY INTEREST IN THE
     ACCOUNT, ARE POWERS COUPLED WITH AN INTEREST AND WILL NEITHER BE AFFECTED
     BY THE BANKRUPTCY OR INSOLVENCY OF THE COMPANY NOR BY THE LAPSE OF TIME.
     THE OBLIGATIONS OF THE LOAN ESCROW AGENT UNDER SECTIONS 4, 5, 6 AND 7 ABOVE
     SHALL CONTINUE IN EFFECT UNTIL THE SECURITY INTEREST OF THE TERM LOAN
     COLLATERAL AGENT IN THE ACCOUNT HAS BEEN TERMINATED PURSUANT TO THE TERMS
     OF THIS AGREEMENT AND BOTH THE TERM LOAN COLLATERAL AGENT AND THE
     ADMINISTRATIVE AGENT HAVE NOTIFIED THE LOAN ESCROW AGENT OF SUCH
     TERMINATION IN WRITING.  UPON RECEIPT OF SUCH NOTICE, (I) THE OBLIGATIONS
     OF THE LOAN ESCROW AGENT UNDER SECTIONS 4, 5, 6 AND 7 ABOVE WITH RESPECT TO
     THE OPERATION AND MAINTENANCE OF THE ACCOUNT AFTER THE RECEIPT OF SUCH
     NOTICE SHALL TERMINATE, (II) THE TERM LOAN COLLATERAL AGENT SHALL HAVE NO
     FURTHER RIGHT TO ORIGINATE ORDERS CONCERNING THE ACCOUNT AND (III) THE LOAN
     ESCROW AGENT SHALL PROMPTLY TAKE SUCH STEPS AS THE COMPANY MAY REQUEST TO
     VEST FULL OWNERSHIP AND CONTROL OF THE ACCOUNT IN THE COMPANY, INCLUDING,
     BUT NOT LIMITED TO, TRANSFERRING ALL OF THE FUNDS AND SECURITIES AND ALL
     PROCEEDS THEREOF TO ANOTHER ACCOUNT IN THE NAME OF THE COMPANY OR ITS
     DESIGNEE AS DESIGNATED BY THE COMPANY OR ITS AUTHORIZED REPRESENTATIVE.

     11.  Miscellaneous.
          -------------

          (a) Entirety. This Agreement represents the entire agreement of the
              --------
     parties hereto with respect to the subject matter herein, and supersedes
     all prior agreements and understandings, oral or written, if any, including
     any correspondence relating thereto or the transactions contemplated
     herein.

          (b) Waivers, Amendments, Etc. Except as expressly, provided hereby,
              -------------------------
     the terms of this Agreement may be waived, altered, amended, modified,
     changed, discharged or terminated only by an instrument in writing duly
     executed by each of the parties hereto.

          (c) Severability. If any provision hereof is illegal, invalid or
              ------------
     unenforceable in any jurisdiction, then, to the fullest extent permitted by
     law, (i) the other provisions hereof shall remain in full force and effect
     in such jurisdiction and shall be liberally construed in order to carry out
     the intentions of the parties hereto as nearly as may be possible and (ii)
     the illegality, invalidity or unenforceability of any provision in any

                                       12
<PAGE>

     jurisdiction shall not affect the illegality, validity or enforceability of
     such provision in any other jurisdiction.

          (d) Successors. This Agreement shall be binding upon the Company, its
              ----------
     successors and assigns and shall inure, together with the rights and
     remedies hereunder, to the benefit of the Loan Escrow Agent and its
     successors and assigns and to the Term Loan Collateral Agent and its
     successors and assigns for the benefit of the Term Loan Secured Parties;
     provided, however, that the Company may not assign its rights or delegate
     --------  -------
     its duties hereunder without first filing with the Loan Escrow Agent a
     certificate of the Company that such assignment or transfer is permitted by
     the Credit Agreement.

          (e) Rules Of Construction. In this Agreement, words in the singular
              ---------------------
     number include the plural, and in the plural include the singular; words of
     the masculine gender include the feminine and the neuter, and when the
     sense so indicates words of the neuter gender may refer to any gender and
     the word "or" is disjunctive but not exclusive. The captions and section
     numbers appearing in this Agreement are inserted only as a matter of
     convenience. They do not define, limit or describe the scope or intent of
     the provisions of this Agreement. Except as otherwise defined or
     capitalized herein, all terms herein shall have the meanings ascribed
     thereto in Article 8 of the Code.

          (f) Notices.  All notices, requests, consents and other communications
              -------
     provided for herein (including, without limitation, any modifications of,
     or waivers or consents under, this Agreement) shall be given or made in
     writing (including, without limitation, by facsimile) delivered to the
     intended recipient at the address below or, as to any party, at such other
     address as shall be designated by such party in a notice to the other
     party.  Except as otherwise provided in this Agreement, all such
     communications shall be deemed to have been duly given when transmitted by
     facsimile or personally delivered or, in the case of a mailed notice, upon
     receipt, in each case given or addressed as aforesaid.

     If to the Company:

               Mission Energy Holding Company
               955 Overland Court
               San Dimas, California  91773
               Attention:  Chief Financial Officer
               Facsimile:  (909) 599-4850

     With a copy to:

               Latham & Watkins
               633 West Fifth Street, Suite 4000
               Los Angeles, CA  90071
               Attention:  David B. Rogers
               Facsimile:  (213) 891-8763

     If to the Loan Escrow Agent:

                                       13
<PAGE>

               Wilmington Trust Company
               Rodney Square North
               1100 North Market Street
               Wilmington, DE  19890
               Attention:  Corporate Trust Administration
               Facsimile:  (302) 651-8882

     If to the Administrative Agent or the Term Loan Collateral Agent:

               Goldman Sachs Credit Partners L.P.
               c/o Goldman Sachs & Co.
               85 Broad Street
               New York, NY  10004
               Attention:  Stephen King
               Facsimile:  (212) 357-0932

     The Company, the Loan Escrow Agent, the Administrative Agent or the Term
     Loan Collateral Agent by notice to the others may designate additional or
     different addresses for subsequent notices or communications.

          (g) Further Assurances. At any time and from time to time, upon the
              ------------------
     request of the Term Loan Collateral Agent or the Loan Escrow Agent or the
     Administrative Agent and at the sole expense of the Company, the Company
     will promptly and duly execute and deliver such further instruments and
     documents and take such further actions as the Term Loan Collateral Agent
     or the Loan Escrow Agent or the Administrative Agent may reasonably request
     for the purpose of obtaining or preserving the full benefits of this
     Agreement and of the rights and powers herein granted, including without
     limitation, the filing of any financing statements under the Code (or
     similar laws) in effect with respect to the security interests granted
     hereby.

          (h) Counterparts. This Agreement may be executed in any number of
              ------------
     counterparts, all of which taken together shall constitute one and the same
     instrument and any of the parties hereto may execute this Agreement by
     signing any such counterpart.  It shall not be necessary in making proof of
     this Agreement to produce or account for more than one such counterpart.

          (i) Governing Law; Submission to Jurisdiction; Venue. (a) THIS
              ------------------------------------------------
     AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE
     GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF
     THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF
     LAW, EXCEPT AS OTHERWISE REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT
     TO THE EXTENT THAT REMEDIES PROVIDED BY THE LAWS OF ANY JURISDICTION OTHER
     THAN NEW YORK ARE GOVERNED BY THE LAWS OF SUCH JURISDICTION.  Any legal
     action or proceeding with respect to this Agreement or transactions
     contemplated hereby may be brought in the courts of the State of New York,
     or of the United States for the Southern District of New York, and, by

                                       14
<PAGE>

     execution and delivery of this Agreement, the Company hereby irrevocably
     submits, for itself and in respect of its property, generally and
     unconditionally, to the non-exclusive jurisdiction of such courts.  The
     Company further irrevocably consents to the service of process out of any
     of the aforementioned courts in any such action or proceeding by the
     mailing of copies thereof by registered or certified mail, postage prepaid,
     to it at the address above pursuant to Section 11(f) hereof, such service
     to become effective thirty (30) days after such mailing.  Nothing herein
     shall affect the right of the Loan Escrow Agent to serve process in any
     other manner permitted by law or to commence legal proceedings or to
     otherwise proceed against the Company in any other jurisdiction.

          (j) Headings.  The headings of sections and subsections hereof are
              --------
     provided for convenience only and shall not in any way affect the meaning
     or construction of any provision of this Agreement.

                                       15
<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this Loan Escrow and
Security Agreement to be duly executed as of the day and year first above
written.
                              MISSION ENERGY HOLDING COMPANY

                              By: /s/ Brian E. Winn
                                  ----------------------------------
                                  Name:  Brian E. Winn
                                  Title: Vice President and Assistant Secretary

                              GOLDMAN SACHS CREDIT PARTNERS L.P.
                              as Term Loan Collateral Agent

                              By: /s/ Robert Wagner
                                  ----------------------------------
                                  Name:  Robert Wagner
                                  Title: Authorized Signatory

                              WILMINGTON TRUST COMPANY
                              as Loan Escrow Agent

                              By: /s/ James J. McGinley
                                  ----------------------------------
                                  Name:  James J. McGinley
                                  Title: Authorized Signatory

                              GOLDMAN SACHS CREDIT PARTNERS L.P.
                              as Administrative Agent

                              By: /s/ Robert Wagner
                                  ----------------------------------
                                  Name:  Robert Wagner
                                  Title: Authorized Signatory

                      (Loan Escrow and Security Agreement)

                                      S-1<PAGE>

                                                                     Exhibit 4.6

================================================================================

                         PLEDGE AND SECURITY AGREEMENT

                           dated as of July 2, 2001

                                     among

                        MISSION ENERGY HOLDING COMPANY,
                                  As Pledgor,

                      GOLDMAN SACHS CREDIT PARTNERS L.P.,
              As Administrative Agent under the Credit Agreement,

                           WILMINGTON TRUST COMPANY,
                        As Trustee under the Indenture,

                                      and

                           WILMINGTON TRUST COMPANY,
                           As Joint Collateral Agent

================================================================================
<PAGE>

                               TABLE OF CONTENTS
                               -----------------
<TABLE>
<CAPTION>
                                                                                             Page
                                                                                             ----
<S>                                                                                           <C>
Section 1.     Definitions..................................................................    2

