Document:

exh10-2_agmt.htm

     

    
      

      

    

     

     

    
 

     

     

    EXHIBIT
      10.2

     

    SUBORDINATION
      AGREEMENT DATED DECEMBER 3, 2007

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SUBORDINATION
      AGREEMENT

     

    This
      SUBORDINATION AGREEMENT (this “Agreement”), dated as
      of December 3, 2007 is among GALAXY ENERGY CORPORATION, a Colorado
      corporation (“Borrower”), DOLPHIN ENERGY CORPORATION, a Nevada
      corporation, and PANNONIAN INTERNATIONAL, LTD., a Colorado corporation (each
      such corporation, including Borrower, and together with each other obligor
      who
      becomes a party to this Agreement each an “Obligor” and,
      together, “Obligors”), BRUNER FAMILY TRUST UTD MARCH 28, 2005
      (“Bruner Trust”, together with any transferees or holders from
      time to time of the Subordinated Note (as defined below), each a
“Subordinated Creditor”, and collectively
      the “Subordinated Creditors”), and HFTP INVESTMENTS LLC,
      PROMETHEAN II MASTER, L.P., PROMETHEAN I MASTER LTD., CAERUS PARTNERS LLC,
      AG
      OFFSHORE CONVERTIBLES, LTD., and LEONARDO, L.P., (collectively, and together
      with any transferees or holders from time to time of the Notes (as defined
      below), hereinafter, the “Lenders”), and PROMETHEAN ASSET
      MANAGEMENT L.L.C., a Delaware limited liability company, in its capacity as
      collateral agent for itself and for the Lenders (including any successor agent,
      hereinafter, the “Agent”).

     

     

    R
      E C I T A L S

     

    A.  Borrower
      has executed and delivered to each of the Lenders those certain senior secured
      convertible notes each made by Borrower and dated as of August 19, 2004, October
      27, 2004, and May 31, 2005 (as the same have been and may hereafter be amended,
      restated, supplemented or modified and in effect from time to time, and
      including any notes issued in exchange or substitution therefor, individually
      a
“Note” and collectively the
“Notes”).  The Notes were issued pursuant to a
      certain Securities Purchase Agreement dated as of August 19, 2004 (as the same
      has been and hereafter may be amended, modified, supplemented or restated,
      the
“2004 Purchase Agreement”), and a certain Securities Purchase
      Agreement dated as of May 31, 2005 (as the same has been and hereafter may
      be
      amended, modified, supplemented or restated, the “2005 Purchase
      Agreement”, and together with the 2004 Purchase Agreement,
      collectively, the “Purchase Agreement”), in each case by and
      among, inter alia, Borrower and the Lenders, and pursuant to which the Lenders
      have made certain loans (“Loans”) to Borrower.

     

    B.  DOLPHIN
      ENERGY CORPORATION, a Nevada corporation, and PANNONIAN INTERNATIONAL, LTD,
      a
      Colorado corporation (each such entity, together with each other person or
      entity who becomes a party to the Guaranty (as defined herein) by execution
      of a
      joinder in the form of Exhibit A attached thereto, is referred to
      individually as a “Guarantor” and collectively as the
“Guarantors”) have executed a Guaranty dated as of
      August 19,
      2004 (as the same has been and may hereafter be amended, restated, supplemented
      or modified and in effect from time to time, the “Guaranty”) in
      favor of the Agent in respect of Borrower’s obligations under the Purchase
      Agreement and the Notes.

     

    C.  Borrower
      (the “Subordinated Obligor”) and Bruner Trust have entered into
      that certain Subordinated Promissory Note dated as of December 3, 2007 in
      the original principal amount of $550,000 (as the same has been and may
      hereafter be amended, restated, supplemented, replaced, substituted, divided,
      increased or otherwise modified from time to time

     

    
      
        
        

      

      
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    as
      permitted hereunder, individually and collectively, the “Subordinated
      Note”) pursuant to which, among other things, Subordinated Creditors
      have made a loan to the Subordinated Obligor in the original principal amount
      of
      $550,000 and pursuant to which Subordinated Obligor has incurred certain
      obligations and liabilities to Subordinated Creditors.

     

    NOW,
      THEREFORE, in reliance upon this Agreement, and for other good and valuable
      consideration, the receipt and sufficiency of which hereby are acknowledged,
      the
      parties hereto hereby agree as follows:

     

    1.  
Definitions.  All
      capitalized terms used but not elsewhere defined in this Agreement shall have
      the respective meanings ascribed to such terms in the Purchase Agreement and
      the
      Notes.  The following terms shall have the following meanings in this
      Agreement:

     

    Enforcement
      Action is defined in subsection 2.7.

     

    Lender
      or Lenders shall mean any holder of Senior Indebtedness including,
      without limitation, any holder of any Senior Indebtedness after the consummation
      of any Permitted Refinancing.

     

    Loan
      Documents means the collective reference to the Purchase Agreement,
      the Notes, the Warrants, Registration Rights Agreement, the Irrevocable Transfer
      Agent Instructions, the Conveyances of Overriding Royalty Interests, the USBIT
      Account Control Agreement, the ANB Amendment and the ANB Account Control
      Agreement as amended thereby, the First Amendment and the Security Agreement
      as
      amended thereby, the Guaranty as amended thereby and the Pledge Agreement as
      amended thereby, the 2004 Amendment, the Mortgage Amendments and the Mortgages
      as amended thereby, the Colorado Mortgage and each of the other agreements
      to
      which any Obligor is a party or is bound in connection with the transactions
      contemplated under the Purchase Agreement and the Notes.

     

    Paid
      in Full or
Payment in Full shall mean the indefeasible payment
      in
      full in cash of all Senior Indebtedness and termination of all commitments
      to
      lend under the Loan Documents and Permitted Refinancing Loan
      Documents.

    

    Permitted
      Refinancing means any refinancing of the Senior
      Indebtedness.

     

    Permitted
      Refinancing Loan Documents means any and all agreements, documents
      and instruments executed in connection with a Permitted Refinancing of Senior
      Indebtedness.

     

    Proceeding
      is defined in subsection 2.3.

     

    Senior
      Indebtedness shall mean the obligations, liabilities and other
      amounts owed under the Purchase Agreement, the Notes or any other Loan Document
      including all interest, fees, expenses, indemnities and enforcements costs,
      whether before or after the commencement of a Proceeding and without regard
      to
      whether or not an allowed claim, and all obligations and liabilities incurred
      with respect to Permitted Refinancings,

     

    
      
        
        

      

      
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    together
      with any amendments, restatements, modifications, renewals or extensions of
      any
      thereof.

     

    Subordinated
      Creditor shall mean Bruner Trust, each “Subordinated Creditor”
which is signatory to this Agreement from time to time and any
      other holders of
      a Subordinated Note or any other Subordinated Indebtedness from time to
      time.

     

    Subordinated
      Default shall mean a default in the payment of the Subordinated
      Indebtedness, or performance of any term, covenant or condition contained in
      the
      Subordinated Indebtedness Documents or the occurrence of any event or condition,
      which default, event or condition permits any Subordinated Creditor to
      accelerate or demand payment of all or any portion of the Subordinated
      Indebtedness.

     

    Subordinated
      Default Notice shall mean a written notice to Agent pursuant to
      which Agent is notified of the existence of a Subordinated Default, which notice
      incorporates a reasonably detailed description of such Subordinated
      Default.

     

    Subordinated
      Indebtedness shall mean all of the obligations of Obligors
      (including Subordinated Obligor) to Subordinated Creditors pursuant to or
      evidenced by the Subordinated Note and the other Subordinated Indebtedness
      Documents.

     

    Subordinated
      Indebtedness Documents shall mean the Subordinated Note and all
      other documents and instruments executed in connection with the Subordinated
      Note or otherwise evidencing or pertaining to any portion of the Subordinated
      Indebtedness, as amended, supplemented, restated or otherwise modified from
      time
      to time as permitted hereunder.

     

    2.  Subordination
      of Subordinated Indebtedness to Senior Indebtedness.

     

    2.1  Subordination.  The
      payment of any and all of the Subordinated Indebtedness hereby expressly is
      subordinated, to the extent and in the manner set forth herein, to the Payment
      in Full of the Senior Indebtedness.  Each holder of Senior
      Indebtedness, whether now outstanding or hereafter arising, shall be deemed
      to
      have acquired Senior Indebtedness in reliance upon the provisions contained
      herein.

     

    2.2  Restriction
      on Payments.  Notwithstanding any provision of the
      Subordinated Indebtedness Documents to the contrary and in addition to any
      other
      limitations set forth herein or therein, no payment (whether made in cash,
      securities or other property or by set-off) of principal, interest or any other
      amount due with respect to the Subordinated Indebtedness shall be made or
      received, and no Subordinated Creditor shall exercise any right of set-off
      or
      recoupment with respect to any Subordinated Indebtedness, until all of the
      Senior Indebtedness is Paid in Full, provided however:
      subject to any adjustments or rights set forth in the Notes, any warrant for
      the
      capital stock of Borrower or Borrower’s charter, bylaws and similar constituent
      documents, Subordinated Obligor shall be permitted to make interest payments
      by
      means of the issuance to any Subordinated Creditor of common stock of the
      Borrower.

     

    
      
        
        

      

      
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    2.3  Proceedings.  In
      the event of any insolvency, bankruptcy, receivership, custodianship,
      liquidation, reorganization, assignment for the benefit of creditors or other
      proceeding for the liquidation, dissolution or other winding up of any Obligor
      or any of its Subsidiaries or any of their respective properties (a
“Proceeding”):

     

    (i)           the
      Lenders shall be entitled to receive Payment in Full in cash of the Senior
      Indebtedness before any Subordinated Creditor is entitled to receive any payment
      upon the Subordinated Indebtedness, and Lenders shall be entitled to receive
      for
      application in payment of such Senior Indebtedness any payment or distribution
      of any kind or character, whether in cash, property or securities or by set-off
      or otherwise, which may be payable or deliverable in any such Proceedings in
      respect of the Subordinated Indebtedness;

     

    (ii)           any
      payment or distribution of assets of any Obligor of any kind or character,
      whether in cash, property or securities, by set-off or otherwise, to which
      any
      Subordinated Creditor would be entitled pursuant to the Subordinated
      Indebtedness but for the provisions hereof shall be paid by the liquidating
      trustee or agent or other Person making such payment or distribution, whether
      a
      trustee in bankruptcy, a receiver or liquidating trustee or otherwise, directly
      to the Lenders until the Senior Indebtedness shall have been Paid in Full,
      and
      each Subordinated Creditor acknowledges and agrees that such payment or
      distribution may, particularly with respect to interest on Senior Indebtedness
      after the commencement of a Proceeding, result in such Subordinated Creditor
      receiving less than it would otherwise receive;

     

    (iii)          each
      Subordinated Creditor hereby irrevocably (x) authorizes, empowers and directs
      all receivers, trustees, debtors in possession, liquidators, custodians,
      conservators and others having authority in the premises to effect all such
      payments and deliveries, and each Subordinated Creditor also irrevocably
      authorizes, empowers and directs, the Agent and the Lenders until the Senior
      Indebtedness shall have been Paid in Full, to demand, sue for, collect and
      receive every such payment or distribution, and (y) agrees to execute and
      deliver to the Agent and the Lenders all such further instruments confirming
      the
      authorization referred to in the foregoing clause (x); and

     

    (iv)           each
      Subordinated Creditor hereby irrevocably authorizes, empowers and appoints
      Agent
      and the Lenders (until the Senior Indebtedness shall have been Paid in Full)
      as
      its agent and attorney in fact to (x) execute, verify, deliver and file such
      proofs of claim upon the failure of any Subordinated Creditor promptly to do
      so
      (and in any event prior to thirty (30) days before the expiration of the time
      to
      file any proof) and (y) vote such claims in any such Proceeding; provided that
      no holder of Senior Indebtedness shall have any obligation to execute, verify,
      deliver and/or file any such proof of claim or vote such claim.  In
      the event the

     

    
      
        
        

      

      
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    Agent
      or
      any Lender (or any agent, designee or nominee thereof) votes any claim in
      accordance with the authority granted hereby, such Subordinated Creditor shall
      not be entitled to change or withdraw such vote.