Section 2.     Representations and Warranties...............................................    4

Section 3.     The Pledge...................................................................    6

Section 4.     Further Assurances; Remedies.................................................    7
     4.01.     Delivery and Other Perfection................................................    7
     4.02.     Other Financing Statements and Liens.........................................    9
     4.03.     Voting Rights; Dividends; Etc................................................    9
     4.04.     Remedies upon Notice of Acceleration.........................................   11
     4.05.     Retention of Collateral......................................................   13
     4.06.     Notice of Acceleration.......................................................   14
     4.07.     Deficiency...................................................................   14
     4.08.     Maintenance of Books and Records; Change of Name.............................   15
     4.09.     Application of Proceeds......................................................   15
     4.10.     Attorney-in-Fact.............................................................   16
     4.11.     Termination; Release and Reinstatement of Collateral.........................   18
     4.12.     Performance by the Joint Collateral Agent of Pledgor's Obligations...........   19
     4.13.     The Joint Collateral Agent's Duty of Care....................................   19

Section 5.     The Joint Collateral Agent...................................................   20
     5.01.     Appointment, Powers and Immunities...........................................   20
     5.02.     Instructions of the Administrative Agent and/or the Trustee..................   21
     5.03.     Reliance by Joint Collateral Agent...........................................   22
     5.04.     Rights in Other Capacities...................................................   23
     5.05.     Non-Reliance on Joint Collateral Agent.......................................   23
     5.06.     Failure to Act...............................................................   24
     5.07.     Right to Appoint Joint Collateral Agent or Advisor...........................   25
     5.08.     Resignation and Removal......................................................   25
     5.09.     Qualification................................................................   25

Section 6.     Miscellaneous................................................................   26
     6.01.     No Waiver....................................................................   26
</TABLE>

                                     -ii-
<PAGE>

<TABLE>
<CAPTION>
                                                                                              Page
                                                                                              ----
<S>                                                                                           <C>
     6.02.     Governing Law; Submission to Jurisdiction; Venue.............................   26
     6.03.     Waiver of Jury Trial.........................................................   27
     6.04.     Notices......................................................................   27
     6.05.     Continuing Agreement.........................................................   27
     6.06.     Waivers, Amendments, Etc.....................................................   28
     6.07.     Successors and Assigns.......................................................   29
     6.08.     Counterparts.................................................................   29
     6.09.     Severability.................................................................   30
     6.10.     Entirety.....................................................................   30
     6.11.     Survival.....................................................................   30
     6.12.     Expenses, Indemnity, Etc.....................................................   30
     6.13.     Trust Indenture Act..........................................................   31
     6.14.     Security Interest Absolute...................................................   32
     6.15.     Headings.....................................................................   32
</TABLE>

                                     -iii-
<PAGE>

                         PLEDGE AND SECURITY AGREEMENT

          THIS PLEDGE AND SECURITY AGREEMENT (this "Agreement"), dated as of
                                                    ---------
July 2, 2001, is by and among Mission Energy Holding Company, a Delaware
corporation (the "Pledgor"), Wilmington Trust Company, as trustee under the
                  -------
Indenture (as hereinafter defined) (in such capacity, together with its
successors in such capacity, the "Trustee"), Goldman Sachs Credit Partners L.P.,
                                  -------
as administrative agent on behalf of and for the benefit of the Term Loan
Secured Parties under and as defined in the Credit Agreement (as hereinafter
defined) (in such capacity, together with its successors in such capacity, the
"Administrative Agent"), and Wilmington Trust Company, as joint collateral agent
---------------------
(in such capacity, together with its successors in such capacity, the "Joint
                                                                       -----
Collateral Agent"). Capitalized terms used herein but not otherwise defined have
----------------
the meanings assigned to them in the Indenture.

                                  WITNESSETH:
                                  -----------

          WHEREAS, the Pledgor and the Trustee have entered into an Indenture
(as hereinafter defined), pursuant to which the Pledgor is authorized to issue
up to $900,000,000 aggregate principal amount of its 13.50% Senior Secured Notes
due 2008 (as amended, supplemented and exchanged from time to time,
collectively, the "Securities");
                   ----------

          WHEREAS, the Pledgor has entered into a Credit Agreement (as
hereinafter defined) with the lenders from time to time party thereto (the
"Lenders") pursuant to which the Pledgor is concurrently borrowing $385,000,000
 -------
(the "Term Loans") and the Administrative Agent will act on behalf and for the
      ----------
benefit of the Term Loan Secured Parties, including entering into this
Agreement; and

          WHEREAS, to induce potential purchasers of the Securities to purchase
the same and to induce the Lenders to make the Term Loans, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Pledgor has agreed to pledge, and grant a first priority
security interest in, the Collateral (as defined in Section 3 hereof) to the
Joint Collateral Agent for the benefit of the Administrative Agent (on behalf of
each Agent, the Loan Escrow Agent, the Lenders and the Lender Counterparties, as
provided in the Credit Agreement) and the Trustee (on behalf of itself as
Trustee and Paying Agent and on behalf of the holders of the Securities (the
<PAGE>

"Holders") as provided in the Indenture), as security for the Joint Secured
Obligations (as defined in Section 1 hereof).

          NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements herein contained, the parties hereto agree as follows for the
express benefit of the Administrative Agent and the Trustee:

          Section 1.   Definitions. Terms used but not otherwise defined herein
                       -----------
shall have the meanings provided in the Indenture. As used herein:

          "Code" shall mean, unless otherwise specified, the Uniform Commercial
           ----
Code as in effect from time to time in the State of New York (provided, however,
in the event that, by reason of mandatory provisions of law, any or all of the
perfection or priority of the security interest in any Collateral is governed by
the Uniform Commercial code as in effect in a jurisdiction other than the State
of New York, the term "Code" shall mean the Uniform Commercial Code as in effect
in such other jurisdiction for purposes of the provisions hereof relating to
such perfection or priority and for purposes of definitions related to such
provisions), and any reference to any section of the Code herein shall be a
reference to such section as it is modified and amended from time to time and to
any successor section.

          "Collateral" shall have the meaning ascribed thereto in Section 3
           ----------
hereof.

          "Credit Agreement" shall mean the Credit Agreement, dated as of July
           ----------------
2, 2001, among the Pledgor, the Administrative Agent, the other agents listed on
the signature pages thereto and the Lenders, as modified and supplemented and in
effect from time to time.

          "Debt Documents" shall mean the Indenture, the Securities, the Credit
           --------------
Agreement and all term loan notes under the Credit Agreement.

          "Indenture" shall mean the Indenture, dated as of July 2, 2001,
           ---------
between Pledgor and the Trustee, as modified and supplemented and in effect from
time to time.

          "Issuer" shall mean Edison Mission Energy, a California corporation.
           ------

                                       2
<PAGE>

          "Joint Secured Obligations" shall mean: (i) the principal of, premium,
           -------------------------
if any, interest on and Liquidated Damages, if any, on the Securities and all
other amounts from time to time owing to the Holders thereof or the Joint
Collateral Agent, Trustee and Paying Agent by the Pledgor under the Indenture
and hereunder and (ii) the principal of, premium, if any, and interest on the
Term Loans and any amounts owing to a Lender or Lender Counterparty (as defined
in the Credit Agreement) under a Hedge Agreement (as defined in the Credit
Agreement) and all other amounts from time to time owing to the Lenders and
Agents (as defined in the Credit Agreement) by the Pledgor under the Credit
Agreement and hereunder.

          "Joint Secured Parties" shall mean the Administrative Agent (on behalf
           ---------------------
of each Agent, the Loan Escrow Agent, the Lenders and the Lender Counterparties
as provided in the Credit Agreement), the Trustee (on behalf of itself as
Trustee and Paying Agent and on behalf of the holders of the Securities (the
"Holders") as provided in the Indenture) and the Joint Collateral Agent.

          "Lenders" shall have the meaning ascribed to it in the second recital
           -------
of this Agreement.

          "Notice of Acceleration" shall mean a notice delivered to the Joint
           ----------------------
Collateral Agent by: (i) the Trustee certifying to the Joint Collateral Agent
that an acceleration of the Securities has occurred in accordance with the terms
of the Indenture and directing the Joint Collateral Agent to deliver a Notice of
Acceleration and to commence enforcement proceedings against the Pledgor or (ii)
the Administrative Agent, certifying to the Joint Collateral Agent that an
acceleration of the Term Loans has occurred in accordance with the terms of the
Credit Agreement and directing the Joint Collateral Agent to commence
enforcement proceedings against the Pledgor.

          "Parity Pro Rata Basis" shall mean, with respect to any payment to
           ---------------------
both Holders and Lenders, on an equal basis without preference or priority of
any kind, based on each Holder's or Lender's respective percentage of the
aggregate principal amount of the Securities and Term Loans outstanding
immediately prior to such payment.

          "Pledged Shares" shall have the meaning ascribed thereto in Section
           --------------
3(a) hereof.

                                       3
<PAGE>

          "Refinancing Indebtedness" means any indebtedness of Pledgor the
           ------------------------
proceeds of which are used to (a)refinance, in whole but not in part, the Term
Loans or (b)refinance, defease and/or satisfy and discharge the Securities, in
whole but not in part, and the Pledgor's obligations under the Indenture;
provided, however, that such indebtedness shall be "Refinancing Indebtedness"
only if it satisfies the requirements set forth in clauses (1) and (2) for
"Permitted Refinancing Indebtedness" as such term is defined in (i) the Credit
Agreement in the case of a refinancing of the Securities or (ii) the Indenture
in the case of a refinancing of the Term Loans.

          "Required Secured Parties" shall mean a majority of the aggregate
           ------------------------
principal amount of the Securities and Term Loans then outstanding.

          "Securities" shall have the meaning ascribed to it in the first
           ----------
recital of this Agreement.

          "Term Loans" shall have the meaning ascribed to it in the second
           ----------
recital of this Agreement.