     

    The
      Senior Indebtedness shall continue to be treated as Senior Indebtedness and
      the
      provisions hereof shall continue to govern the relative rights and priorities
      of
      Lenders and the Subordinated Creditors even if all or part of the Senior
      Indebtedness or the security interests securing the Senior Indebtedness are
      subordinated, set aside, avoided or disallowed in connection with any such
      Proceeding and the provisions hereof shall be reinstated if at any time any
      payment of any of the Senior Indebtedness is rescinded or must otherwise be
      returned by Agent, any Lender or any agent, designee or nominee of such
      holder.

     

    2.4  Incorrect
      Payments.  If any payment (whether made in cash,
      securities or other property) not permitted under this Agreement is received
      by
      any Subordinated Creditor on account of the Subordinated Indebtedness before
      all
      Senior Indebtedness is Paid in Full, such payment shall not be commingled with
      any asset of such Subordinated Creditor, shall be held in trust by such
      Subordinated Creditor for the benefit of the Lenders and shall promptly be
      paid
      over to the Lenders, or their respective designated representatives, for
      application (in accordance with the Purchase Agreement, the Notes or the
      Permitted Refinancing Loan Documents) to the payment of the Senior Indebtedness
      then remaining unpaid, until all of the Senior Indebtedness is Paid in
      Full.

     

    2.5  Sale,
      Transfer.  No Subordinated Creditor shall sell, assign,
      dispose of or otherwise transfer all or any portion of the Subordinated
      Indebtedness or any Subordinated Note or other Subordinated Indebtedness
      Document (a) without giving prior written notice of such action to Agent, (b)
      unless prior to the consummation of any such action, the transferee thereof
      shall execute and deliver to Agent and the Lenders a joinder to this Agreement,
      or an agreement substantially identical to this Agreement and acceptable to
      Agent and the Lenders, in either case providing for the continued subordination
      and forbearance of the Subordinated Indebtedness to the Senior Indebtedness
      as
      provided herein and for the continued effectiveness of all of the rights of
      Agent and Lenders arising under this Agreement and (c) unless following such
      sale, assignment, pledge, disposition or other transfer, there shall either
      be
      (i) no more than two more than the number of  holders of Subordinated
      Indebtedness on the date hereof or (ii) one Person acting as agent for all
      holders of the Subordinated Indebtedness pursuant to documentation reasonably
      satisfactory to Agent, such that any notices and communications to be delivered
      to Subordinated Creditors hereunder and any consents required by Subordinated
      Creditors shall be made to or obtained from such agent and shall be binding
      on
      each Subordinated Creditor as if directly obtained from such Subordinated
      Creditor.  In the event of a permitted sale, assignment, disposition
      or other transfer, each Subordinated Creditor engaging in such sale, assignment,
      disposition or other transfer, prior to the consummation of any such action,
      shall cause the transferee thereof to execute and deliver to Agent and the
      Lenders a joinder to this Agreement, or an agreement substantially identical
      to
      this Agreement and acceptable to the Lenders, in either case providing for
      the
      continued subordination and forbearance of the

     

    
      
        
        

      

      
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    Subordinated
      Indebtedness to the Senior Indebtedness as provided herein and for the continued
      effectiveness of all of the rights of Lenders and Agent arising under this
      Agreement.  Notwithstanding the failure to execute or deliver any such
      agreement, the subordination effected hereby shall survive any sale, assignment,
      disposition or other transfer of all or any portion of the Subordinated
      Indebtedness, and the terms of this Agreement shall be binding upon the
      successors and assigns of each Subordinated Creditor, as provided in Section
      10
      below.

     

    2.6  Legends.  Until
      the Senior Indebtedness is Paid in Full, each of the Subordinated Indebtedness
      Documents at all times shall contain in a conspicuous manner the following
      legend:

     

    “This
      [
      Promissory Note ] and the indebtedness evidenced hereby are subordinate in
      the
      manner and to the extent set forth in that certain Subordination Agreement
      dated
      as of December 3, 2007 (the “Subordination Agreement”) among Galaxy Energy
      Corporation, the Subordinated Creditors named therein, the Lenders named
      therein, and Promethean Asset Management L.L.C., to the Senior Indebtedness
      (as
      defined in the Subordination Agreement); and each holder of this Promissory
      Note, by its acceptance hereof, shall be bound by the provisions of the
      Subordination Agreement.”

     

    2.7  Restriction
      on Action by Subordinated Creditors.

     

    (a)  Until
      the
      Senior Indebtedness is Paid in Full and notwithstanding anything contained
      in
      the Subordinated Indebtedness Documents, the Purchase Agreement, the other
      Loan
      Documents or the Permitted Refinancing Loan Documents to the contrary, no
      Subordinated Creditor shall, without the prior written consent of Agent, agree
      to any amendment, modification or supplement to the Subordinated Indebtedness
      Documents, the effect of which is to (i) increase the maximum principal amount
      of the Subordinated Indebtedness or rate of interest (or cash pay rate of
      interest) on any of the Subordinated Indebtedness, (ii) change to an earlier
      date, any date upon which payments of principal or interest on the Subordinated
      Indebtedness are due or otherwise front load the amortization of any of the
      Subordinated Indebtedness, (iii) change in a manner adverse to any Obligor
      or
      add any event of default or add or make more restrictive any covenant with
      respect to the Subordinated Indebtedness, (iv) change the redemption, prepayment
      or put provisions of the Subordinated Indebtedness, (v) alter the subordination
      provisions with respect to the Subordinated Indebtedness, including, without
      limitation, subordinating the Subordinated Indebtedness to any other debt,
      (vi)
      shorten the maturity date of any of the Subordinated Indebtedness or otherwise
      alter the repayment terms of the Subordinated Indebtedness in a manner adverse
      to any Obligor, (vii) take any liens in any assets of any Obligor or any of
      its
      Subsidiaries or any other assets securing the Senior Indebtedness or (viii)
      obtain any guaranties or credit support from any Person which is an affiliate
      of
      any Obligor, or (ix) change or amend any other term of the Subordinated
      Indebtedness Documents if such change or amendment would increase the
      obligations of any Obligor or confer additional material rights on
      any

     

    
      
        
        

      

      
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    Subordinated
      Creditor or any other holder of the Subordinated Indebtedness in a manner
      adverse to any Obligor, Agent or Lenders.

     

    (b)  Until
      the
      Senior Indebtedness is Paid in Full, no Subordinated Creditor shall, without
      the
      prior written consent of Agent, take or continue any action, or exercise any
      rights, remedies or powers in respect of the Subordinated Indebtedness or any
      Subordinated Indebtedness Document, or exercise or continue to exercise any
      other right or remedy at law or in equity that such Subordinated Creditor might
      otherwise possess, to collect any amount due and payable in respect of any
      Subordinated Indebtedness, including, without limitation, the acceleration
      of
      the Subordinated Indebtedness, the commencement of any action to enforce payment
      or foreclosure on any lien or security interest, the filing of any petition
      in
      bankruptcy or the taking advantage of any other insolvency law of any
      jurisdiction (any of the foregoing, an “Enforcement
      Action”).  If any Subordinated Creditor shall attempt to take
      any Enforcement Action or otherwise seek to collect or realize upon any of
      the
      Subordinated Indebtedness in violation of the terms hereof, the holders of
      the
      Senior Indebtedness may, by virtue of the terms hereof, restrain any such
      Enforcement Action or other action, either in its own name or in the name of
      the
      applicable Obligor.

     

    (c)           Until
      the Senior Indebtedness is Paid in Full, any Liens of Subordinated Creditors
      in
      the Collateral which may exist in breach of each Subordinated Creditor's
      agreement pursuant to subsection 2.7(a)(vii) or Section 18 of this Agreement
      shall be and hereby are subordinated for all purposes and in all respects to
      the
      Liens of Agent and Lenders in the Collateral, regardless of the time, manner
      or
      order of perfection of any such Liens.  In the event that any
      Subordinated Creditor obtains any Liens in the Collateral in violation of
      subsection 2.7(a)(vii) or Section 18 of this Agreement, Subordinated Creditors
      (i) shall (or shall cause their agent to) promptly execute and deliver to Agent
      such termination statements and releases as Agent shall request to effect the
      release of the Liens of such Subordinated Creditor in such Collateral and (ii)
      shall be deemed to have authorized Agent to file any and all termination
      statements required by Agent in respect of such Liens. In furtherance of the
      foregoing, each Subordinated Creditor hereby irrevocably appoints Agent its
      attorney-in-fact, with full authority in the place and stead of such
      Subordinated Creditor and in the name of such Subordinated Creditor or
      otherwise, to execute and deliver any document or instrument which such
      Subordinated Creditor may be required to deliver pursuant to this subsection
      2.7(c).

     

    3.  Continued
      Effectiveness of this Agreement; Modifications to Senior
      Indebtedness.

     

    (a)
      The
      terms of this Agreement, the subordination effected hereby, and the rights
      and
      the obligations of Subordinated Creditors, Agent and Lenders arising hereunder,
      shall not be affected, modified or impaired in any manner or to any extent
      by:
      (i) any amendment or modification of or supplement to the Purchase Agreement,
      any other Loan Document or any Permitted Refinancing Loan Document or any
      Subordinated Indebtedness Document; (ii) the validity or enforceability of
      any
      of such documents; or (iii) any exercise or non-exercise of any right, power
      or
      remedy under or in respect of the

     

    
      
        
        

      

      
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    Senior
      Indebtedness or the Subordinated Indebtedness or any of the instruments or
      documents referred to in clause (i) above.

     

    (b)  Agent
      and Lenders may at any time and from time to time in their sole discretion,
      renew, amend, refinance, extend or otherwise modify the terms and provisions
      of
      Senior Indebtedness (including, without limitation, the terms and provisions
      relating to the principal amount outstanding thereunder, the rate of interest
      thereof, the payment terms thereof and the provisions thereof regarding default
      or any other matter) or exercise (or refrain from exercising) any of their
      rights under the Loan Documents, all without notice to or consent from the
      Subordinated Creditors and without incurring liability to any Subordinated
      Creditor and without impairing or releasing the obligations of any Subordinated
      Creditor under this Agreement.  No compromise, alteration, amendment,
      renewal, restatement, refinancing or other change of, or waiver, consent or
      other action in respect of any liability or obligation under or in respect
      of,
      any terms, covenants or conditions of Senior Indebtedness or the Loan Documents,
      whether or not in accordance with the provisions of the Senior Indebtedness,
      shall in any way alter or affect any of the subordination provisions
      hereof.

    

    4.  Representations
      and Warranties.

     

    (a)           Each
      Subordinated Creditor hereby represents and warrants (as to itself and not
      as to
      any other Subordinated Creditor) to Agent and Lenders as follows:

     

    4.1  Existence
      and Power.  If an entity, such Subordinated Creditor is
      duly organized, validly existing and in good standing under the laws of the
      state of its organization.

     

    4.2  Authority.  Such
      Subordinated Creditor has full power and authority to enter into, execute,
      deliver and carry out the terms of this Agreement and to incur the obligations
      provided for herein, all of which have been duly authorized by all proper and
      necessary action and are not prohibited by the organizational documents of
      such
      Subordinated Creditor.

     

    4.3  Binding
      Agreements.  This Agreement, when executed and delivered,
      will constitute the valid and legally binding obligation of such Subordinated
      Creditor enforceable in accordance with its terms.

     

    4.4  Conflicting
      Agreements; Litigation.  No provisions of any mortgage,
      indenture, contract, agreement, statute, rule, regulation, judgment, decree
      or
      order binding on such Subordinated Creditor or affecting the property of such
      Subordinated Creditor conflicts with, or requires any consent which has not
      already been obtained under, or would in any way prevent the execution, delivery
      or performance of the terms of this Agreement.  The execution,
      delivery and carrying out of the terms of this Agreement will not constitute
      a
      default under, or result in the creation or imposition of, or obligation to
      create, any Lien upon the property of such Subordinated Creditor pursuant to
      the
      terms of any such mortgage, indenture, contract or agreement.  No
      pending or, to the best of such

     

    
      
        
        

      

      
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    Subordinated
      Creditor’s knowledge, threatened, litigation, arbitration or other proceedings
      if adversely determined would in any way prevent the performance of the terms
      of
      this Agreement.

     

    4.5  No
      Divestiture.  On the date hereof, such Subordinated
      Creditor which is signatory hereto is the current owner and holder of its
      Subordinated Note and all other Subordinated Indebtedness Documents (if
      any).

     

    4.6  Default
      under Subordinated Indebtedness Documents.  On the date
      hereof, no default exists under or with respect to the Subordinated Note held
      by
      Subordinated Creditor or any of the other Subordinated Indebtedness Documents
      applicable to such Subordinated Note.

     

    (b)           Each
      Obligor hereby represents and warrants to Agent and Lenders that the signatory
      to this Agreement under the heading “Subordinated Creditor” constitutes the only
      holder of the Subordinated Note and the other Subordinated
      Indebtedness.

     

    5.  Cumulative
      Rights, No Waivers.  Each and every right, remedy and
      power granted to Agent or Lenders hereunder shall be cumulative and in addition
      to any other right, remedy or power specifically granted herein, in the Purchase
      Agreement, the other Loan Documents or Permitted Refinancing Loan Documents
      or
      now or hereafter existing in equity, at law, by virtue of statute or otherwise,
      and may be exercised by Agent or Lenders, from time to time, concurrently or
      independently and as often and in such order as Agent or Lenders may deem
      expedient.  Any failure or delay on the part of Agent or Lenders in
      exercising any such right, remedy or power, or abandonment or discontinuance
      of
      steps to enforce the same, shall not operate as a waiver thereof or affect
      Agent’s or Lenders’ right thereafter to exercise the same, and any single or
      partial exercise of any such right, remedy or power shall not preclude any
      other
      or further exercise thereof or the exercise of any other right, remedy or power,
      and no such failure, delay, abandonment or single or partial exercise of Agent’s
      or Lenders’ rights hereunder shall be deemed to establish a custom or course of
      dealing or performance among the parties hereto.

     

    6.  Modification.  Any
      modification or waiver of any provision of this Agreement, or any consent to
      any
      departure by Agent or any Subordinated Creditor therefrom, shall not be
      effective in any event unless the same is in writing and signed by Agent and
      the
      holders of at least 51% of the then outstanding principal balance of the
      Subordinated Note and then such modification, waiver or consent shall be
      effective only in the specific instance and for the specific instance and for
      the specific purpose given.  Any notice to or demand on any
      Subordinated Creditor in any event not specifically required of Agent hereunder
      shall not entitle any Subordinated Creditor to any other or further notice
      or
      demand in the same, similar or other circumstances unless specifically required
      hereunder.

     

    7.  Additional
      Documents and Actions.  Each Subordinated Creditor at any
      time, and from time to time, after the execution and delivery of this Agreement,
      upon the request of Agent and at the expense of Borrower, will promptly execute
      and deliver such further documents and do such further acts and things as Agent
      may request in order to effect fully the purposes of this
      Agreement.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    8.  Notices.  Any
      notices, consents, waivers or other communications required or permitted to
      be
      given under the terms of this Agreement must be in writing and will be deemed
      to
      have been delivered:  (i) upon receipt, when delivered personally;
      (ii) upon receipt, when sent by facsimile (provided confirmation of transmission
      is mechanically or electronically generated and kept on file by the sending
      party); or (iii) one (1) Business Day after deposit with a nationally recognized
      overnight delivery service, in each case properly addressed to the party to
      receive the same.  The addresses and facsimile numbers for such
      communications shall be:

     

    
      	
                           
                If to Bruner Trust:

            	
              Bruner
                Family Trust UTD March 28, 2005

              Cynthia
                L. Gausvik, Trustee

              Patton
                Boggs LLP

              8484
                Westpark Drive, Suite 900

              McLean,
                Virginia 22102

              Telecopy:  (703)
                744-8001

               

            
	 	 
	
                            If
                to any other Subordinated

                            Creditor:

            	
              To
                the address of such Subordinated Creditor set forth on the joinder
                to this
                Agreement executed by such Subordinated Creditor

            
	 	 
	
                           
                If to any Obligor:

            	
              Galaxy
                Energy Corporation

              1331
                17th Street, Suite 1050

              Denver,
                Colorado 80202

              Attention:  Marc
                E. Bruner

              Telecopy:
                (303) 293-2417

               

            
	 	 
	
                           
                with a copy to:

            	
              Dill
                Dill Carr Stonbraker & Hutchings, P.C.

              455
                Sherman Street, Suite 300

              Denver,
                Colorado 80203

              Attention:  Fay
                M. Matsukage

              Telecopy:
                (303) 777-3823

            
	 	 
	
                           
                If to Agent:

            	
              Promethean
                Asset Management L.L.C.

              55
                Fifth Avenue, 17th Floor

              New
                York, New York 10003

              Attention:
                James F. O’Brien

              Telephone:
                (212) 702-5200

              Facsimile:
                (212) 758-9334

            
	 	 
	
                           
                with a copy to:

            	
              Katten
                Muchin Rosenman LLP

              525
                West Monroe Street

              Chicago,
                Illinois 60661-3693

              Attn:
                Mark D. Wood, Esq.

              Telecopy:
                (312) 902-1061

            

    

     

     

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    
 

    
      	 	 
	
                             If
                to a Lender:

            	
              To
                the address of such Lender set forth on the Schedule I
                hereto

            

    

    

    or,
      in
      the case of party named above, at such other address and/or facsimile number
      and/or to the attention of such other person as the recipient party has
      specified by written notice given to each other party five (5) days prior to
      the
      effectiveness of such change.  Written confirmation of receipt (A)
      given by the recipient of such notice, consent, waiver or other communication,
      (B) mechanically or electronically generated by the sender’s facsimile machine
      containing the time, date, recipient facsimile number and an image of the first
      page of such transmission or (C) provided by a nationally recognized overnight
      delivery service shall be rebuttable evidence of personal service, receipt
      by
      facsimile or deposit with a nationally recognized overnight delivery service
      in
      accordance with clause (i), (ii) or (iii) above, respectively.

     

    9.  Severability.  In
      the event that any provision of this Agreement is deemed to be invalid by reason
      of the operation of any law or by reason of the interpretation placed thereon
      by
      any court or governmental authority, this Agreement shall be construed as not
      containing such provision and the invalidity of such provision shall not affect
      the validity of any other provisions hereof, and any and all other provisions
      hereof which otherwise are lawful and valid shall remain in full force and
      effect.

     

    10.  Successors
      and Assigns.  This Agreement shall inure to the benefit
      of the successors and assigns of Agent and Lenders and shall be binding upon
      the
      successors and assigns of Subordinated Creditors and Obligors.

     

    11.  Counterparts.  This
      Agreement may be executed in two or more identical counterparts, all of which
      shall be considered one and the same agreement and shall become effective when
      counterparts have been signed by each party and delivered to each other party;
      provided that a facsimile signature shall be considered due execution and shall
      be binding upon the signatory thereto with the same force and effect as if
      the
      signature were an original, not a facsimile signature.

     

    12.  Defines
      Rights of Creditors; Subrogation.

     

    (a)  The
      provisions of this Agreement are solely for the purpose of defining the relative
      rights of Subordinated Creditors, Agent and Lenders and shall not be deemed
      to
      (i) create any rights or priorities in favor of any other Person, including,
      without limitation, any Obligor, (ii) amend any of the Loan Documents or in
      any
      way waive any of the rights that the Agent and the Lenders have against any
      Obligor under the Loan Documents, or (iii) waive any Event of Default or
      Triggering Event under any of the Loan Documents.

     

    (b)  Subject
      to the Payment in Full of the Senior Indebtedness, in the event and to the
      extent cash, property or securities otherwise payable or deliverable to the
      holders of the Subordinated Indebtedness shall have been applied pursuant to
      this Agreement to the payment of Senior Indebtedness, then and in each such
      event, the holders of the Subordinated Indebtedness shall be subrogated to
      the
      rights of each holder

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    of
      Senior
      Indebtedness to receive any further payment or distribution in respect of or
      applicable to the Senior Indebtedness; and, for the purposes of such
      subrogation, no payment or distribution to the holders of Senior Indebtedness
      of
      any cash, property or securities to which any holder of Subordinated
      Indebtedness would be entitled except for the provisions of this Agreement
      shall, and no payment over pursuant to the provisions of this Agreement to
      the
      holders of Senior Indebtedness by the holders of the Subordinated Indebtedness
      shall, as between any Obligor, its creditors other than the holders of Senior
      Indebtedness and the holders of Subordinated Indebtedness, be deemed to be
      a
      payment by such Obligor to or on account of Senior Indebtedness.