          "Termination Event" shall mean the occurrence of (a) both (i) the
           -----------------
satisfaction and discharge of the Indenture as provided by Section 401 thereof,
or the satisfaction, discharge and defeasance of the Securities pursuant to
Article Twelve of the Indenture and (ii) the termination of the Term Loan
Commitments (as defined in the Credit Agreement) and satisfaction and discharge
of the Obligations (as defined in the Credit Agreement) in accordance with the
terms set forth therein or (b) the release of the Collateral pursuant to and in
accordance with the terms of the Debt Documents.

           Section 2.  Representations and Warranties. The Pledgor represents
                       ------------------------------
and warrants to the Joint Collateral Agent that:

          (a)  The Pledgor is the sole beneficial owner of the Collateral in
which it purports to grant a security interest pursuant to Section 3 hereof, and
no Lien exists upon such Collateral (and no right or option to acquire the same
exists in favor of any other Person), except for the pledge and security
interest in favor of the Joint Collateral Agent for the benefit of the Joint
Secured Parties created or provided for herein. There exist no "adverse claims"
within the meaning of Section 8-302 of the Code with respect to the Pledged
Shares.

                                       4
<PAGE>

          (b)  The Pledged Shares evidenced by the certificate identified in
Annex A hereto are duly authorized, validly issued, fully paid and non-
assessable and none of such Pledged Shares is subject to any contractual
restriction or any restriction under the charter documents of the Pledgor or the
Issuer (including, but not limited to, preemptive rights) prohibiting or
limiting the transfer of such Pledged Shares (except for any such restriction
contained herein or in any Debt Document).

          (c)  The Pledged Shares evidenced by the certificate identified in
Annex A hereto constitute all of the issued and outstanding shares of capital
stock of the Issuer and there are no preemptive rights, options, warrants,
convertible securities or other agreements or commitments of any character
obligating the Pledgor or the Issuer to issue, transfer or sell any of the
Issuer's capital stock or other equity interests, or any agreements,
arrangements, or understandings granting any person any rights in the Issuer
similar to capital stock or other equity interests.

          (d)  None of the execution and delivery of this Agreement, the
consummation of the transactions herein contemplated or the compliance with the
terms and provisions hereof will conflict with or result in (i) a breach or
violation of any of the terms or provisions of, or constitute a default under,
any material indenture, mortgage, deed of trust, sale/leaseback agreement, loan
agreement or other similar financing agreement or instrument or other agreement
or instrument to which the Pledgor or any of its subsidiaries is a party or by
which the Pledgor or any of its subsidiaries is bound or to which any of the
property or assets of the Pledgor or any of its subsidiaries is subject, other
than with respect to change in control provisions contained in agreements and
instruments with respect to the indebtedness of the Issuer and its subsidiaries,
(ii) any violation of the provisions of the Amended and Restated Certificate of
Incorporation or By-laws of the Pledgor or (iii) any violation of any statute or
any order, rule or regulation of any court or governmental agency or body having
jurisdiction over the Pledgor or any of its subsidiaries or any of their
properties, except, in case of clauses (i) and (ii) above for any breaches or
violations that would not have, individually or in the aggregate, a material
adverse effect on the condition (financial or other), business properties or
results of operations of the Pledgor and its subsidiaries, taken as a whole, or
on the ability of the Pledgor to perform its

                                       5
<PAGE>

obligations hereunder; and no consent, approval, authorization, order,
registration, notice, filing or qualification of or with any such court or
governmental agency or body is required either (x) for the execution and
delivery of this Agreement, the consummation of the transactions herein
contemplated or the compliance with the terms and provisions hereof on the date
hereof or (y) for the exercise by the Joint Collateral Agent of its rights and
remedies hereunder (in each case, except as may be required by the Code in the
applicable jurisdiction, by the Federal Energy Regulatory Commission, by laws
affecting the offering and sale of securities or by merger control laws and
regulations).

          (e)  This Agreement creates a valid first priority security interest
in the Collateral in favor of the Joint Collateral Agent for the benefit of the
Joint Secured Parties. Upon delivery to the Joint Collateral Agent for the
benefit of the Joint Secured Parties of the certificate identified in Annex A
with undated stock powers duly endorsed in blank by an effective endorsement and
the filing of a financing statement covering the capital stock represented
thereby, no further action will be necessary to perfect or otherwise protect
such security interest in such Collateral.

          Section 3.   The Pledge. As collateral security for the prompt payment
                       ----------
in full when due (whether at stated maturity, by acceleration or otherwise) of
the Joint Secured Obligations, the Pledgor hereby pledges, grants and assigns to
the Joint Collateral Agent for the benefit of the Joint Secured Parties to the
extent and subject to the restric tions hereinafter provided, a continuing first
priority security interest in any and all of the Pledgor's right, title and
interest in the following property, whether now owned or hereafter acquired and
whether now existing or hereafter coming into existence (all being collectively
referred to herein as "Collateral"):
                       ----------

          (a)  all of the issued and outstanding shares of capital stock of the
Issuer evidenced by the certificate identified in Annex A hereto under the name
of the Pledgor and all other shares of capital stock of whatever class of the
Issuer, now or hereafter issued, in each case together with the certificates
representing such shares, and all options and other rights, contractual or
otherwise, with respect thereto (collectively, the "Pledged Shares"), including,
                                                    --------------
but not limited to, (A) all shares, securities, moneys or property representing
a dividend on any of the

                                       6
<PAGE>

Pledged Shares, or representing a distribution or return of capital upon or in
respect to the Pledged Shares, or resulting from a stock split, revision,
reclassification or other like change of the Pledged Shares, or otherwise
received in exchange therefor, and any subscriptions, warrants, rights or
options issued to the holders of, or otherwise in respect of, the Pledged
Shares; and (B) without affecting the obligations of the Pledgor under any
provision prohibiting such action hereunder or under the Debt Documents, in the
event of any consolidation or merger in which the Issuer is not the surviving
corporation, all shares of each class of the capital stock of the successor
corporation formed by or resulting from such consolidation or merger which are
outstanding after the consummation of such consolidation or merger; and

          (b)  all proceeds of and to any of the property of the Pledgor
described in the preceding clause of this Section 3, however and whenever
acquired and in whatever form.

          Section 4.   Further Assurances; Remedies. In furtherance of the grant
                       ----------------------------
of the pledge and security interest pursuant to Section 3 hereof, the Pledgor
hereby agrees with the Joint Collateral Agent, for the benefit of the Joint
Secured Parties as follows:

          4.01.     Delivery and Other Perfection. The Pledgor hereby agrees
                    -----------------------------
that, for so long as any of the Joint Secured Obligations remains outstanding,
it shall:

          (a)  if any of the above-described shares or other property required
to be pledged by the Pledgor under clauses (a) and (b) of Section 3 hereof are
with or received by the Pledgor, promptly take such action as may be necessary
or as the Joint Collateral Agent shall reasonably request, subject to Section
5.02, to duly perfect the Lien created hereunder in such shares or other
property in said clauses (a) and (b). Where required for perfection under local
law, certificates for the shares shall be transferred and delivered to the Joint
Collateral Agent simultaneously with or prior to the execution and delivery of
this Agreement. Prior to delivery to the Joint Collateral Agent, all such
certificates and instruments constituting Collateral of the Pledgor shall be
held in trust by the Pledgor for the benefit of the Joint Collateral Agent
pursuant hereto. All such certificates shall be delivered to the Joint
Collateral Agent in suitable form for transfer by delivery or shall be

                                       7
<PAGE>

accompanied by duly executed instruments of transfer or assignment in blank.

          (b)  if the Pledgor shall receive by virtue of its being or having
been the owner of any Collateral, any (i) stock certificate, including without
limitation, any certificate representing a stock dividend or distribution in
connection with any increase or reduction of capital, reclassification, merger,
consolidation, reorganization, sale of assets, combination of shares, stock
splits, spin-off or split-off, promissory notes or other instrument; (ii)
dividends payable in securities; or (iii) distributions of securities in
connection with a partial or total liquidation, dissolution or reduction of
capital, capital surplus or paid-in surplus, then the Pledgor shall receive such
stock certificate, instrument, option, right or distribution in trust for the
benefit of the Joint Collateral Agent, shall segregate it from the Pledgor's
other property and shall deliver it forthwith to the Joint Collateral Agent in
the exact form received, together with any necessary endorsement and/or
appropriate undated stock power duly executed in blank, to be held by the Joint
Collateral Agent as Collateral pursuant to the terms hereof and as further
collateral security for the Joint Secured Obligations.

          (c)  give, execute, deliver, file and/or record at its expense such
Code or other applicable financing statement, notice, filing, registration,
instrument, document, agreement or other papers as may be necessary or desirable
or as may be reasonably requested by the Joint Collateral Agent, subject to
Section 5.02, to create, preserve, perfect or validate the security interest
granted pursuant hereto in the Collateral of the Pledgor, or to enable the Joint
Collateral Agent to exercise and enforce its rights hereunder with respect to
such pledge and security interest, including, without limitation, if so
requested by the Joint Collateral Agent in order to exercise and enforce its
rights hereunder while a Notice of Acceleration is then in effect, causing any
or all of the Collateral to be transferred of record into the name of the Joint
Collateral Agent or its nominee (and the Joint Collateral Agent agrees that if
any Collateral is transferred into its name or the name of its nominee, the
Joint Collateral Agent will promptly give to the Pledgor copies of any notices
and communications received by it with respect to the Collateral pledged by the
Pledgor hereunder);

                                       8
<PAGE>

          (d)  warrant and defend title to and ownership of the Collateral of
the Pledgor at its own expense against the claims and demands of all other
parties claiming an interest therein, keep the Collateral free from all Liens,
and not sell, exchange, transfer, assign, lease or otherwise dispose of
Collateral of the Pledgor or any interest therein (except as is not prohibited
under any Debt Document);

          (e)  not enter into any agreement or allow to exist any restriction
with respect to any of the Collateral of the Pledgor other than pursuant hereto
(or as is not prohibited under any Debt Document);

          (f)  keep full and accurate books and records relating to the
Collateral, and stamp or otherwise mark such books and records (and cause the
Issuer to mark its books and records) to reflect the security interest granted
to the Joint Collateral Agent for the benefit of the Joint Secured Parties
pursuant to this Agreement; and

          (g)  permit representatives of the Joint Collateral Agent, upon
reasonable notice, at any time during normal business hours to inspect and make
abstracts from its books and records pertaining to the Collateral, and while a
Notice of Acceleration is then in effect, permit representatives of the Joint
Collateral Agent to be present at the Pledgor's place of business to receive
copies of all communications and remittances relating to the Collateral, and
forward copies of any notices or communications received by the Pledgor with
respect to the Collateral, all in such manner as the Joint Collateral Agent may
reasonably require.

          4.02.     Other Financing Statements and Liens. The Pledgor shall not
                    ------------------------------------
file or suffer to be on file, or authorize or permit to be filed or to be on
file, in any jurisdiction, any financing statement or like instrument with
respect to the Collateral in which the Joint Collateral Agent is not named as
the sole secured party for the benefit of the Joint Secured Parties.

          4.03.     Voting Rights; Dividends; Etc. (a) Unless a Notice of
                    -----------------------------
Acceleration shall be in effect or an Event of Default specified in Section
501(3) of the Indenture or an Event of Default specified in Section 6.1(c) of
the Credit Agreement shall have occurred and be continuing:

          (1)  the Pledgor shall have the right to exercise, to the extent
permitted by law, all voting, consensual and

                                       9
<PAGE>

other powers of ownership pertaining to the Collateral or any part thereof for
all purposes not inconsistent with the terms of this Agreement or the Debt
Documents; and

          (2)  subject to Section 4.01(b) hereof, the Pledgor shall be entitled
to receive and retain, free from the lien created by this Agreement, any
dividends on the Collateral or other distributions paid in respect of the
Collateral to the extent they are not prohibited by the Debt Documents.

          (b)  If a Notice of Acceleration shall be in effect or an Event of
Default specified in Section 501(3) of the Indenture or an Event of Default
specified in Section 6.1(c) of the Credit Agreement shall have occurred and be
continuing, then:

          (1)  all rights of the Pledgor to exercise the voting and other
consensual rights which it would otherwise be entitled to exercise pursuant to
Section 4.03(a)(1) shall cease, and all such rights shall thereupon become
vested in the Joint Collateral Agent who shall thereupon have the sole right to
exercise such voting and other consensual rights;

          (2) all rights of the Pledgor to receive the dividends and other
distributions which it would otherwise be authorized to receive and retain
pursuant to Section 4.03(a)(2) shall cease, and all such rights shall thereupon
become vested in the Joint Collateral Agent who shall thereupon have the sole
right to receive such dividends and other distributions and shall apply the same
to the Joint Secured Obligations in accordance with Section 4.09;

          (3)  any dividends and distributions which are received by the Pledgor
contrary to the provisions of Section 4.03(b)(2) shall be received in trust for
the benefit of the Joint Collateral Agent, shall be segregated from other
property or funds of the Pledgor and shall be forthwith paid over to the Joint
Collateral Agent as Collateral in the same form as so received (with any
necessary endorsement), to be held by the Joint Collateral Agent as Collateral
and as further collateral security for the Joint Secured Obligations; and

          (4)  the Pledgor shall, if necessary to permit the Joint Collateral
Agent to exercise the voting and other rights which it may be entitled to
exercise pursuant to Section 4.03(b)(1) and to receive all dividends and
distributions which it may be entitled to receive under

                                      10
<PAGE>

Section 4.03(b)(2), execute and deliver to the Joint Collateral Agent, from time
to time and upon written notice of the Joint Collateral Agent, appropriate
dividend payment orders and other instruments as the Joint Collateral Agent may
reasonably request.

           4.04.   Remedies upon Notice of Acceleration. (a)  If a Notice of
                   -------------------------------------
Acceleration shall be in effect, then:

           (1) the Joint Collateral Agent shall have, in respect of the
Collateral of the Pledgor, all of the rights and remedies with respect to the
Collateral of a secured party under the Code (whether or not, to the fullest
extent permitted by law, said Code is in effect in the jurisdiction where the
rights and remedies are asserted) and such additional rights and remedies to
which a secured party is entitled under the laws in effect in any jurisdiction
where any rights and remedies hereunder may be asserted, including, without
limitation, the right, to the maximum extent permitted by law, to exercise all
voting, consensual and other powers of ownership pertaining to the Collateral as
if the Joint Collateral Agent were the sole and absolute owner thereof (and the
Pledgor agrees to take all such action as may be appropriate to give effect to
such right);

           (2) the Joint Collateral Agent may, in its name or in the name of the
Pledgor or otherwise, demand, sue for, collect or receive any money or property
at any time payable or receivable on account of or in exchange for any of the
Collateral, and exercise the powers described in Section 4.10(a) hereof, but
shall be under no obligation to do so;

           (3) the Joint Collateral Agent may, in its sole discretion, without
notice to the Pledgor of the time and place, with respect to the Collateral or
any part thereof which shall then be or shall thereafter come into the
possession, custody or control of the Joint Collateral Agent or any agents
thereof, sell, lease, assign or otherwise dispose of all or any part of such
Collateral, at such place or places as the Joint Collateral Agent deems best,
and for cash or for credit or for future delivery or otherwise in accordance
with applicable law (without thereby assuming any credit risk), at public or
private sale, at such price or prices and on such other terms as the Joint
Collateral Agent may deem commercially reasonable, without demand of performance
or notice of intention to effect any such disposition or of the time or place
thereof (except such notice as is required by applicable statute and cannot be

                                      11
<PAGE>

waived), and the Joint Collateral Agent, any Holder, any Lender or anyone else
may, to the extent permitted by law, be the purchaser, lessee, assignee or
recipient of any or all of the Collateral so disposed of at any public sale (or,
to the extent permitted by applicable law, at any private sale) and thereafter
hold the same absolutely, free from any claim or right of whatsoever kind,
including any right or equity of redemption (statutory or otherwise), of the
Pledgor, any such demand, notice and right or equity being hereby expressly
waived and released.  The Pledgor agrees that, to the extent notice of sale
shall be required by law and has not been waived by it, any requirement of
reasonable notice shall be met if notice, specifying the place of any public
sale or the time after which any private sale is to be made, is personally
served on or mailed, postage prepaid, to the Pledgor, in accordance with the
notice provisions of Section 6.04 hereof at least ten (10) days before the time
                     ------------
of such sale.  The Joint Collateral Agent shall not be obligated to make any
sale of Collateral of the Pledgor regardless of notice of sale having been
given.  The Joint Collateral Agent may, without notice or publication and, to
the extent permitted under applicable law, adjourn any public or private sale or
cause the same to be adjourned from time to time by announcement at the time and
place fixed for the sale, and such sale may, without further notice, be made at
any time or place to which the sale may be so adjourned;

           (4) the Pledgor recognizes that the Joint Collateral Agent may deem
it impracticable to effect a public sale of all or any part of the Pledged
Shares or any of the securities constituting Collateral and that the Joint
Collateral Agent may, therefore, determine to make one or more private sales of
any such securities to a restricted group of purchasers who will be obligated to
agree, among other things, to acquire such securities for their own account, for
investment and not with a view to the distribution or resale thereof. The
Pledgor acknowledges that any such private sale may be at prices and on terms
less favorable to the seller than the prices and other terms which might have
been obtained at a public sale and, notwithstanding the foregoing, agrees that
such private sale shall be deemed to have been made in a commercially reasonable
manner and that the Joint Collateral Agent shall have no obligation to delay
sale of any such securities for the period of time necessary to permit the
issuer of such securities to register or qualify such securities for public sale
under the Securities Act of 1933 or other applicable securities laws of other
jurisdictions. The Pledgor further

                                      12
<PAGE>

acknowledges and agrees that any offer to sell such securities which has been
(i) publicly advertised on a bona fide basis in a newspaper or other publication
of general circulation in the financial community of New York, New York (to the
extent that such offer may be advertised without prior registration under the
Securities Act of 1933) or (ii) made privately in the manner described above
shall be deemed to involve a "public sale" under the Code, notwithstanding that
such sale may not constitute a "public offering" under the Securities Act of
1933, and the Joint Collateral Agent may, in such event, bid for the purchase of
such securities; and

           (5) the Joint Collateral Agent shall incur no liability as a result
of the sale of the Collateral, or any part thereof, at any private sale pursuant
to subclause (4) above conducted in a commercially reasonable manner. The
Pledgor hereby waives to the extent permitted by applicable law any claims
against the Joint Collateral Agent arising by reason of the fact that the price
at which the Collateral may have been sold at such a private sale was less than
the price which might have been obtained at a public sale or was less than the
aggregate amount of the Joint Secured Obligations, even if the Joint Collateral
Agent accepts the first offer received and does not offer the Collateral to more
than one offeree.

           (b) The proceeds of each collection, sale or other disposition under
this Section 4.04 shall be applied in accordance with Section 4.09 hereof.

           4.05.   Retention of Collateral.  In addition to the rights and
                   -----------------------
remedies hereunder, if a Notice of Acceleration shall be in effect, the Joint
Collateral Agent may, after providing the notices required by Section 9-505(2)
of the Code and otherwise complying with the requirements of applicable law of
the relevant jurisdiction, retain all or any portion of the Collateral in
satisfaction of the Joint Secured Obligations. Unless and until the Joint
Collateral Agent shall have provided such notices, however, the Joint Collateral
Agent shall not, except as provided under law, be deemed to have retained any
Collateral in satisfaction of any Joint Secured Obligations for any reason.

           4.06.   Notice of Acceleration.  (a)  Within three Business Days
                   ----------------------
following receipt by the Joint Collateral Agent of a Notice of Acceleration, the
Joint Collateral Agent shall notify the Pledgor, the Trustee and

                                      13
<PAGE>

the Administrative Agent of the receipt of such Notice of Acceleration and the
contents thereof in writing.

           (b) A Notice of Acceleration shall become effective upon receipt
thereof by the Pledgor.  A Notice of Acceleration, once effective, shall remain
in effect unless and until it is cancelled as provided in Section 4.06(c).