     

    13.  Conflict.  In
      the event of any conflict between any term, covenant or condition of this
      Agreement and any term, covenant or condition of any of the Subordinated
      Indebtedness Documents, the provisions of this Agreement shall control and
      govern.  For purposes of this Section 13, to the extent that any
      provisions of any of the Subordinated Indebtedness Documents provide rights,
      remedies and benefits to Agent or Lenders that exceed the rights, remedies
      and
      benefits provided to Agent or Lenders under this Agreement, such provisions
      of
      the applicable Subordinated Indebtedness Documents shall be deemed to supplement
      (and not to conflict with) the provisions hereof.

     

    14.  Statement
      of Indebtedness to Subordinated Creditors.  Borrower will
      furnish to Agent upon demand, a statement of the indebtedness owing from
      Obligors to Subordinated Creditors, and will give Agent access to the books
      of
      Obligors in accordance with the Purchase Agreement so that Agent can make a
      full
      examination of the status of such indebtedness.

     

    15.  Headings.  The
      paragraph headings used in this Agreement are for convenience only and shall
      not
      affect the interpretation of any of the provisions hereof.

     

    16.  Termination.  This
      Agreement shall terminate upon the Payment in Full of the Senior
      Indebtedness.

     

    17.  Subordinated
      Default Notice.  Subordinated Creditors and Borrower each
      shall provide Agent with a Subordinated Default Notice upon the occurrence
      of
      each Subordinated Default, and Subordinated Creditors shall notify Agent in
      the
      event such Subordinated Default is cured or waived.

     

    18.  No
      Contest of Senior Indebtedness or Liens; No Security for Subordinated
      Indebtedness.  Each Subordinated Creditor agrees that it
      will not, and will not encourage any other Person to, at any time, contest
      the
      validity, perfection, priority or enforceability of the Senior Indebtedness
      or
      Liens in the Collateral granted to Agent and the Lenders pursuant to the
      Purchase Agreement, the other Loan Documents or the Permitted Refinancing Loan
      Documents or accept or take any collateral security for the Subordinated
      Indebtedness.  In furtherance of the foregoing, on the date hereof,
      each Subordinated Creditor hereby represents and warrants that it has not taken
      or received a security interest in, or lien upon, any asset of any Obligor,
      whether in respect of the Subordinated Indebtedness or otherwise.

     

    
      19.  Governing
        Law, Jurisdiction Waiver of Jury
        Trial.  All questions concerning the
        construction, validity, enforcement and interpretation of this Agreement
        shall
        be governed by 

    

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    the
      internal laws of the State of New York, without giving effect to any choice
      of
      law or conflict of law provision or rule (whether of the State of New York
      or
      any other jurisdiction) that would cause the application of the laws of any
      jurisdiction other than the State of New York.  Each party hereby
      irrevocably submits to the exclusive jurisdiction of the state and federal
      courts sitting in the City of New York, borough of Manhattan, for the
      adjudication of any dispute hereunder or in connection herewith or with any
      transaction contemplated hereby or discussed herein, and hereby irrevocably
      waives, and agrees not to assert in any suit, action or proceeding, any claim
      that it is not personally subject to the jurisdiction of any such court, that
      such suit, action or proceeding is brought in an inconvenient forum or that
      the
      venue of such suit, action or proceeding is improper.  Each party
      hereby irrevocably waives personal service of process and consents to process
      being served in any such suit, action or proceeding by mailing a copy thereof
      to
      such party at the address for such notices to it under this Agreement and agrees
      that such service shall constitute good and sufficient service of process and
      notice thereof.  Nothing contained herein shall be deemed to limit in
      any way any right to serve process in any manner permitted by
      law.  EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND
      AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
      HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY
      TRANSACTION CONTEMPLATED HEREBY.

     

    20.  Waiver
      of Consolidation.  Each Subordinated Creditor
      acknowledges and agrees that (i) Obligors are each separate and distinct
      entities; and (ii) it will not at any time insist upon, plead or seek advantage
      of any substantive consolidation, piercing the corporate veil or any other
      order
      or judgment that causes an effective combination of the assets and liabilities
      of Obligors in any case or proceeding under Title 11 of the United States Code
      or other similar proceeding.

     

    [remainder
      of page intentionally left blank; signature pages follow]

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, Subordinated Creditor, each Obligor, Agent and each
      Lender has caused this Agreement to be executed as of the date first above
      written.

     

    
      	 	SUBORDINATED
              CREDITOR:	 
	 	 	 	 
	 	BRUNER
              FAMILY TRUST UTD MARCH 28, 2005 	 
	 	 	 	 
	
               

            	
              By:
                

            	/s/ Marc
              E. Bruner	 
	 	 	Name: 
Marc
              E.
              Bruner 	 
	 	 	Title:   
              Trustee 	 
	 	 	 	 

    

     

    
      	 	 	 
	 	 	 	 
	
               

            	
              By:
                

            	/s/ 
              Cynthia L. Gausvik	 
	 	 	Name: 
              Cynthia L. Gausvik	 
	 	 	Title:   
              Trustee	 
	 	 	 	 

    

     

    

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	 	OBLIGORS:	 
	 	 	 	 
	 	GALAXY
              ENERGY CORPORATION, a Colorado corporation 	 
	 	 	 	 
	
               

            	
              By:
                

            	/s/ 
              Christopher S. Hardesty 	 
	 	 	Name: 
              Christopher S. Hardesty	 
	 	 	Title:  
              SVP & CFO	 
	 	 	 	 

    

     

    
      	 	 	 
	 	DOLPHIN
              ENERGY CORPORATION, a Nevada corporation  	 
	 	 	 	 
	
               

            	
              By:
                

            	/s/ Christopher
              S. Hardesty	 
	 	 	Name:  Christopher
              S. Hardesty	 
	 	 	Title:
              Secretary & Treasurer	 
	 	 	 	 

    

     

    
      	 	 	 
	 	PANNONIAN
              INTERNATIONAL, LTD., a Colorado corporation  	 
	 	 	 	 
	
               

            	
              By:
                

            	/s/ 
              Cecil D. Gritz	 
	 	 	Name: 
              Cecil D. Gritz	 
	 	 	Title: 
              COO	 
	 	 	 	 

    

     

    
      	 	AGENT:	 
	 	 	 	 
	 	PROMETHEAN
              ASSET MANAGEMENT L.L.C. in its capacity as agent for all
              Lenders  	 
	 	 	 	 
	
               

            	
              By:
                

            	/s/ James
              F. O'Brien	 
	 	 	Name:
              James F. O'Brien	 
	 	 	Title: 
              Managing Member	 
	 	 	 	 

    

     

    
      	 	LENDERS:	 
	 	 	 	 
	 	HFTP
              INVESTMENTS, LLC  	 
	 	 	 	 
	
               

            	
              By:
                

            	/s/ James
              F. O'Brien	 
	 	 	Name: 
              James F. O'Brien	 
	 	 	Title: 
              Managing Member	 
	 	 	 	 

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	 	PROMETHEAN
              II MASTER, L.P.	 
	 	By:	Promethean
              Asset Management L.L.C. 	 
	 	Its: 	Investment
              Manager 	 
	 	 	 	 
	
               

            	
              By:
                

            	/s/ James
              F. O'Brien	 
	 	 	Name: 
              James F. O'Brien	 
	 	 	Title: 
              Managing Member	 
	 	 	 	 

    

     

    
       

      
        	 	PROMETHEAN
                I MASTER, LTD.	 
	 	By:	Promethean
                Asset Management L.L.C. 	 
	 	Its: 	Investment
                Manager 	 
	 	 	 	 
	
                 

              	
                By:
                  

              	
                /s/ James
                  F. O'Brien

              	 
	 	 	Name: 
                James F. O'Brien	 
	 	 	Title:
                Managing Member	 
	 	 	 	 

      

       

       

      
        	 	CAERUS
                PARTNERS LLC	 
	 	By:	Promethean
                Asset Management L.L.C. 	 
	 	Its: 	Investment
                Manager 	 
	 	 	 	 
	
                 

              	
                By:
                  

              	/s/ 
                James F. O'Brien	 
	 	 	Name: 
                James F. O'Brien	 
	 	 	Title: 
                Managing Member	 
	 	 	 	 

      

       

       

      
        	 	AG
                OFFSHORE CONVERTIBLES, LTD.	 
	 	By:	Promethean
                Asset Management L.L.C. 	 
	 	Its: 	Investment
                Manager 	 
	 	 	 	 
	
                 

              	
                By:
                  

              	/s/ Michael
                L. Gordon	 
	 	 	Name: 
                Michael L. Gordon	 
	 	 	Title: 
                Chief Operating Officer	 
	 	 	 	 

      

       

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

      
         

        
          	 	LEONARDO,
                  L.P.	 
	 	By:	Leonardo
                  Capital Management, Inc. 	 
	 	Its: 	General
                  Partner	 
	 	By: 	Angelo,
                  Gordon & Co., L.P. 	 
	 	Its:
                   	Director 	 
	 	 	 	 
	
                   

                	
                  By:
                    

                	/s/ Michael
                  L. Gordon	 
	 	 	Name: 
                  Michael L. Gordon	 
	 	 	Title: 
                  Chief Operating Officer	 
	 	 	 	 

        

      

    

    

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      I

    NOTICE
      ADDRESS FOR LENDERS

    

    
      	
               

              Buyer’s
                Name

            	
               

              Buyer
                Address

              and
                Facsimile Number

            	
               

              Investor’s
                Legal Representative’s

              Address
                and Facsimile Number

            
	 	 	 
	
               

              HFTP
                Investments LLC

            	
               

              c/oPromethean
                Asset Management L.L.C.

              55
                Fifth Avenue

               17th
                Floor

              New
                York, New York 10003

              Attention:
                James F. O’Brien

              Telephone:
                (212) 702-5200

              Facsimile:
                (212) 758-9334

              Residence:
                Delaware

            	
               

              Katten
                Muchin Rosenman LLP

              525
                W. Monroe Street

              Chicago,
                Illinois 60661-3693

              Attention:
                Mark D. Wood, Esq.

              Telephone:
                (312) 902-5200

              Facsimile:
                (312) 902-1061

            
	
               

              Promethean
                II Master, L.P.

            	
               

              c/oPromethean
                Asset Management L.L.C.

              55
                Fifth Avenue

               17th
                Floor

              New
                York, New York 10003

              Attention:
                James F. O’Brien

              Telephone:
                (212) 702-5200

              Facsimile:
                (212) 758-9334

              Residence:
                Cayman Islands

            	
               

              Katten
                Muchin Rosenman LLP

              525
                W. Monroe Street

              Chicago,
                Illinois 60661-3693

              Attention:
                Mark D. Wood, Esq.

              Telephone:
                (312) 902-5200

              Facsimile:
                (312) 902-1061

            
	
               

              Promethean
                I Master Ltd.

            	
               

              c/oPromethean
                Asset Management L.L.C.

              55
                Fifth Avenue

               17th
                Floor

              New
                York, New York 10003

              Attention:
                James F. O’Brien

              Telephone:
                (212) 702-5200

              Facsimile:
                (212) 758-9334

              Residence:
                Cayman Islands

            	
               

              Katten
                Muchin Rosenman LLP

              525
                W. Monroe Street

              Chicago,
                Illinois 60661-3693

              Attention:
                Mark D. Wood, Esq.

              Telephone:
                (312) 902-5200

              Facsimile:
                (312) 902-1061

            
	
               

              Caerus
                Partners LLC

            	
               

              c/oPromethean
                Asset Management L.L.C.

              55
                Fifth Avenue

              17th
                Floor

              New
                York, New York 10003

              Attention:
                James F. O’Brien

              Telephone:
                (212) 702-5200

              Facsimile:
                (212) 758-9334

              Residence:
                Delaware

            	
               

              Katten
                Muchin Rosenman LLP

              525
                W. Monroe Street

              Chicago,
                Illinois 60661-3693

              Attention:
                Mark D. Wood, Esq.

              Telephone:
                (312) 902-5200

              Facsimile:
                (312) 902-1061

            
	
               

              AG
                Offshore Convertibles, Ltd.

            	
               

              c/o
                Angelo, Gordon & Co.

              245
                Park Avenue

              New
                York, New York 10167

              Attention:  Gary
                I. Wolf

              Telephone:
                (212) 692-2058

              Facsimile:  (212)
                867-6449

              Residence:  Cayman
                Islands

            	
               

              Paul,
                Weiss, Rifkind, Wharton & Garrison LLP

              1285
                Avenue of the Americas

              New
                York, New York 10019-6064

              Attention:  Douglas
                A. Cifu, Esq.

              Telephone:
                (212) 373-3000

              Facsimile:   (212)  759-3990

            

    

     

     

    
 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	
               

               Buyer's
                Name

            	
              Buyer
                Address

              and
                Facsimile Number

            	
              Investor's
                Legal Representative's

              Address
                and Facsimile Number 

            
	
               

              Leonardo,
                L.P.

            	
               

              c/o
                Angelo, Gordon & Co.

              245
                Park Avenue

              New
                York, New York 10167

              Attention:  Gary
                I. Wolf

              Telephone:
                (212) 692-2058

              Facsimile:  (212)
                867-6449

              Residence:  Cayman
                Islands

            	
               

              Paul,
                Weiss, Rifkind, Wharton & Garrison LLP

              1285
                Avenue of the Americas

              New
                York, New York 10019-6064

              Attention:  Douglas
                A. Cifu, Esq.

              Telephone:
                (212) 373-3000

              Facsimile:   (212)  759-3990U

    Exhibit
      4.1

    

    AETNA
      INC.

    

    

    Certificate
      of Designated Officers

    

    December
      4, 2007

    

    Joseph
      M.
      Zubretsky, Executive Vice President and Chief Financial Officer, and Alfred
      P.
      Quirk, Jr., Vice President, Finance and Treasurer, each of Aetna Inc., a
      Pennsylvania corporation (the “Company”), pursuant to Sections
      201 and 301 of the Senior Indenture, dated as of March 2, 2001 (the
“Indenture”), between the Company, as issuer, and U.S. Bank
      National Association, successor in interest to State Street Bank and Trust
      Company, as trustee (the “Trustee”), and pursuant to
      resolutions adopted by the Board of Directors of the Company on September 28,
      2007 and the Delegation of Authority of Ronald A. Williams, Chairman and Chief
      Executive Officer of the Company, dated November 26, 2007 (the
“CompanyResolutions”), hereby certify that
      there are hereby approved and established pursuant to the Indenture a series
      of
      securities (the “Securities”) of the Company whose terms shall
      be as set forth in Annex A attached hereto.

     

    Each
      of
      the undersigned officers (i) has read the applicable provisions of the
      Indenture, (ii) has reviewed the forms and terms of the Securities, (iii) in
      the
      opinion of each of the undersigned, has made such examination or investigation
      as is necessary to enable the undersigned to express an informed opinion as
      to
      whether or not the applicable covenants and conditions of the Indenture have
      been complied with, (iv) hereby certifies that the applicable covenants and
      conditions of the Indenture have been complied with and (v) hereby certifies
      that the forms and terms of the Securities comply with the
      Indenture.

     

    Capitalized
      terms used but not defined herein have the meanings ascribed thereto in the
      Indenture.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

     

    IN
      WITNESS
      WHEREOF, we have hereunto signed our names as of the date first written
      above.

    
       

      
        	 	 	 
	
                /s/
Joseph
                  M.
                  Zubretsky

              	 
	Name:	Joseph M. Zubretsky	 
	Title:	
                Executive
                  Vice President and Chief Financial Officer

              	 

      

       

      
        
          
            	 	 	 
	
                    /s/
Alfred
                      P. Quirk,
                      Jr.

                  	 
	Name:	Alfred P. Quirk, Jr.	 
	Title:	
                    Vice
                      President, Finance and Treasurer

                  	 

          

           

        

      

    

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     ANNEX
      A

    

    6.75%
      Senior Notes due December 15, 2037

    

    

    1.    
      The Securities shall be known and designated as the “6.75% Senior Notes due
      December 15, 2037” of the Company (the
“Securities”).

     

    2.    
      The aggregate principal amount of the Securities which may be authenticated
      and
      delivered under the Indenture is initially limited to $700,000,000 (except
      for
      such Securities authenticated and delivered upon registration of transfer of,
      or
      in exchange for, or in lieu of, other Securities pursuant to Sections 304,
      305,
      306, 906 or 1107 of the Indenture and except for any Securities which, pursuant
      to Section 303 of the Indenture, are deemed never to have been authenticated
      and
      delivered thereunder).  Additional Securities may be authenticated and
      delivered from time to time as contemplated in Section 301 of the
      Indenture.

    

    3.    
      The Stated Maturity of the principal of the Securities shall be December 15,
      2037.

    

    4.    
      The Securities shall bear interest at the rate of 6.75% per annum, which will
      accrue from December 4, 2007, or from the most recent Interest Payment Date
      to
      which interest has been paid or duly provided for, as the case may be, payable
      semi-annually on June 15 and December 15 in each year, commencing June 15,
      2008,
      to the Person in whose name such Securities (or one or more predecessor
      Securities) are registered at the close of business on the Regular Record Date
      next preceding the Interest Payment Date.  Each June 15 and December
      15 shall be an “Interest Payment Date” for such Securities, and
      the May 31 or November 30 (whether or not a Business Day), as the case may
      be,
      next preceding an Interest Payment Date shall be the “Regular Record
      Date” for the interest payable on such Interest Payment
      Date.

    

    5.     
      The Securities are unsecured.

    

    6.    
      Payment of the principal of and interest on the Securities will be made at
      the
      office or agency of the Company maintained for that purpose in the Borough
      of
      Manhattan, City of New York; provided, however, that at any time that the
      Securities are not represented by Global Securities, at the option of the
      Company, payment of interest may be made by check mailed to the address of
      the
      Person entitled thereto as such address shall appear in the Security
      Register.

    

    7.     
      The Securities will be redeemable upon not less than 30 calendar days’ nor more
      than 60 calendar days’ notice by mail, at any time, in whole or in part, at the
      election of the Company, at a Redemption Price equal to the greater
      of:

    

    
      	
               

            	
              •

            	
              100%
                of the principal amount of the Securities to be redeemed,
                or

            

    

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

       

    

    
      	
               

            	
              •

            	
              the
                sum of the present values of the remaining scheduled payments of
                principal
                and interest on the Securities to be redeemed from the Redemption
                Date to
                the date of Maturity for the Securities discounted to the Redemption
                Date
                on a semiannual basis (assuming a 360-day year consisting of twelve
                30-day
                months) at the Treasury Rate (as defined below) plus 40 basis
                points,

            

    

    

    plus,
      in
      each case, any interest accrued but not paid to the Redemption
      Date.

    

    “Treasury
      Rate” means,
      with respect to any Redemption Date for any portion of the
      Securities,

    

    
      	
               

            	
              •

            	
              the
                yield, under the heading which represents the average for the immediately
                preceding week, appearing in the most recently published statistical
                release designated “H.15(519)” or any successor publication which is
                published weekly by the Board of Governors of the Federal Reserve
                System
                and which establishes yields on actively traded United States Treasury
                securities adjusted to constant maturity under the caption “Treasury
                Constant Maturities,” for the maturity corresponding to the Comparable
                Treasury Issue (if no maturity is within three months before or after
                the
                date of Maturity for the Securities, yields for the two published
                maturities most closely corresponding to the Comparable Treasury
                Issue
                will be determined and the Treasury Rate shall be interpolated or
                extrapolated from those yields on a straight line basis, rounding
                to the
                nearest month) or

            

    

    

    
      	
               

            	
              •

            	
              if
                the release referred to in the previous bullet (or any successor
                release)
                is not published during the week preceding the calculation date or
                does
                not contain the yields referred to above, the rate per annum equal
                to the
                semi-annual equivalent yield to maturity of the Comparable Treasury
                Issue,
                calculated using a price for the Comparable Treasury Issue (expressed
                as a
                percentage of its principal amount) equal to the Comparable Treasury
                Price
                for that Redemption Date.

            

    

    

    The
      Treasury Rate will be calculated on the third Business Day preceding the
      Redemption Date.

    

    “Comparable
      Treasury
      Issue” means the United States Treasury security selected by an
“Independent Investment Banker” as having a maturity comparable to the remaining
      term of the Securities that would be utilized, at the time of selection and
      in
      accordance with customary financial practice, in pricing new issues of corporate
      debt securities of comparable maturity to the remaining term of the
      Securities.

    

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    “Comparable
      Treasury
      Price” means, with respect to any Redemption Date for any Securities,
      the average of all Reference Treasury Dealer Quotations (as defined below)
      obtained.

    

    “Independent
      Investment
      Banker” means one of the Reference Treasury Dealers appointed by the
      Trustee after consultation with the Company.

    

    “Reference
      Treasury
      Dealer” means each of Goldman, Sachs & Co. and Morgan Stanley &
Co. Incorporated.  If any Reference Treasury Dealer ceases to be a
      primary U.S. government securities dealer in New York City (a
“PrimaryTreasury Dealer”), the Company shall
      substitute another Primary Treasury Dealer for that dealer.