           (c) Any party giving Notice of Acceleration shall be entitled to
cancel it by delivering a written notice of cancellation to the Joint Collateral
Agent (i) before the Joint Collateral Agent takes any action to exercise any
remedy with respect to the Collateral or (ii) thereafter, if the Joint
Collateral Agent believes that all actions it has taken to exercise any remedy
or remedies with respect to the Collateral can be reversed without material
prejudice to the rights of the Pledgor, the Joint Collateral Agent or the non-
delivering party; provided, however, that a Notice of Acceleration shall be
                  --------  -------
deemed cancelled if: (x) such Notice of Acceleration was given by the Trustee,
the declaration of acceleration of the Securities is rescinded and annulled
pursuant to the terms of the Indenture and no Notice of Acceleration has been
given by the Administrative Agent and remains outstanding; (y) such Notice of
Acceleration was given by the Administrative Agent, the declaration of
acceleration of the Term Loans is rescinded and annulled pursuant to the terms
of the Credit Agreement and no Notice of Acceleration has been given by the
Trustee and remains outstanding; and (z) such Notice of Acceleration has been
given by both the Administrative Agent and Trustee, the declarations of
acceleration under the Credit Agreement and the Indenture are rescinded and
annulled pursuant to the terms of the Credit Agreement and the Indenture,
respectively.  The Joint Collateral Agent shall notify the Pledgor in writing as
to the cancellation of any Notice of Acceleration within three Business Days
following receipt thereof.

           4.07.   Deficiency.  In the event that the proceeds of any sale,
                   ----------
collection or realization of or upon the Collateral pursuant to Section 4.04
hereof are insufficient to cover the costs and expenses of such realization and
the payment in full of the Joint Secured Obligations, the Pledgor shall remain
liable for the deficiency as provided under the terms of the Indenture and
Credit Agreement, together with interest thereon, in each case, as provided
therein, together with the costs of collection and the reasonable fees of any
attorneys employed by the Joint Collateral Agent to collect such deficiency.

                                      14
<PAGE>

           4.08.   Maintenance of Books and Records; Change of Name.  Without
                   ------------------------------------------------
either the prior written consent of, or at least thirty (30) days' prior written
notice to, the Joint Collateral Agent, the Pledgor shall not (i) maintain any of
its books and records with respect to the Collateral at any office, other than
that set forth opposite the Pledgor's name on Annex A hereto, or maintain its
principal place of business at any place other than at the address indicated
beneath the signature of the Pledgor to this Agreement or (ii) change its name,
or the name under which it does business, from the name shown on the signature
page hereto or (iii) change its jurisdiction of incorporation.

           4.09.   Application of Proceeds.  (a)  Except as otherwise herein
                   -----------------------
expressly provided, the proceeds of any collection, sale or other realization of
all or any part of the Collateral pursuant to Section 4.04 hereof, and while a
Notice of Acceleration is then in effect, any payments in respect of the Joint
Secured Obligations and any proceeds of any Collateral when received by the
Joint Collateral Agent in cash or its equivalent under this Section 4, shall be
applied by the Joint Collateral Agent as follows:

           First, on a pro rata basis, to the payment of costs and expenses
           (including costs and attorneys' fees) of the Joint Collateral Agent
           in enforcing or exercising any rights or remedies in connection with,
           or in realizing upon, the Collateral and to the payment of all other
           amounts due to the Joint Collateral Agent (in its capacity as such)
           hereunder;

           Second, on a pro rata basis, to the payment of all amounts due (i)
           under the Indenture to the Trustee and the Paying Agent (as
           identified therein) and (ii) under the Credit Agreement to the Agents
           (as defined therein);

           Third, on a Parity Pro Rata Basis, to the payment of interest (other
           than any defaulted interest) due and payable on the Securities and
           Term Loans;

           Fourth, on a Parity Pro Rata Basis, to the payment of the then
           outstanding principal amount of Securities and Term Loans;

           Fifth, on a Parity Pro Rata Basis, to the payment of (i) Liquidated
           Damages, if any, with respect to the Securities, (ii) premium, if
           any, with respect

                                      15
<PAGE>

           to any principal amount of Securities or Term Loans, and (iii)
           defaulted interest, if any, due and payable with respect to the
           Securities or the Term Loans; and

           Sixth, any surplus remaining shall be returned to the Pledgor or to
           whomsoever a court of competent jurisdiction shall determine to be
           entitled thereto.

As used in this Section 4, "proceeds" of Collateral shall mean cash, securities
                            --------
and other property realized in respect of, and distributions in kind of,
Collateral, including any thereof received under any reorganization, liquidation
or adjustment of debt of the Pledgor or the Issuer.

           (b) The Pledgor hereby irrevocably waives the right to direct the
application of any payments and proceeds under this Section 4.09 and
acknowledges and agrees that the Joint Collateral Agent shall have the
continuing and exclusive right to apply and reapply any and all such payments
and proceeds in the Joint Collateral Agent's sole discretion, notwithstanding
any entry to the contrary upon any of its books and records.

           (c) The provisions of this Section 4.09 shall survive the resignation
or removal of the Joint Collateral Agent.

           4.10.   Attorney-in-Fact.  (a)  Without limiting any rights or powers
                   ----------------
otherwise granted by this Agreement to the Joint Collateral Agent, the Joint
Collateral Agent (and each of its designees) is hereby appointed the attorney-
in-fact of the Pledgor for the purpose of carrying out the provisions of this
Section 4 and taking any action and executing any instruments which the Joint
Collateral Agent may deem necessary or advisable to accomplish the purposes
hereof (which appointment as attorney-in-fact is irrevocable, for as long as the
Joint Secured Obligations remain outstanding, and coupled with an interest and
with power of substitution) including, but not limited to, the power to take any
or all of the following actions upon the occurrence and during the continuance
of a Notice of Acceleration:  (i) to demand, collect, settle, compromise, adjust
and give discharges and releases concerning the Collateral of the Pledgor, all
as the Joint Collateral Agent may reasonably determine; (ii) to commence and
prosecute any actions at any court for the purposes of collecting any of the
Collateral of the Pledgor and enforcing any other right

                                      16
<PAGE>

in respect thereof; (iii) to defend, settle or compromise any action brought
and, in connection therewith, give such discharge or release as the Joint
Collateral Agent may deem reasonably appropriate; (iv) to pay or discharge
taxes, liens, security interests, or other encumbrances levied or placed on or
threatened against the Collateral of the Pledgor; (v) to direct any parties
liable for any payment under any of the Collateral to make payment of any and
all monies due and to become due thereunder directly to the Joint Collateral
Agent or as the Joint Collateral Agent shall direct; (vi) to receive payment of
and receipt for any and all monies, claims, and other amounts due and to become
due at any time in respect of or arising out of any Collateral of the Pledgor;
(vii) to sign and endorse any drafts, assignments, proxies, stock powers,
verifications, notices and other documents relating to the Collateral of the
Pledgor; (viii) to settle, compromise or adjust any suit, action or proceeding
described above and, in connection therewith, to give such discharges or
releases as the Joint Collateral Agent may deem reasonably appropriate; (ix) to
the extent allowed under applicable local law, execute and deliver all
assignments, conveyances, statements, financing statements, renewal financing
statements, pledge agreements, affidavits, notices and other agreements,
instruments and documents that the Joint Collateral Agent may determine
necessary in order to perfect and maintain the security interests and liens
granted in this Agreement and in order to fully consummate all of the
transactions contemplated therein; (x) to exchange any of the Collateral of the
Pledgor or other property upon any merger, consolidation, reorganization,
recapitalization or other readjustment of the issuer thereof, or upon any
transfer of the Collateral from a Pledgor to another Pledgor and, in connection
therewith, deposit any of the Collateral of the Pledgor with any committee,
depository, transfer agent, registrar or other designated agency upon such terms
as the Joint Collateral Agent may determine; (xi) to the extent allowed under
applicable local law, to vote for a shareholder resolution, or to sign an
instrument in writing, sanctioning the transfer of any or all of the Pledged
Shares of the Pledgor into the name of the Joint Collateral Agent or into the
name of any transferee to whom the Pledged Shares of the Pledgor or any part
thereof may be sold pursuant to Section 10 hereof; and (xii) to do and perform
all such other acts and things as the Joint Collateral Agent may reasonably deem
to be necessary, proper or convenient in connection with the Collateral of the
Pledgor.

                                      17
<PAGE>

           (b) Subject to Section 5 hereof, the Joint Collateral Agent shall be
under no duty to exercise or withhold the exercise of any of the rights, powers,
privileges and options expressly or implicitly granted to the Joint Collateral
Agent in this Agreement, and shall not be liable for any failure to do so or any
delay in doing so. The Joint Collateral Agent shall not be liable for any act or
omission or for any error of judgment or any mistake of fact or law in its
individual capacity or its capacity as attorney-in-fact except acts or omissions
resulting from its gross negligence or willful misconduct.  This power of
attorney is conferred on the Joint Collateral Agent solely to protect, preserve
and realize upon its security interest in Collateral.

           4.11.   Termination; Release and Reinstatement of Collateral.
                   ----------------------------------------------------
Subject to Section 6.05 hereof, when a Termination Event shall have occurred,
this Agreement shall terminate, and the Joint Collateral Agent shall forthwith
cause to be assigned, transferred and delivered, against receipt but without any
recourse, warranty or representation whatsoever, any remaining Collateral and
money received in respect thereof, to the Pledgor upon written notice to the
Joint Collateral Agent from the Pledgor, which notice shall certify that a
Termination Event has occurred.  Such notice shall set forth the manner in which
the Collateral shall be delivered by the Joint Collateral Agent and the form of
any releases or assignments.  Upon certification from the Pledgor that the
Pledgor has complied with the provisions of the Debt Documents permitting such
release, the Joint Collateral Agent shall release all or any part of the
Collateral or otherwise terminate any Lien on all or any part of the Collateral
and shall execute such documents and take such other actions as reasonably
requested by Pledgor in furtherance of the foregoing.