    

    “Reference
      Treasury Dealer
      Quotations” means, with respect to each Reference Treasury Dealer and
      any Redemption Date, the average, as determined by the Trustee, of the bid
      and
      asked prices for the Comparable Treasury Issue (expressed in each case as a
      percentage of its principal amount) quoted in writing to the Trustee by that
      Reference Treasury Dealer at 5:00 p.m. on the third Business Day preceding
      the
      Redemption Date.

    

    Notice
      of any redemption will be mailed
      at least 30 calendar days but no more than 60 calendar days before the
      Redemption Date to each holder of the Securities.

    

    Unless
      the Company defaults in payment
      of the Redemption Price, interest will cease to accrue on the Securities called
      for redemption on and after the Redemption Date.

    

    8.    
      If a Change of Control Triggering Event occurs, unless the Company has exercised
      its right to redeem the Securities in full, the Company will make an offer
      to
      each Holder (the “Change of Control Offer”) to repurchase any
      and all (equal to $2,000 or an integral multiple of $1,000) of such Holder’s
      Securities at a repurchase price in cash equal to 101% of the aggregate
      principal amount of the Securities repurchased plus accrued and unpaid interest,
      if any, thereon, to the date of repurchase (the “Change of Control
      Payment”).Within 30 days following any Change of Control Triggering
      Event, the Company will mail a notice to Holders of Securities describing the
      transaction or transactions that constitute the Change of Control Triggering
      Event and offering to repurchase the Securities on the date specified in the
      notice, which date will be no less than 30 days and no more than 60 days from
      the date such notice is mailed (the “Change of Control Payment
      Date”), pursuant to the procedures required by the Securities and
      described in such notice.

    

    The
      Company will comply with the
      requirements of Rule 14e-1 under the Securities Exchange Act of 1934, as amended
      (the “Exchange Act”), and any other securities laws and
      regulations thereunder to the extent those laws and regulations are applicable
      in connection with the repurchase of the Securities as a result of a Change
      of
      Control Triggering Event. To the extent that the provisions of any securities
      laws or regulations conflict with the Change of Control repurchase provisions
      of
      the Securities, the Company will comply with the applicable securities laws
      and
      regulations and will not 

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    be
      deemed
      to have breached its obligations under the Change of Control repurchase
      provisions of the Securities by virtue of such conflicts.

    

    The
      Company will not be required to
      offer to repurchase the Securities upon the occurrence of a Change of Control
      Triggering Event if a third party makes such an offer in the manner, at the
      times and otherwise in compliance with the requirements for an offer made by
      the
      Company and the third party repurchases on the applicable date all Securities
      properly tendered and not withdrawn under its offer; provided that for
      all purposes of the Securities and the Indenture, a failure by such third party
      to comply with the requirements of such offer and to complete such offer shall
      be treated as a failure by the Company to comply with its obligations to offer
      to purchase the Securities unless the Company promptly makes an offer to
      repurchase the Securities at 101% of the principal amount thereof plus accrued
      and unpaid interest, if any, thereon, to the date of repurchase, which shall
      be
      no later than 30 days after the third party’s scheduled Change of Control
      Payment Date.

    

    On
      the Change of Control Payment Date,
      the Company will, to the extent lawful:

    

    
      	
              · 
                  

            	
              accept
                or cause a third party to accept for payment all Securities or portions
                of
                Securities properly tendered pursuant to the Change of Control
                Offer;

            

    

    

    
      	
              · 
                  

            	
              deposit
                or cause a third party to deposit with the paying agent an amount
                equal to
                the Change of Control Payment in respect of all Securities or portions
                of
                Securities properly tendered; and

            

    

    

    
      	
              · 
                  

            	
              deliver
                or cause to be delivered to the Trustee the Securities properly accepted,
                together with an officer’s certificate stating the principal amount of
                Securities or portions of Securities being
                purchased.

            

    

    

    “Below
      Investment Grade Rating
      Event” means the Securities are rated below an Investment Grade Rating
      by each of the Rating Agencies on any date from the earlier of (1) the
      occurrence of a Change of Control and (2) public notice of the Company’s
      intention to effect a Change of Control, in each case until the end of the
      60-day period following public notice of the occurrence of the Change of
      Control; provided, however, that if (i) during such 60-day period one
      or more Rating Agencies has publicly announced that it is considering the
      possible downgrade of the Securities, and (ii) a downgrade by each of the Rating
      Agencies that has made such an announcement would result in a Below Investment
      Grade Rating Event, then such 60-day period shall be extended for such time
      as
      the rating of the Securities by any such Rating Agency remains under publicly
      announced consideration for possible downgrade to a rating below an Investment
      Grade Rating and a downgrade by such Rating Agency to a rating below an
      Investment Grade Rating could cause a Below Investment Grade Rating Event.
      Notwithstanding the foregoing, a rating event otherwise arising by virtue of
      a
      particular reduction in rating will not be deemed to have occurred in respect
      of
      a particular Change 

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    of
      Control
      (and thus will not be deemed a rating event for purposes of the definition
      of
      Change of Control Triggering Event) if the rating agencies making the reduction
      in rating to which this definition would otherwise apply do not announce or
      publicly confirm or inform the Trustee in writing at the Company’s or the
      Trustee’s request that the reduction was the result, in whole or in part, of any
      event or circumstance comprised of or arising as a result of, or in respect
      of,
      the applicable Change of Control (whether or not the applicable Change of
      Control has occurred at the time of the rating event).

    

    “Change
      of Control”
means the occurrence of any of the following: (1) direct or indirect
      sale,
      transfer, conveyance or other disposition (other than by way of merger or
      consolidation), in one or a series of related transactions, of all or
      substantially all of the properties or assets of the Company and its
      subsidiaries taken as a whole to any “person” (as that term is used in Section
      13(d)(3) of the Exchange Act) other than to the Company or one of its
      subsidiaries; (2) the consummation of any transaction (including, without
      limitation, any merger or consolidation) the result of which is that any
“person” (as that term is used in Section 13(d)(3) of the Exchange Act) other
      than the Company or one of its subsidiaries becomes the beneficial owner,
      directly or indirectly, of more than 50% of the then outstanding number of
      shares of the Company’s voting stock; or (3) the first day on which a majority
      of the members of the Company’s Board of Directors are not Continuing Directors;
provided, however, that a transaction will not be deemed to involve a
      Change of Control if (A) the Company becomes a wholly owned subsidiary of a
      holding company and (B)(x) the holders of the voting stock of such holding
      company immediately following that transaction are substantially the same as
      the
      holders of the Company’s voting stock immediately prior to that transaction or
      (y) immediately following that transaction no Person is the beneficial owner,
      directly or indirectly, of more than 50% of the voting stock of such holding
      company. For purposes of this definition, “voting stock” means
      capital stock of any class or kind the holders of which are ordinarily, in
      the
      absence of contingencies, entitled to vote for the election of directors (or
      persons performing similar functions) of the Company, even if the right to
      vote
      has been suspended by the happening of such a contingency.

    

    “Change
      of Control Triggering
      Event” means the occurrence of both a Change of Control and a Below
      Investment Grade Rating Event.

    

    “Continuing
      Directors”
means, as of any date of determination, any member of the Board of
      Directors of
      the Company who (1) was a member of the Board of Directors of the Company on
      the
      date of the issuance of the Securities; or (2) was nominated for election or
      elected to the Board of Directors of the Company with the approval of a majority
      of the Continuing Directors who were members of such Board of Directors of
      the
      Company at the time of such nomination or election (either by specific vote
      or
      by approval of the Company’s proxy statement in which such member was named as a
      nominee for election as a director).

    

    “Fitch”
means
      Fitch
      Ratings Inc.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    

    “Investment
      Grade
      Rating” means a rating by Moody’s equal to or higher than Baa3 (or the
      equivalent under a successor rating category of Moody’s), a rating by S&P
      equal to or higher than BBB- (or the equivalent under any successor rating
      category of S&P), a rating by Fitch equal to or higher than BBB- (or the
      equivalent under any successor rating category of Fitch), and the equivalent
      investment grade credit rating from any replacement rating agency or rating
      agencies selected by the Company under the circumstances permitting the Company
      to select a replacement agency and in the manner for selecting a replacement
      agency, in each case as set forth in the definition of “Rating
      Agencies”.

    

    “Moody’s”
means
      Moody’s Investors Service, Inc.

    

    “Rating
      Agencies”
means (1) Moody’s, S&P and Fitch; and (2) if any or all of Moody’s, S&P
      or Fitch ceases to rate the Securities or fails to make a rating of the
      Securities publicly available for reasons outside of the Company’s control, a
“nationally recognized statistical rating organization” within the meaning of
      Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act, that the Company selects
      (pursuant to a resolution of the Company’s Board of Directors) as a replacement
      agency for any of Moody’s, S&P or Fitch, or all of them, as the case may
      be.

    

    “S&P”
means
      Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies,
      Inc.

    

    9.    
      The Company shall not be obligated to redeem or purchase the Securities pursuant
      to any sinking fund or analogous provision, or at the option of any Holder
      thereof, except as provided above.

    

    10.     
      The Securities shall be issuable only in registered form without coupons in
      denominations of $2,000 and any multiple of $1,000 in excess
      thereof.

    

    11.    
      The Securities shall be issued in the form of one or more Global Securities
      registered in the name of The Depository Trust Company (“DTC”)
      or its nominee, to be deposited with, or on behalf of, The Depository Trust
      Company, New York, New York.

    

    12.    
      U.S. Bank National Association shall act as paying agent and registrar with
      respect to the Securities.

    

    13.   
       The Securities shall be in such form or forms as may be approved by the
      officers of the Company as provided in the Company Resolutions, such approval
      to
      be evidenced by any such officer’s manual or facsimile signature on the
      Securities, provided that such form or forms of the Securities are not
      inconsistent with the requirements of the Indenture or the Company Resolutions
      and are substantially in the form or forms attached hereto as Exhibit
      A-1.

    

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    

    Exhibit
      A-1

    Form
      of Security

    

    THIS
      SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER
      REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE
      THEREOF.  THIS SECURITY MAY NOT BE TRANSFERRED TO, OR REGISTERED OR
      EXCHANGED FOR SECURITIES REGISTERED IN THE NAME OF, ANY PERSON OTHER THAN THE
      DEPOSITARY OR A NOMINEE THEREOF, AND NO SUCH TRANSFER MAY BE REGISTERED EXCEPT
      IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.  EVERY
      SECURITY AUTHENTICATED AND DELIVERED UPON REGISTRATION OF TRANSFER OF, OR IN
      EXCHANGE FOR OR IN LIEU OF, THIS SECURITY SHALL BE A GLOBAL SECURITY SUBJECT
      TO
      THE FOREGOING, EXCEPT IN SUCH LIMITED CIRCUMSTANCES.

    

    Unless
      this certificate is presented by an authorized representative of The Depository
      Trust Company, a New York corporation ("DTC"), to Aetna Inc. or
      its agent for registration of transfer, exchange or payment, and any certificate
      issued is registered in the name of Cede & Co. or in such other name as is
      requested by an authorized representative of DTC (and any payment is made to
      Cede & Co. or to such other entity as is requested by an authorized
      representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE
      OR
      OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
      hereof, Cede & Co., has an interest herein.

    

    

    AETNA
      INC.

    

    6.75%
      SENIOR NOTE DUE 2037

    

    CUSIP:
      00817Y AG3

    ISIN:
      US00817YAG35

     
      
        	 No.
                2037-1	
                 $500,000,000

              

      

    

    

    

    AETNA
      INC., a Pennsylvania corporation
      (herein called the “Company”), which term includes any
      successor Person under the Indenture hereinafter referred to, for value
      received, hereby promises to pay to Cede & Co., or registered assigns, the
      principal sum of FIVE HUNDRED MILLION Dollars ($500,000,000) upon presentation
      and surrender of this Security on December 15, 2037, and to pay interest thereon
      from December 4, 2007 or from the most recent Interest Payment Date to which
      interest has been paid or duly provided for, semi-annually on June 15 and
      December 15 in each year, commencing 

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    June
      15,
      2008, at the rate of 6.75% per annum until the principal hereof is paid or
      made
      available for payment.  The interest so payable, and punctually paid
      or duly provided for, on any Interest Payment Date will, as provided in such
      Indenture, be paid to the Person in whose name this Security (or one or more
      Predecessor Securities) is registered at the close of business on the Regular
      Record Date for such interest, which shall be the May 31 or November 30 (whether
      or not a Business Day), as the case may be, next preceding such Interest Payment
      Date.  Any such interest not so punctually paid or duly provided for
      will forthwith cease to be payable to the Holder on such Regular Record Date
      and
      may either be paid to the Person in whose name this Security (or one or more
      Predecessor Securities) is registered at the close of business on a Special
      Record Date for the payment of such Defaulted Interest to be fixed by the
      Trustee, notice whereof shall be given to Holders of Securities of this series
      not less than 10 calendar days prior to such Special Record Date, or be
      paid at any time in any other lawful manner not inconsistent with the
      requirements of any securities exchange on which the Securities of this series
      may be listed, and upon such notice as may be required by such exchange, all
      as
      more fully provided in said Indenture.

    

    Payment
      of the principal of and
      premium, if any, and interest on this Security will be made at the office or
      agency of the Company maintained for that purpose in the Borough of Manhattan,
      City of New York, in such coin or currency of the United States of America
      as at
      the time of payment is legal tender for payment of public and private
      debts.

    

    Reference
      is hereby made to the further
      provisions of this Security set forth on the reverse hereof, which further
      provisions shall for all purposes have the same effect as if set forth at this
      place.  Such provisions include, without limitation, provisions
      relating to redemption of this Security by the Company.

    

    Unless
      the certificate of
      authentication hereon has been executed by the Trustee referred to on the
      reverse hereof by manual signature, this Security shall not be entitled to
      any
      benefit under the Indenture or be valid or obligatory for any
      purpose.

    

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the Company has
      caused this instrument to be duly executed under its corporate
      seal.

    

    Dated:
      December 4, 2007 
       

       

      
        	AETNA INC.	 
	 	 	 	 
	By:	 	 
	 	Name:	Alfred P. Quirk, Jr.	 
	 	Title:	
                Vice
                  President, Finance and Treasurer

              	 

      

    

    

    

    

    [SEAL]

    

    

    Attest:

    

    

    __________________

    Melinda
      Westbrook

     

    

    TRUSTEE'S
      CERTIFICATE OF AUTHENTICATION

    

    

    This
      is
      one of the Securities of the series designated under, and referred to in, the
      within-mentioned Indenture.

     

     

    
      	U.S. BANK NATIONAL ASSOCIATION,
              as
              Trustee	 
	 	 	 	 
	By:	 	 
	 	 	Authorized Officer	 

    

    

    

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    

    (Back
      of
      Note)

    

    

    This
      Security is one of a duly
      authorized issue of securities of the Company (herein called the
“Securities”), issued and to be issued in one or more series
      under a Senior Indenture, dated as of March 2, 2001 (herein called the
“Indenture”), between the Company, as issuer, and U.S. Bank
      National Association (as successor in interest to State Street Bank and Trust
      Company), as Trustee (herein called the “Trustee”, which term
      includes any successor trustee under the Indenture), to which Indenture and
      all
      indentures supplemental thereto reference is hereby made for a statement of
      the
      respective rights, limitations of rights, duties and immunities thereunder
      of
      the Company, the Trustee and the Holders of the Securities and of the terms
      upon
      which the Securities are, and are to be, authenticated and
      delivered.  This Security is one of the series designated on the face
      hereof, initially limited in aggregate principal amount to $700,000,000, subject
      to future issuances of additional Securities pursuant to Section 301 of the
      Indenture.

    

    The
      Securities of this series are
      subject to redemption upon not less than 30 calendar days’ nor more than 60
      calendar days’ notice by mail, at any time, in whole or in part, at the
      election of the Company, at a Redemption Price equal to the greater
      of:

    

    •   
      100%
      of the principal amount of the Securities to be redeemed, or

    

    •  
       the
      sum of
      the present values of the remaining scheduled payments of principal and interest
      on the Securities to be redeemed from the Redemption Date to the date of
      Maturity for such Securities discounted to the Redemption Date on a semiannual
      basis (assuming a 360-day year consisting of twelve 30-day months) at the
      Treasury Rate (as defined below) plus 40 basis points,

    

    plus,
      in each case, any interest
      accrued but not paid to the Redemption Date.

    

    “Treasury
      Rate” means,
      with respect to any Redemption Date for any portion of the
      Securities,

    

    •    
      the
      yield, under the heading which represents the average for the immediately
      preceding week, appearing in the most recently published statistical release
      designated “H.15(519)” or any successor publication which is published weekly by
      the Board of Governors of the Federal Reserve System and which establishes
      yields on actively traded United States Treasury securities adjusted to constant
      maturity under the caption “Treasury Constant Maturities,” for the maturity
      corresponding to the 

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    Comparable
      Treasury Issue (if no maturity is within three months before or after the date
      of Maturity for the Securities to be redeemed, yields for the two published
      maturities most closely corresponding to the Comparable Treasury Issue will
      be
      determined and the Treasury Rate shall be interpolated or extrapolated from
      those yields on a straight line basis, rounding to the nearest month)
      or

    

    •   
       if
      the
      release referred to in the previous bullet (or any successor release) is not
      published during the week preceding the calculation date or does not contain
      the
      yields referred to above, the rate per annum equal to the semi-annual equivalent
      yield to maturity of the Comparable Treasury Issue, calculated using a price
      for
      the Comparable Treasury Issue (expressed as a percentage of its principal
      amount) equal to the Comparable Treasury Price for that Redemption
      Date.

    

    The
      Treasury Rate will be calculated on the third Business Day preceding the
      Redemption Date.

    

    “Comparable
      Treasury
      Issue” means the United States Treasury security selected by an
“Independent Investment Banker” as having a maturity comparable to the remaining
      term of the Securities to be redeemed that would be utilized, at the time of
      selection and in accordance with customary financial practice, in pricing new
      issues of corporate debt securities of comparable maturity to the remaining
      term
      of the Securities to be redeemed.

    

    “Comparable
      Treasury
      Price” means, with respect to any Redemption Date for any Securities,
      the average of all Reference Treasury Dealer Quotations (as defined below)
      obtained.

    

    “Independent
      Investment
      Banker” means one of the Reference Treasury Dealers appointed by the
      Trustee after consultation with the Company.

    

    “Reference
      Treasury
      Dealer” means each of Goldman, Sachs & Co. and Morgan Stanley &
Co. Incorporated.  If any Reference Treasury Dealer ceases to be a
      primary U.S. government securities dealer in New York City (a
“PrimaryTreasury Dealer”), the Company shall
      substitute another Primary Treasury Dealer for that dealer.

    

    “Reference
      Treasury Dealer
      Quotations” means, with respect to each Reference Treasury Dealer and
      any Redemption Date, the average, as determined by the Trustee, of the bid
      and
      asked prices for the Comparable Treasury Issue (expressed in each case as a
      percentage of its principal amount) quoted in writing to the Trustee by that
      Reference Treasury Dealer at 5:00 p.m. on the third Business Day preceding
      the
      Redemption Date.

    

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

       

    

    Notice
      of any redemption will be mailed
      at least 30 calendar days but no more than 60 calendar days before the
      Redemption Date to each Holder of the Securities of this series.

    

    Unless
      the Company defaults in payment
      of the Redemption Price, interest will cease to accrue on the Securities of
      this series called for redemption on and after the Redemption
      Date.

    

    If
      this Security is redeemed in part
      only, a new Security or Securities of this series and of like tenor for the
      unredeemed portion hereof will be issued in the name of the Holder hereof upon
      the cancellation hereof.

    

    If
      a Change of Control Triggering Event
      occurs, unless the Company has exercised its right to redeem the Securities
      in
      full, the Company will make an offer to each Holder (the “Change of
      Control Offer”) to repurchase any and all (equal to $2,000 or an
      integral multiple of $1,000) of such Holder’s Securities at a repurchase price
      in cash equal to 101% of the aggregate principal amount of the Securities
      repurchased plus accrued and unpaid interest, if any, thereon, to the date
      of
      repurchase (the “Change of Control Payment”).Within 30 days
      following any Change of Control Triggering Event, the Company will mail a notice
      to Holders of Securities describing the transaction or transactions that
      constitute the Change of Control Triggering Event and offering to repurchase
      the
      Securities on the date specified in the notice, which date will be no less
      than
      30 days and no more than 60 days from the date such notice is mailed (the
“Change of Control Payment Date”), pursuant to the procedures
      required hereby and described in such notice.

    

    The
      Company will comply with the
      requirements of Rule 14e-1 under the Securities Exchange Act of 1934, as amended
      (the “Exchange Act”), and any other securities laws and
      regulations thereunder to the extent those laws and regulations are applicable
      in connection with the repurchase of the Securities as a result of a Change
      of
      Control Triggering Event. To the extent that the provisions of any securities
      laws or regulations conflict with the Change of Control repurchase provisions
      of
      the Securities, the Company will comply with the applicable securities laws
      and
      regulations and will not be deemed to have breached its obligations under the
      Change of Control repurchase provisions of the Securities by virtue of such
      conflicts.