           4.12.   Performance by the Joint Collateral Agent of Pledgor's
                   ------------------------------------------------------
Obligations.  On failure of the Pledgor to perform any of the covenants and
-----------
agreements contained herein, the Joint Collateral Agent may, at its sole option
and in its sole discretion, but shall be under no obligation to, perform the
same and in so doing may expend such sums as the Joint Collateral Agent may
reasonably deem advisable in the performance thereof, including, without
limitation, the payment of any taxes, a payment to obtain a release of a Lien or
potential Lien, expenditures made in defending against any adverse claim and all
other reasonable expenditures which the Joint Collateral Agent may make for the
protection of the Collateral or which it may be

                                      18
<PAGE>

compelled to make by operation of law. All such sums and amounts so expended
shall be repayable by the Pledgor promptly upon timely notice thereof and
written demand therefor and shall constitute additional Joint Secured
Obligations and shall bear interest from the date said amounts are so demanded,
at the first interest rate specified in Section 202 of the Indenture. No such
performance of any covenant or agreement by the Joint Collateral Agent on behalf
of the Pledgor, and no such advance or expenditure therefor, shall relieve the
Pledgor of any default under the terms of this Agreement or the other Debt
Documents. The Joint Collateral Agent may make any payment hereby authorized in
accordance with any bill, statement or estimate procured from the appropriate
public office or holder of the claim to be discharged without inquiry into the
accuracy of such bill, statement or estimate or into the validity of any tax
assessment, sale, forfeiture, tax lien, title or claim except to the extent such
payment is being contested in good faith by the Pledgor in appropriate
proceedings and against which adequate reserves are being maintained in
accordance with GAAP (or its equivalent for any foreign entity).

           4.13.   The Joint Collateral Agent's Duty of Care.  To the extent
                   -----------------------------------------
applicable under local law, other than the exercise of reasonable care to assure
the safe custody of the Collateral while being held by the Joint Collateral
Agent hereunder, the Joint Collateral Agent shall have no duty or liability to
preserve rights pertaining thereto, it being understood and agreed that Pledgor
shall be responsible for preservation of all rights in the Collateral of the
Pledgor, and the Joint Collateral Agent shall be relieved of all responsibility
for the Collateral upon surrendering it or tendering the surrender of it to the
Pledgor.  The Joint Collateral Agent shall be deemed to have exercised
reasonable care in the custody and preservation of the Collateral in its
possession if such Collateral is accorded treatment substantially equal to that
which the Joint Collateral Agent accords its own property, it being understood
that the Joint Collateral Agent shall not have responsibility for (i)
ascertaining or taking action with respect to  conversions, exchanges,
maturities, tenders or other material relating to any Collateral, whether or not
the Joint Collateral Agent has or is deemed to have knowledge of such matters;
or (ii) taking any necessary steps to preserve rights against any parties with
respect to any Collateral.

                                      19
<PAGE>

          Section 5.   The Joint Collateral Agent.  The Joint Collateral Agent,
                       --------------------------
the Administrative Agent and the Trustee, by their acceptance of the benefits
hereof, hereby agree among themselves as follows (it being understood and agreed
that the Pledgor shall not have any rights or obligations under this Section 5):

          5.01.    Appointment, Powers and Immunities.  The Joint Collateral
                   ----------------------------------
Agent shall be Wilmington Trust Company or any successor Joint Collateral Agent
appointed as provided in Section 5.08 hereof.  The Joint Collateral Agent shall
act as agent for the Administrative Agent and the Trustee hereunder with such
powers as are specifically vested in the Joint Collateral Agent by the terms of
this Agreement, together with such other powers as are reasonably incidental
thereto.  Subject to Section 5.10 hereof, the Joint Collateral Agent (which term
as used in this sentence and in the first sentence of Section 5.06 hereof shall
include reference to its affiliates and its own and its affiliates' officers,
directors, employees and agents):  (a) shall have no duties or responsibilities
(including, without limitation, under the Trust Indenture Act) except those
expressly set forth in this Agreement, and shall not by reason of this Agreement
be a trustee for any of the Joint Secured Parties and no implied covenants or
obligations shall be inferred from this Agreement against the Joint Collateral
Agent, nor shall the Joint Collateral Agent be bound by the provisions of any
agreement by any party hereto beyond the specific terms hereof; (b) shall not be
responsible to the Joint Secured Parties, the Administrative Agent or the
Trustee for any recitals, statements, representations or warranties contained in
this Agreement, or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement (other than as against the Joint
Collateral Agent) or the Collateral, or for any failure by the Pledgor or any
other Person to perform any of its obligations hereunder or thereunder; (c)
shall not be required to initiate or conduct any litigation or collection
proceedings hereunder (except pursuant to directions furnished under Section
5.06 hereof); (d) shall not be responsible for any action taken or omitted to be
taken by it hereunder, except for its own gross negligence or willful
misconduct; and (e) shall not be required to advise any party as to selling or
retaining, or taking or refraining from taking any action with respect to, any
securities or other property deposited hereunder.  The Joint Collateral Agent
shall not be liable for any error of judgment made in good faith by a
Responsible Officer or Officers of the Joint Collateral Agent, unless it shall
be

                                      20
<PAGE>

proved that the Joint Collateral Agent was grossly negligent in ascertaining
the pertinent facts upon which such judgment was made.

          5.02.    Instructions of the Administrative Agent and/or the Trustee.
                   -----------------------------------------------------------
(a)  The Required Secured Parties shall have the right, by one or more
instruments in writing executed and delivered to the Joint Collateral Agent
(after the receipt by the Administrative Agent and/or the Trustee of the consent
of the Required Secured Parties), to direct the time, method and place of
conducting any proceeding for any right or remedy available to the Joint
Collateral Agent, or of exercising any power conferred on the Joint Collateral
Agent, or for the appointment of a receiver, or to direct the taking or
refraining from taking of any action authorized by this Agreement; provided,
                                                                   --------
however, that (i) such direction shall not conflict with the provisions of any
-------
applicable law or of this Agreement or any Debt Document, (ii) the Required
Secured Parties shall have offered the Joint Collateral Agent indemnity
satisfactory to it against the costs, expenses and liabilities which might be
incurred by it in compliance with such direction and (iii) subject to the
provisions of Section 5.01, the Joint Collateral Agent shall have the right to
decline to follow any such direction if the Joint Collateral Agent in good faith
shall, by a Responsible Officer or Officers of the Joint Collateral Agent,
determine that the proceeding so directed would involve the Joint Collateral
Agent in personal liability with respect to which such indemnity would not
constitute adequate protection.  Nothing in this subsection (a) shall impair the
right of the Joint Collateral Agent in its discretion to take any action or omit
to take any action which it deems proper and which is not inconsistent with such
direction.  The Joint Collateral Agent shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with the
direction of the Required Secured Parties pursuant to this Section 5.02.

          (b) If, within 30 days after the Joint Collateral Agent receives a
Notice of Acceleration which has not been cancelled, the Joint Collateral Agent
shall not have received written directions from the Administrative Agent or the
Trustee, the Joint Collateral Agent shall, until it receives written directions
from the Administrative Agent or the Trustee, act in such manner as it deems
appropriate; provided, however, that if the Joint Collateral Agent receives no
             --------  -------
instructions from the Administrative Agent or the Trustee, the Joint Collateral
Agent shall be fully

                                      21
<PAGE>

protected in acting or not acting at its own discretion; provided, further, that
                                                         --------  -------
in acting hereunder, the Administrative Agent, the Trustee and the Joint
Collateral Agent will cooperate to ensure compliance by the Pledgor, under the
Indenture, with any applicable mandatory provisions of the Trust Indenture Act,
including, without limitation, Section 314 thereof.

          5.03.    Reliance by Joint Collateral Agent.  The Joint Collateral
                   ----------------------------------
Agent shall be entitled to rely upon any certification, order, judgment,
opinion, notice or other communication (including, without limitation, any
thereof by facsimile) believed by it to be genuine and correct and to have been
signed or sent by or on behalf of the proper Person or Persons (without being
required to determine the correctness of any fact stated therein), and upon
advice and statements of legal counsel, independent accountants and other
experts selected by the Joint Collateral Agent.  As to any matters not expressly
provided for by this Agreement, the Joint Collateral Agent shall in all cases be
fully protected in acting, or in refraining from acting, hereunder in accordance
with instructions given by the Administrative Agent or the Trustee in accordance
with this Agreement.

          The Joint Collateral Agent shall be entitled to rely on a certificate
of an officer of the Administrative Agent as to the amount of the Term Loans
outstanding under the Credit Agreement, the principal amount of Term Loans owing
to any Lender, the identity of the Lenders and any Agent (as defined in the
Credit Agreement), the aggregate principal amount of the Term Loans outstanding
with respect to which the Lenders have taken any action hereunder and the
amounts owing to the Lenders, Lender Counterparties and each Agent for purposes
of any payment under Section 4.09 and, in the absence of any such certification,
the Joint Collateral Agent shall have no obligation to take any action on the
basis of any action by the Lenders or to make any payment under Section 4.09 to
the Lenders, Lender Counterparties  or any Agent.  At the request of the Joint
Collateral Agent, the Administrative Agent and/or Trustee shall provide the
Joint Collateral Agent with such notices, certificates and other information
reasonably necessary for the Joint Collateral Agent to satisfy its obligations
hereunder.  The Joint Collateral Agent shall not be deemed to have knowledge or
notice of any Event of Default under the Credit Agreement or of any rescission
of any declaration of acceleration thereunder unless it shall have received
written notice thereof from an officer of the Administrative Agent.
Notwithstanding anything herein to the contrary, the

                                      22
<PAGE>

obligations of the Joint Collateral Agent hereunder shall be ministerial and the
Joint Collateral Agent shall not be required to exercise any discretion
hereunder except in accordance with the direction of the Required Secured
Parties given in accordance with Section 5.02.

          5.04.    Rights in Other Capacities.  Except to the extent limited by
                   --------------------------
the Indenture or the Trust Indenture Act, the Joint Collateral Agent and its
affiliates may (without having to account therefor to the Administrative Agent,
the Trustee or any of the Joint Secured Parties) accept deposits from, lend
money to, make investments in and generally engage in any kind of banking, trust
or other business with the Pledgor (and any of their subsidiaries or affiliates)
as if it were not acting as the Joint Collateral Agent, and the Joint Collateral
Agent and its affiliates may accept fees and other consideration from the
Pledgor for services in connection with this Agreement or otherwise without
having to account for the same to the Administrative Agent, the Trustee or any
of the Joint Secured Parties.