    

    The
      Company will not be required to
      offer to repurchase the Securities upon the occurrence of a Change of Control
      Triggering Event if a third party makes such an offer in the manner, at the
      times and otherwise in compliance with the requirements for an offer made by
      the
      Company and the third party repurchases on the applicable date all Securities
      properly tendered and not withdrawn under its offer; provided that for
      all purposes of the Securities and the Indenture, a failure by such third party
      to comply with the requirements of such offer and to complete such offer shall
      be treated as a failure by the Company to comply with its obligations to offer
      to purchase the Securities unless the Company promptly makes an offer to
      repurchase the Securities at 101% of the principal 

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    amount
      thereof plus accrued and unpaid interest, if any, thereon, to the date of
      repurchase, which shall be no later than 30 days after the third party’s
      scheduled Change of Control Payment Date.

    

    On
      the Change of Control Payment Date,
      the Company will, to the extent lawful:

    

    
      	
              ·

            	
              accept
                or cause a third party to accept for payment all Securities or portions
                of
                Securities properly tendered pursuant to the Change of Control
                Offer;

            

    

    

    
      	
              ·

            	
              deposit
                or cause a third party to deposit with the paying agent an amount
                equal to
                the Change of Control Payment in respect of all Securities or portions
                of
                Securities properly tendered; and

            

    

    

    
      	
              ·

            	
              deliver
                or cause to be delivered to the Trustee the Securities properly accepted,
                together with an officer’s certificate stating the principal amount of
                Securities or portions of Securities being
                purchased.

            

    

    

    “Below
      Investment Grade Rating
      Event” means the Securities are rated below an Investment Grade Rating
      by each of the Rating Agencies on any date from the earlier of (1) the
      occurrence of a Change of Control and (2) public notice of the Company’s
      intention to effect a Change of Control, in each case until the end of the
      60-day period following public notice of the occurrence of the Change of
      Control; provided, however, that if (i) during such 60-day period one
      or more Rating Agencies has publicly announced that it is considering the
      possible downgrade of the Securities, and (ii) a downgrade by each of the Rating
      Agencies that has made such an announcement would result in a Below Investment
      Grade Rating Event, then such 60-day period shall be extended for such time
      as
      the rating of the Securities by any such Rating Agency remains under publicly
      announced consideration for possible downgrade to a rating below an Investment
      Grade Rating and a downgrade by such Rating Agency to a rating below an
      Investment Grade Rating could cause a Below Investment Grade Rating Event.
      Notwithstanding the foregoing, a rating event otherwise arising by virtue of
      a
      particular reduction in rating will not be deemed to have occurred in respect
      of
      a particular Change of Control (and thus will not be deemed a rating event
      for
      purposes of the definition of Change of Control Triggering Event) if the rating
      agencies making the reduction in rating to which this definition would otherwise
      apply do not announce or publicly confirm or inform the Trustee in writing
      at
      the Company’s or the Trustee’s request that the reduction was the result, in
      whole or in part, of any event or circumstance comprised of or arising as a
      result of, or in respect of, the applicable Change of Control (whether or not
      the applicable Change of Control has occurred at the time of the rating
      event).

    

    “Change
      of Control”
means the occurrence of any of the following: (1) direct or indirect
      sale,
      transfer, conveyance or other disposition (other than by way of merger or
      consolidation), in one or a series of related transactions, of all or
      substantially all of the properties or assets of the Company and its
      subsidiaries taken as a whole to any “person” 

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    (as
      that
      term is used in Section 13(d)(3) of the Exchange Act) other than to the Company
      or one of its subsidiaries; (2) the consummation of any transaction (including,
      without limitation, any merger or consolidation) the result of which is that
      any
“person” (as that term is used in Section 13(d)(3) of the Exchange Act) other
      than the Company or one of its subsidiaries becomes the beneficial owner,
      directly or indirectly, of more than 50% of the then outstanding number of
      shares of the Company’s voting stock; or (3) the first day on which a majority
      of the members of the Company’s Board of Directors are not Continuing Directors;
provided, however, that a transaction will not be deemed to involve a
      Change of Control if (A) the Company becomes a wholly owned subsidiary of a
      holding company and (B)(x) the holders of the voting stock of such holding
      company immediately following that transaction are substantially the same as
      the
      holders of the Company’s voting stock immediately prior to that transaction or
      (y) immediately following that transaction no Person is the beneficial owner,
      directly or indirectly, of more than 50% of the voting stock of such holding
      company. For purposes of this definition, “voting stock” means
      capital stock of any class or kind the holders of which are ordinarily, in
      the
      absence of contingencies, entitled to vote for the election of directors (or
      persons performing similar functions) of the Company, even if the right to
      vote
      has been suspended by the happening of such a contingency.

    

    “Change
      of Control Triggering
      Event” means the occurrence of both a Change of Control and a Below
      Investment Grade Rating Event.

    

    “Continuing
      Directors”
means, as of any date of determination, any member of the Board of
      Directors of
      the Company who (1) was a member of the Board of Directors of the Company on
      the
      date of the issuance of the Securities; or (2) was nominated for election or
      elected to the Board of Directors of the Company with the approval of a majority
      of the Continuing Directors who were members of such Board of Directors of
      the
      Company at the time of such nomination or election (either by specific vote
      or
      by approval of the Company’s proxy statement in which such member was named as a
      nominee for election as a director).

    

    “Fitch”
means
      Fitch
      Ratings Inc.

    

    “Investment
      Grade
      Rating” means a rating by Moody’s equal to or higher than Baa3 (or the
      equivalent under a successor rating category of Moody’s), a rating by S&P
      equal to or higher than BBB- (or the equivalent under any successor rating
      category of S&P), a rating by Fitch equal to or higher than BBB- (or the
      equivalent under any successor rating category of Fitch), and the equivalent
      investment grade credit rating from any replacement rating agency or rating
      agencies selected by the Company under the circumstances permitting the Company
      to select a replacement agency and in the manner for selecting a replacement
      agency, in each case as set forth in the definition of “Rating
      Agencies”.

    

    “Moody’s”
means
      Moody’s Investors Service, Inc.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    

    “Rating
      Agencies”
means (1) Moody’s, S&P and Fitch; and (2) if any or all of Moody’s, S&P
      or Fitch ceases to rate the Securities or fails to make a rating of the
      Securities publicly available for reasons outside of the Company’s control, a
“nationally recognized statistical rating organization” within the meaning of
      Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act, that the Company selects
      (pursuant to a resolution of the Company’s Board of Directors) as a replacement
      agency for any of Moody’s, S&P or Fitch, or all of them, as the case may
      be.

    

    “S&P”
means
      Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies,
      Inc.

    

    If
      an Event of Default with respect to
      Securities of this series shall occur and be continuing, the principal of the
      Securities of this series may be declared due and payable in the manner and
      with
      the effect provided in the Indenture.

    

    The
      Indenture permits, with certain
      exceptions as therein provided, the amendment thereof and the modification
      of
      the rights and obligations of the Company and the rights of the Holders of
      the
      Securities of each series to be affected under the Indenture at any time by
      the
      Company and the Trustee with the consent of the Holders of a majority in
      principal amount of the Securities at the time Outstanding of each series to
      be
      affected.  The Indenture also contains provisions permitting the
      Holders of specified percentages in principal amount of the Securities of each
      series at the time Outstanding, on behalf of the Holders of all Securities
      of
      such series, to waive compliance by the Company with certain provisions of
      the
      Indenture and certain past defaults under the Indenture and their
      consequences.  Any such consent or waiver by the Holder of this
      Security shall be conclusive and binding upon such Holder and upon all future
      Holders of this Security and of any Security issued upon the registration of
      transfer hereof or in exchange hereof or in lieu hereof, whether or not notation
      of such consent or waiver is made upon this Security.

    

    No
      reference herein to the Indenture
      and no provision of this Security or of the Indenture shall alter or impair
      the
      obligation of the Company, which is absolute and unconditional, to pay the
      principal of and any premium and interest on this Security at the times, place
      and rate, and in the coin or currency, herein prescribed.

    

    As
      provided in the Indenture and
      subject to certain limitations therein set forth, the transfer of this Security
      is registrable in the Security Register upon surrender of this Security for
      registration of transfer at the office or agency of the Company in any place
      where the principal of and any premium and interest on this Security are
      payable, duly endorsed by, or accompanied by a written instrument of transfer
      in
      form satisfactory to the Company and the Security Registrar duly executed by,
      the Holder hereof or such Holder’s attorney duly authorized in writing, and
      thereupon one or more new Securities of this series and of like tenor, of
      authorized denominations and for the same aggregate principal amount, will
      be
      issued to the designated transferee or transferees.

    

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

       

    

    The
      Securities of this series are
      issuable only in registered form without coupons in denominations of $2,000
      and
      any multiple of $1,000 in excess thereof.  As provided in the
      Indenture and subject to certain limitations therein set forth, Securities
      of
      this series are exchangeable for a like aggregate principal amount of Securities
      of this series and of like tenor of a different authorized denomination, as
      requested by the Holder surrendering the same.

    

    No
      service charge shall be made for any
      such registration of transfer or exchange of Securities, but the Company or
      the
      Trustee may require payment of a sum sufficient to cover any tax or other
      governmental charge that may be imposed in connection with any registration
      of
      transfer or exchange of Securities, other than exchanges pursuant to Section
      304, 906 or 1107 of the Indenture not involving any transfer.

    

    Prior
      to due and proper presentment of
      this Security for registration of transfer, the Company, the Trustee and any
      agent of the Company or the Trustee may treat the Person in whose name this
      Security is registered as the owner hereof for all purposes, whether or not
      this
      Security is overdue, and neither the Company, the Trustee nor any such agent
      shall be affected by notice to the contrary.

    

    The
      Indenture provides that the
      Company, at the Company’s option, (a) will be discharged from any and all
      obligations in respect of the Securities (except for certain obligations to
      register the transfer or exchange of Securities, replace stolen, lost or
      mutilated Securities, maintain paying agencies and hold moneys for payment
      in
      trust) or (b) need not comply with certain restrictive covenants of the
      Indenture, in each case if the Company deposits, in trust, with the Trustee
      money or U.S. Government Obligations which through the payment of interest
      thereon and principal thereof in accordance with their terms will provide money,
      in an amount sufficient to pay all the principal of and premium, if any, and
      interest on, the Securities on the dates such payments are due in accordance
      with the terms of such Securities, and certain other conditions are
      satisfied.

    

    No
      recourse shall be had for the
      payment of the principal of and premium, if any, or interest on this Security,
      or for any claim based hereon, or otherwise in respect hereof, or based on
      or in
      respect of the Indenture or any indenture supplemental thereto, against any
      incorporator, stockholder, officer, employee, agent or director, as such, past,
      present or future, of the Company or of any successor corporation, whether
      by
      virtue of any constitution, statute or rule of law, or by the enforcement of
      any
      assessment or penalty or otherwise, all such liability being, by the acceptance
      hereof and as part of the consideration for the issue hereof, expressly waived
      and released.

    

    All
      terms used in this Security which
      are defined in the Indenture shall have the meanings assigned to them in the
      Indenture.

     

    18

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