          No provision of this Agreement shall require the Joint Collateral
Agent to expend or risk its own funds or otherwise incur any financial liability
in the performance of any of its duties hereunder except as a result of its
gross negligence or willful misconduct.  In no event shall the Joint Collateral
Agent be liable for any amount in excess of the value of the Collateral.

          5.05.    Non-Reliance on Joint Collateral Agent. The Joint Collateral
                   --------------------------------------
Agent shall not in its capacity as such be required pursuant to this Agreement
to keep itself informed as to the performance or observance by the Pledgor of
this Agreement, any Debt Document or any other document referred to or provided
for herein or therein or to inspect the properties or books of the Pledgor or
any of its subsidiaries.  Except for notices, reports and other documents and
information expressly required to be furnished by the Joint Collateral Agent
hereunder, the Joint Collateral Agent in its capacity as such shall not have any
duty or responsibility under this Agreement to provide the Administrative Agent,
the Trustee or any of Joint Secured Parties with any credit or other information
concerning the affairs, financial condition or business of the Pledgor or any of
its subsidiaries (or any of their affiliates) that may come into the possession
of the Joint Collateral Agent or any of its affiliates.

                                      23
<PAGE>

          5.06.    Failure to Act.  In the event of any ambiguity in the
                   --------------
provisions of this Agreement or any dispute between or conflicting claims by or
among the Administrative Agent, the Trustee or any of Joint Secured Parties
and/or any other person or entity with respect to any funds or property
deposited hereunder, the Joint Collateral Agent shall be entitled, at its sole
option, to refuse to comply with any and all claims, demands or instructions
with respect to such property or funds so long as such dispute or conflict shall
continue, and the Joint Collateral Agent shall not be or become liable in any
way to the Administrative Agent, the Trustee or any of the Joint Secured Parties
or any other person or entity for its failure or refusal to comply with such
conflicting claims, demands or instructions.  The Joint Collateral Agent shall
be entitled to refuse to act until either (i) such conflicting or adverse claims
or demands shall have been finally determined by a court of competent
jurisdiction or settled by agreement between the conflicting party as evidenced
in a writing, satisfactory to the Joint Collateral Agent or (ii) the Joint
Collateral Agent shall have received security or an indemnity satisfactory to
the Joint Collateral Agent sufficient to save the Joint Collateral Agent
harmless from and against any and all loss, liability or expense which the Joint
Collateral Agent may incur by reason of its acting.  The Joint Collateral Agent
may in addition elect to commence an interpleader action or seek other judicial
relief or orders as the Joint Collateral Agent may deem necessary or appropriate
under applicable law. Notwithstanding anything contained herein to the contrary,
the Joint Collateral Agent shall not be required to take any action that is in
its opinion contrary to law or to the terms of this Agreement, or which would in
its opinion subject it or any of its officers, employees or directors to
liability.

          5.07.    Right to Appoint Joint Collateral Agent or Advisor.  The
                   --------------------------------------------------
Joint Collateral Agent shall have the right to appoint agents or advisors in
connection with any of its duties hereunder, including, without limitation,
agent(s) or advisor(s) in connection with the sale of any Collateral held by the
Joint Collateral Agent hereunder, and the Joint Collateral Agent shall not be
liable for any action taken or omitted by such agent(s) or advisor(s) selected
in good faith.

          5.08.    Resignation and Removal.  The Joint Collateral Agent (and any
                   -----------------------
successor Joint Collateral Agent) may at any time resign as such by giving
written notice of

                                      24
<PAGE>

its resignation to the parties hereto at least thirty (30) days prior to the
date specified for such resignation to take effect. The Joint Collateral Agent
may be removed at any time by the consent of each of the Administrative Agent
and the Trustee. Upon the effective date of such resignation or removal of the
Joint Collateral Agent, the Collateral shall be delivered by it to such
successor Joint Collateral Agent or as otherwise shall be instructed in writing
by the Pledgor, the Administrative Agent, and the Trustee, whereupon the Joint
Collateral Agent shall be discharged of and from any and all further obligations
arising in connection with this Agreement. If at that time the Joint Collateral
Agent has not received such instruction, the Joint Collateral Agent's sole
responsibility after that time shall be to safekeep the Collateral until receipt
of a designation of successor Joint Collateral Agent, or a joint written
instruction as to disposition of the Collateral by the Pledgor, the
Administrative Agent and the Trustee or a final order of a court of competent
jurisdiction mandating disposition of the Collateral. If the Joint Collateral
Agent is removed or resigns, the Pledgor, by a Board Resolution, shall promptly
select a successor Joint Collateral Agent subject to the conditions set forth in
Section 5.09 below.

           5.09.   Qualification.  Each successor Joint Collateral Agent shall
                   -------------
at all times be a corporation organized and doing business under the laws of the
United States of America, any State thereof or the District of Columbia,
authorized under such laws to act as Joint Collateral Agent, having a combined
capital and surplus of not less than $50,000,000 and subject to supervision or
examination by Federal or state authority.  If such Joint Collateral Agent
publishes reports of condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then for the purposes
of this Section, the combined capital and surplus of such Joint Collateral Agent
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published.  If at any time the Joint Collateral
Agent shall cease to be eligible in accordance with the provisions of this
Section, such Joint Collateral Agent shall resign immediately in the manner and
with the effect specified in Section 5.08.

           Section 6.  Miscellaneous.
                       -------------

           6.01.   No Waiver.  No failure on the part of the Joint Collateral
                   ---------
Agent or any of its agents to exercise, and

                                      25
<PAGE>

no course of dealing with respect to, and no delay in exercising, any right,
power or remedy hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise by the Joint Collateral Agent or any of its agents of
any right, power or remedy hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or remedy. The remedies herein
are cumulative and are not exclusive of any remedies provided by law.

           6.02.   Governing Law; Submission to Jurisdiction; Venue.
                   ------------------------------------------------

           (a) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK (WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF). Any
legal action or proceeding with respect to this Agreement or the transactions
contemplated hereby may be brought in the courts of the State of New York, or of
the United States for the Southern District of New York, and, by execution and
delivery of this Agreement, the Pledgor hereby irrevocably submits, for itself
and in respect of its property, generally and unconditionally, to the non-
exclusive jurisdiction of such courts.  The Pledgor further irrevocably consents
to the service of process out of any of the aforementioned courts in any such
action or proceeding by the mailing of copies thereof by registered or certified
mail, postage prepaid, to it at the address for notices pursuant to Section 6.04
                                                                    ------------
hereof, such service to become effective thirty (30) days after such mailing.
Nothing herein shall affect the right of the Joint Collateral Agent to serve
process in any other manner permitted by law or to commence legal proceedings or
to otherwise proceed against the Pledgor in any other jurisdiction.

           (b) The Pledgor hereby irrevocably waives any objection which it may
now or hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement brought in the
courts referred to in subsection (a) hereof and hereby further irrevocably
waives and agrees not to plead or claim in any such court that any such action
or proceeding brought in any such court has been brought in an inconvenient
forum.

          6.03.    Waiver of Jury Trial.  EACH PARTY HERETO HEREBY IRREVOCABLY
                   --------------------
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY

                                      26
<PAGE>

LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.

          6.04.    Notices.  All notices, requests, consents and other
                   -------
communications provided for herein (including, without limitation, any
modifications of, or waivers or consents under, this Agreement) shall be given
or made in writing (including, without limitation, by telecopy) delivered to the
intended recipient at the "Address for Notices" specified below its name on the
signature pages hereof or, as to any party, at such other address as shall be
designated by such party in a notice to the other party. Except as otherwise
provided in this Agreement, all such communications shall be deemed to have been
duly given when transmitted by facsimile or personally delivered or, in the case
of a mailed notice, upon receipt, in each case given or addressed as aforesaid.

          6.05.    Continuing Agreement.  (a)  This Agreement shall be a
                   --------------------
continuing agreement in every respect and shall remain in full force and effect
so long as the any Debt Document is in effect or any amounts payable under the
Indenture, the Credit Agreement, or any other Debt Document or hereunder or any
of the Securities or Term Loans shall remain outstanding.  Upon termination of
this Agreement, the Joint Collateral Agent shall, upon the request and at the
expense of the Pledgor, forthwith release, without recourse, representation or
warranty, all of its liens and security interests hereunder, execute such
documents and take such other actions as reasonably requested by Pledgor in
furtherance of the termination, and return any Collateral in its possession to
the Pledgor, the form of any such release to be provided by the Pledgor.
Notwithstanding the foregoing, all releases and indemnities provided hereunder
shall survive termination of this Agreement.

          (b) This Agreement shall continue to be effective or be automatically
reinstated, as the case may be, if at any time payment, in whole or in part, of
any of the Joint Secured Obligations is rescinded or must otherwise be restored
or returned by the Joint Collateral Agent or the Administrative Agent or the
Trustee as a preference, fraudulent conveyance or otherwise under any
bankruptcy, insolvency or similar law, all as though such payment had not been
made; provided that in the event payment of all or any part of the Joint Secured
      --------
Obligations is rescinded or must be restored or returned, all reasonable costs
and expenses (including without limitation any reasonable legal fees and
disbursements) incurred by the Joint Collateral

                                      27
<PAGE>

Agent in defending and enforcing such reinstatement shall be deemed to be
included as a part of the Joint Secured Obligations.

          6.06.    Waivers, Amendments, Etc.  (a) Except as expressly provided
                   ------------------------
hereby and in the Indenture or Credit Agreement, the terms of this Agreement may
be waived, altered, amended, modified, changed, discharged or terminated only by
an instrument in writing duly executed by each of the parties hereto and
approved by the Required Secured Parties; provided, however, that a waiver,
alteration, amendment, modification, change, discharge or termination that
affects only the parties (i) to the Credit Agreement (other than the Pledgor)
and does not adversely affect the Trustee or the Holders shall be effective if
made by an instrument in writing duly executed by each of the parties hereto
other than the Trustee and (ii) to the Indenture (other than the Pledgor) and
does not adversely affect the Lenders or the Administrative Agent shall be
effective if made only by the parties hereto other than the Administrative Agent
and approved by the Holders of a majority in principal amount of the Securities.

          (b) Anything herein to the contrary notwithstanding if the Pledgor
incurs any indebtedness which qualifies as Refinancing Indebtedness, each of the
parties hereto will, upon the request of the Pledgor, enter into any amendments
or modifications to this Agreement for the purpose of (i) modifying the
definition of Debt Documents to include all material agreements entered into in
connection with the Refinancing Indebtedness, (ii) modifying the definition of
Joint Secured Parties to include the relevant parties to such Refinancing
Indebtedness, (iii) providing for the addition of any party or the substitution
of the Administrative Agent or the Trustee, as appropriate, (iv) revising the
definition of "Parity Pro Rata Basis" and similar terms such that the holders of
such Refinancing Indebtedness have the same pro rata rights as are applicable to
the Joint Secured Parties and (v) making such other modifications as are
reasonably necessary or desirable to include such Refinancing Indebtedness
hereunder; provided, however, that no such amendment or modification shall amend
the rights or duties of the Joint Collateral Agent, the Trustee or the
Administrative Agent hereunder, in each case, without the express written
consent of such party.

          6.07.    Successors and Assigns.  This Agreement shall create a
                   ----------------------
continuing security interest in the Collateral and shall be binding upon the
Pledgor, its

                                      28
<PAGE>

successors and assigns and shall inure, together with the rights
and remedies of the Joint Collateral Agent hereunder, to the benefit of the
Joint Collateral Agent and its successors and assigns for the benefit of the
Administrative Agent or the Trustee; provided, however, that the Pledgor may not
                                     --------  -------
assign its rights or delegate its duties hereunder without first filing with the
Joint Collateral Agent a certificate of the Pledgor that such assignment or
transfer is permitted by the Debt Documents and obtaining the prior written
consent of the Administrative Agent or the Trustee, as applicable.  To the
fullest extent permitted by law, the Pledgor hereby releases the Joint
Collateral Agent, and its successors and assigns, from any liability for any act
or omission relating to this Agreement or the Collateral, except for any
liability arising from the gross negligence or willful misconduct of the Joint
Collateral Agent, or its officers, employees or agents.  Neither the
Administrative Agent nor the Trustee may assign any of their respective
interests, rights and obligations set forth in this Agreement, unless such
assignment was in connection with an assignment permitted under the applicable
Debt Document; provided, in the case of any such permitted assignment, that such
assignee agrees to be bound by the terms hereof.

          6.08.    Counterparts.  This Agreement may be executed in any number
                   ------------
of counterparts, all of which taken together shall constitute one and the same
instrument and any of party hereto may execute this Agreement by signing any
such counterpart.  It shall not be necessary in making proof of this Agreement
to produce or account for more than one such counterpart.

          6.09.    Severability.  If any provision hereof is illegal, invalid or
                   ------------
unenforceable in any jurisdiction, then, to the fullest extent permitted by law,
(i) the other provisions hereof shall remain in full force and effect in such
jurisdiction and shall be liberally construed in favor of the Joint Collateral
Agent, the Administrative Agent and the Trustee in order to carry out the
intentions of the parties hereto as nearly as may be possible and (ii) the
illegality, invalidity or unenforceability of any provision hereof in any
jurisdiction shall not affect the illegality, validity or enforceability of such
provision in any other jurisdiction.

          6.10.    Entirety.  This Agreement and the Debt Documents represent
                   --------
the entire agreement of the parties hereto and thereto with respect to the
Collateral described herein, and supersede all prior agreements and

                                      29
<PAGE>

understandings, oral or written, if any, including any correspondence relating
thereto or the transactions contemplated herein and therein.

          6.11.    Survival.  All representations and warranties of the Pledgor
                   --------
hereunder shall survive the execution and delivery of this Agreement and the
other Debt Documents.

          6.12.    Expenses, Indemnity, Etc.  The Pledgor agrees to pay the
                   -------------------------
Joint Collateral Agent such compensation as has previously been agreed upon by
the Pledgor and the Joint Collateral Agent for any and all services rendered by
the Joint Collateral Agent; provided, however, that the Joint Collateral Agent
                            --------  -------
and the Pledgor may from time to time agree in writing to such other
compensation of the Joint Collateral Agent hereunder.  In addition, the Pledgor
agrees to reimburse the Joint Collateral Agent for:  (a) all reasonable out-of-
pocket costs and expenses of the Joint Collateral Agent (including, without
limitation, the reasonable fees and expenses of counsel to the Joint Collateral
Agent), in connection with (i) the negotiation, preparation, execution and
delivery of, and ongoing administration of, this Agreement and (ii) any
modification, supplement or waiver of any of the terms of this Agreement; (b)
all reasonable costs and expenses of the Joint Collateral Agent (including,
without limitation, reasonable counsels' fees) in connection with (i) any Notice
of Acceleration and any enforcement or collection proceedings resulting
therefrom or incurred in connection with causing the Pledgor to satisfy its
obligations hereunder and (ii) the enforcement of this Section 6.12; and (c) all
transfer, stamp, documentary or other similar taxes, assessments or charges
levied by any governmental or revenue authority in respect of this Agreement or
any other document referred to herein and all costs, expenses, taxes,
assessments and other charges incurred in connection with any filing,
registration, recording or perfection of any security interest contemplated
hereby. The Pledgor agrees to indemnify the Joint Collateral Agent from, and
hold the Joint Collateral Agent harmless against, any and all losses,
liabilities, claims, damages or expenses incurred by the Joint Collateral Agent
arising out of or in connection with the Joint Collateral Agent's duties under
this Agreement or by reason of any investigation or litigation or other
proceedings (including any threatened investigation or litigation or other
proceedings) involving this Agreement (but excluding any such losses,
liabilities, claims, damages

                                      30
<PAGE>

or expenses incurred by reason of the gross negligence or willful misconduct of
the Joint Collateral Agent).

          In addition to the foregoing, the Pledgor agrees to pay to the Joint
Collateral Agent all reasonable out-of-pocket expenses (including reasonable
expenses for legal services of every kind) of, or incident to, the enforcement
of any of the provisions of Section 4, or performance by the Joint Collateral
Agent of any obligations of the Pledgor under this Agreement in respect of the
Collateral which the Pledgor has failed or refused to perform, or any actual or
attempted sale, or any exchange, enforcement, collection, compromise or
settlement in respect of any of the Collateral, and for the care of the
Collateral and defending or asserting rights and claims of the Joint Secured
Parties in respect thereof, by litigation or otherwise.  The provisions of this
Section 6.12 shall survive the termination of this Agreement or the resignation
or removal of the Joint Collateral Agent.

          All amounts due under this Section 6.12 shall constitute Joint Secured
Obligations hereunder.

          6.13.    Trust Indenture Act.  If any provision of this Agreement
                   -------------------
limits, qualifies or conflicts with the duties imposed on the Joint Collateral
Agent by the Trust Indenture Act, the Trust Indenture Act shall control to the
extent applicable. Any action required to be taken in order to comply with the
Trust Indenture Act shall be taken by the Pledgor or the Joint Collateral Agent.

          6.14.    Security Interest Absolute.  To the extent permitted by
                   --------------------------
applicable law, all rights of the Joint Collateral Agent and security interests
hereunder, and all obligations of the Pledgor hereunder, shall be absolute and
unconditional irrespective of:

          (a) any lack of validity or enforceability of any provision of any
Debt Document or any other agreement or instrument relating thereto;

          (b) any change in the time, manner or place of payment of, or any
other term of, or any increase in the amount of, all or any of the Joint Secured
Obligations, or any other amendment or waiver of any term of, or any consent to
any departure from any requirement of, any Debt Document or any other agreement
or instrument relating thereto;

                                      31
<PAGE>

          (c) any exchange, release or non-perfection of any Lien on any other
collateral; or

          (d) any other circumstance which might otherwise constitute a defense
available to, or discharge of, a borrower, or a pledgor.

          6.15.    Headings.  The headings of the sections and subsections
                   --------
hereof are provided for convenience only and shall not in any way affect the
meaning or construction of any provision of this Agreement.

          6.16.    Shared Collateral.  Each of the Joint Secured Parties agrees
                   -----------------
that all Collateral pledged under this Agreement is for the joint benefit of all
the Joint Secured Parties.

                                      32
<PAGE>

     The Pledgor has caused a counterpart of this Agreement to be duly executed
and delivered as of the date first above written.

                       MISSION ENERGY HOLDING COMPANY

                       By: /s/ Theodore F. Craver, Jr.
                           ------------------------------
                       Name:  Theodore F. Craver, Jr.
                       Title: Chief Executive Officer

                       Address for Notices:

                       955 Overland Court
                       San Dimas, California 91773

                       WILMINGTON TRUST COMPANY
                       As Trustee

                       By:  /s/ James D. Nesci
                            ------------------------------
                       Name:  James D. Nesci
                       Title: Authorized Signer

                       Address for Notices:

                       Rodney Square North
                       111 North Market Street
                       Wilmington, Delaware 19890

                       WILMINGTON TRUST COMPANY
                       As Joint Collateral Agent

                       By:  /s/ James D. Nesci
                            ------------------------------
                       Name:  James D. Nesci
                       Title: Authorized Signer

                       Address for Notices:

                                      S-1
<PAGE>

                       Rodney Square North
                       111 North Market Street
                       Wilmington, Delaware 19890

                       GOLDMAN SACHS CREDIT PARTNERS L.P.
                         As Administrative Agent

                             /s/ Robert Wagner
                       By:  ____________________________________
                            Name:  Robert Wagner
                            Title: Authorized Signer

                       Address for Notices:

                       85 Broad Street
                       New York, NY 10004

                        (Pledge and Security Agreement)

                                      S-2
<PAGE>

                                    ANNEX A
                                    -------

                                      to

                         Pledge and Security Agreement

                            dated as of July 2, 2001

                     in favor of Wilmington Trust Company

                           as Joint Collateral Agent

                                PLEDGED SHARES
                                --------------

Name of Pledgor: Mission Energy Holding Company    955 Overland Court
                                                   San Dimas, CA 91773

                   Class and     Number of    Certificate    Percentage
Name of Issuer     Par Value      Shares         Number      Ownership
--------------     ---------      ------         ------      ---------
Edison Mission                     100            3         100%
 Energy

                                      35

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00029-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00029-of-00352.parquet"}]]